Directors often assume that once they step down from the board, their exposure for past decisions falls away with their office. South African company law draws a clear distinction between a director’s authority to act and their accountability for conduct while in office. Resignation ends the former, but it does not extinguish the latter.

Understanding when and why liability may continue after a director has resigned from office requires a brief look at the sources of directors’ liability, the persons to whom that liability is owed, and the distinctive time-bar regime created by the Companies Act 71 of 2008, as amended (hereinafter the “Companies Act”).

Liability Provisions

Directors’ liability arises, first and foremost, from statute. Section 76 of the Companies Act codifies the fiduciary duties and standard of care expected of directors. Directors are required to act in good faith, for a proper purpose, in the best interests of the company, and with the degree of care, skill and diligence reasonably expected of someone carrying out these functions.

Section 77 then gives those duties teeth. It identifies the circumstances in which a director may be held personally liable for loss suffered by the company, including where the director has breached a fiduciary duty, failed to exercise due care, engaged in reckless trading, or authorised unlawful distributions.

Statutory liability does not displace the common law entirely. Directors may still be held liable under common-law principles for breach of fiduciary duty or delictual conduct that causes loss. These common-law claims sit alongside the statutory side.

Liability under sections 76 and 77 of the Companies Act is, in the ordinary course, owed by the director or directors to the company itself.

Loss suffered, as contemplated by section 77, is accordingly loss suffered by the company, and enforcement is therefore undertaken by the company.

It is the company that is entitled to pursue claims for breach against a director regardless of whether the company is acting through its board, on instruction of its shareholders, or, in cases of insolvency, through a liquidator or business rescue practitioner.

Shareholders and creditors do not acquire a personal claim merely because they are indirectly prejudiced. Their remedy lies in the company enforcing its rights against directors, not in asserting their own rights directly against directors. Shareholders and creditors do not ordinarily acquire standing merely because they are economically affected by the director’s conduct indirectly.

 

Can a Director Still Be Liable After Resignation?

The short answer is yes, and the reason therefor is that the director’s liability, under the Companies Act, is not tied to his/her status at the time when proceedings are instituted against him/her. It is tied to his/her conduct while in the office of a director. If the act or omission giving rise to liability occurred while the individual still held office as a director, resignation does nothing to erase such liability.

Courts have consistently emphasised that liability is historical in nature. The relevant enquiry is when the conduct took place, not when the consequences emerged or when the director left office. A director who resigns shortly before losses materialise, insolvency intervenes, or disputes surface is therefore not insulated from liability exposure.

Where matters become more nuanced is in relation to time bars. In the ordinary course, and in accordance with the Prescription Act 68 of 1969 (hereinafter the “Prescription Act”), one would have three years from becoming aware of loss, damages or costs, to institute proceedings to recover same. However, section 77(7) of the Companies Act provides that the Prescription Act does not apply in relation to proceedings to recover any loss, damages or costs for which a person is or may be held liable in terms of the liability of directors and prescribed officers.

Section 77(7), further, expressly provides that proceedings to recover loss, damages or costs may not be commenced more than three years after the act or omission that gave rise to the liability. It would therefor seem that the Companies Act specifically excludes the three-year period provided by the Prescription Act, just to expressly include the three-year period expressly under section 77(7), however this is not the case. The difference is when the three-year period starts running. Under the Prescription Act, the period starts to run when the creditor becomes aware of the loss, whereas section 77(7) provides that the period starts to run from when the director commits the conduct causing the loss or liability. Accordingly, section 77(7) does not await the crystallisation of loss, the company’s discovery of the conduct in question, or the appointment of a liquidator before time begins to run. For purposes of a director’s liability under section 77(7) knowledge is irrelevant. Concealment does not suspend time.

This would seem to have the effect of providing the company with a shorter period to institute a claim against a director than would have been the case under normal prescription, however the Companies Act carefully balances this by specifically providing that this shorter period may be extended by a court.

 

The Court’s Power To Extend Matters

Although the three-year period is strict, it is not absolute. Section 77(7)(c) empowers a court, on good cause shown, to extend the period — whether or not it has already expired.

This creates a carefully calibrated balance. On the one hand, directors are protected against indefinite exposure by a short, objective time bar. On the other, the court retains the ability to prevent injustice in cases where serious misconduct only comes to light after resignation, insolvency or a change in control.

In this respect, the statutory regime can operate both more harshly and more generously than prescription in the ordinary course. The three-year period may expire sooner than prescription ever would, because it ignores knowledge. Yet where an extension is granted, liability exposure may endure far longer than prescription would have allowed.

It is important not to conflate statutory and common-law liability. Where a claimant relies on section 77, the expiry period applies and the Prescription Act is excluded. Where the claim is framed at common law, prescription principles remain relevant, including when the debt became due and when the creditor acquired knowledge.

Conclusion

Resignation from the office of a director is not a clean break from the past. Decisions taken while in office may still be scrutinised years later, and the statutory time bar offers no comfort unless it is properly understood and relied upon.

For companies, liquidators and business rescue practitioners, the converse is equally important. The passage of time is not always decisive. In appropriate cases, the court’s power to extend the statutory period remains a potent tool.

The Companies Act adopts a principled and deliberate approach to post-resignation director liability. Authority ends with resignation; responsibility does not. Accountability is anchored in conduct, not office, and the Companies Act ensures that directors remain answerable for their decisions long after they leave the boardroom.