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The art of law - the transition from the old Companies Act to the new Act has some startling aspects

An anomaly in the transition from the old Companies Act of 1973 to the new Companies Act of 2008

One of the complexities associated with the repeal of the Companies Act of 1973 and the simultaneous coming into force of the new Companies Act 2008 is the manner in which the transition between those two statutory regimes is achieved.

On an entirely arbitrary date, namely 1 May 2011, the old Companies Act ceased to be law (subject to certain transitional arrangements) and the new Companies Act came into force.

The new Act creates potential liabilities that did not exist under the old Act

In important respects, the new Companies Act of 2008 creates potential legal liabilities that did not exist under the old Companies Act. For example, the new Act contains, in section 218(2) a provision which states that -

'Any person who contravenes any provision of this Act [that is to say, the Companies Act 2008] is liable to any other person for any loss or damage suffered by that person as a result of that contravention.'

The old Companies Act of 1973 contained no such provision. Under that Act, for example, a director who breached his fiduciary duty to act for the benefit of the company was liable only to the company for any damages that it suffered as a result of his breach of duty, but incurred no liability to anyone else for that misconduct.

However, in terms of section 218(2) of the new Companies Act 2008, a director who breaches any of his statutory duties will now be liable to any other person (for example, a member of the general public) for any loss suffered by that person as a result of that contravention of the new Act.

This extension of a director's liability has a further significant aspect.

Assume, for example, that whilst the old Companies Act 1973 was still in force, a director breached one of the statutory duties that were later imposed on him by the new Companies Act? Can that director be held liable for damages in terms of s 218(2) of the new Companies Act by a member of the public who has suffered damages as a result of the breach of duty, even though the statutory provision that extended potential liability to any person was not in force at the time the breach of duty occurred?

The transitional arrangements contained in schedule 5 of the new Companies Act 2008

The answer to this question is to be found in the transitional arrangements set out in schedule 5 of the new Companies Act 2008.

Item 7(7) of schedule 5, as one of the transitional arrangements, states that a person who is entitled to a remedy under the Companies Act 2008 can enforce that remedy in relation to conduct that occurred before that Act came into force, unless litigation in respect of that conduct had been commenced before the new Act came into force.

This anomaly was recognized in principle, in Sanlam Capital Markets (Pty) Ltd v Mettle Manco (Pty) Ltd [2014] ZAGPJHC 134; [2014] 3 All SA 454 (GJ) (at para 42) in which judgment was handed down by the Johannesburg High Court on 11 June 2014.

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