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Companies Act, 2008 (Act No. 71 of 2008)

Chapter 2 : Formation, Administration and Dissolution of Companies

Part F : Governance of companies

78. Indemnification and directors’ insurance

 

 

1) In this section, ‘‘director’’ includes a former director and an alternate director, and—
a) a prescribed officer; or
b) a person who is a member of a committee of a board of a company, or of the audit committee of a company,

irrespective of whether or not the person is also a member of the company’s board.

 

2) Subject to subsections (4) to (6), any provision of an agreement, the Memorandum of Incorporation or rules of a company, or a resolution adopted by a company, whether express or implied, is void to the extent that it directly or indirectly purports to—
a) relieve a director of—
i) a duty contemplated in section 75 or 76; or
ii) liability contemplated in section 77; or
b) negate, limit or restrict any legal consequences arising from an act or omission that constitutes willful misconduct or willful breach of trust on the part of the director.

 

3) Subject to subsection (3A), a company may not directly or indirectly pay any fine that may be imposed on a director of the company, or on a director of a related company, as a consequence of that director having been convicted of an offence, unless the conviction was based on strict liability.

 

3A) Subsection (3) does not apply to a private or personal liability company if-
a) a single individual is the sole shareholder and sole director of that company; or
b) two or more related individuals are the only shareholders of that company, and there are no directors of the company other than one or more of those individuals

 

4) Except to the extent that a company’s Memorandum of Incorporation provides otherwise, the company—
a) may advance expenses to a director to defend litigation in any proceedings arising out of the director’s service to the company; and
b) may directly or indirectly indemnify a director for expenses contemplated in paragraph (a), irrespective of whether it has advanced those expenses, if the proceedings—
i) are abandoned or exculpate the director; or
ii) arise in respect of any liability for which the company may indemnify the director, in terms of subsections (5) and (6).

 

5) Except to the extent that the Memorandum of Incorporation of a company provides otherwise, a company may indemnify a director in respect of any liability arising other than as contemplated in subsection (6).

 

6) A company may not indemnify a director in respect of—
a) any liability arising—
i) in terms of section 77(3)(a), (b) or (c); or
ii) from wilful misconduct or wilful breach of trust on the part of the director; or
b) any fine contemplated in subsection (3).

 

7) Except to the extent that the Memorandum of Incorporation of a company provides otherwise, a company may purchase insurance to protect—
a) a director against any liability or expenses for which the company is permitted to indemnify a director in accordance with subsection (5); or
b) the company against any contingency including, but not limited to—
i) any expenses—
aa) that the company is permitted to advance in accordance with subsection (4)(a); or
bb) for which the company is permitted to indemnify a director in accordance with subsection (4)(b); or
ii) any liability for which the company is permitted to indemnify a director in accordance with subsection (5).

 

8) A company is entitled to claim restitution from a director of the company or of a related company for any money paid directly or indirectly by the company to or on behalf of that director in any manner inconsistent with this section.