By Jaco Fraser
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Lessons from the Dimension Data Judgment
The Johannesburg High Court’s recent judgment involving former Dimension Data executives, reinforces the importance of directors fulfilling their fiduciary duties with transparency and integrity. In this case, senior executives orchestrated an undisclosed and dishonest Broad-Based Black Economic Empowerment scheme involving the sale of a business park in Bryanston, in clear violation of Section 75 of the Companies Act No. 71 of 2008 (the “Act”).
Section 75 requires directors to disclose any personal financial interest in matters concerning the company, ensuring that decisions are made in the company's best interests rather than personal gain. Judge Denise Fisher found that the executives failed to meet this standard, describing the scheme as ‘brazen and dishonest’ and declaring all the transactions void. The High Court ordered restitution of the property to Dimension Data Facilities and punitive legal costs against the executives and their associated entities.
This case also highlights the critical implications of the amendments to Section 77(7)(c) of the Act, which sets out directors' personal liability for breaches of duty. Previously, legal proceedings to recover damages caused by a director had to commence within three years of the act or omission. However, the recent amendments shall allow courts to extend this period beyond three years if good cause is shown.
This ensures that directors can be held accountable for misconduct beyond the initial three years, particularly in cases where the wrongdoing emerges only after complex schemes are exposed. For example, in this case, the use of a sophisticated partnership structure delayed the discovery of the executives' financial interests, illustrating the necessity of an extended liability framework.
The Dimension Data judgment serves as a reminder for companies to be cognisant about the risks of inadequate governance frameworks. To mitigate these risks, businesses must ensure that their Memorandum of Incorporation (“MOI”) and Shareholders' Agreement (“SHA”) clearly define the duties and obligations of directors and are aligned with the provisions of the Companies Act. These documents should comprehensively address directors’ disclosure requirements, directors’ authority, and accountability measures. By ensuring that MOIs and SHAs clearly articulate the aforesaid, companies can foster integrity and accountability, protecting their interests while upholding the principles of ethical corporate governance.