Introduction
Section 162 of the Companies Act 71 of 2008 (hereinafter the “Act”) has long served as one of the most significant enforcement mechanisms in South African company law. It empowers the courts to declare directors delinquent or place them under probation where their conduct falls short of the standards expected and the duties imposed on those who are entrusted with the management of companies. The consequences of such orders can be severe, including disqualification from acting as a director and reputational harm.
With the commencement of the Companies Second Amendment Act 17 of 2024 (the “2024 Amendments”) with effect from 27 December 2024, the legislature has materially strengthened this accountability. Of particular importance are the amendments relating to the time periods within which applications for delinquency or probation may be brought. The changes significantly expand the potential exposure of both current and former directors and warrant careful consideration by boards and shareholders alike.
Section 162 is not intended to operate as a punitive sanction in the criminal sense. The courts have consistently recognised that its primary purpose is protective and remedial. The provision exists to protect companies, shareholders, employees, creditors, and the broader public from individuals who have demonstrated that they are unfit to serve as directors.
Declarations of delinquency and orders of probation are therefore aimed at protecting the integrity of corporate governance rather than punishing directors for past mistakes. This purposive interpretation is critical when assessing both the scope and the application of the 2024 Amendments.
The Introduction of the Five-Year Look-Back Period
One of the key amendments introduced in 2024 is the substitution of section 162(2)(a). The provision now makes it clear that an application may be brought if the person concerned is a director of the company, or was a director within the 60 months immediately preceding the application.
This amendment introduces a defined five-year look-back period in respect of former directors. In doing so, it resolves previous uncertainty regarding the temporal limits of section 162 in that it must be brought against a person who “is a director” and reenforces the fact that directors cannot immediately escape scrutiny by resigning from office.
However, despite the five-year look-back period, section 162(2)(a) expressly states that the five-year look-back period is subject to section 162(2A).
The Court’s Power to Extend
A significant development is the insertion of section 162(2A). This subsection confers an express discretion on the court to extend the five-year period on good cause shown. Importantly, the court may exercise this discretion regardless of whether the five-year period has already expired and irrespective of whether the impugned conduct occurred before the commencement of the 2024 Amendment. This effectively means that section 162(2A) operates retrospectively
The effect of this provision is that the five-year look-back period is not an absolute jurisdictional bar. Instead, it operates as a default rule, subject to judicial oversight and flexibility where it may be in the interests of justice.
Retrospective Application and Historic Conduct
Section 162(2A) expressly authorises the court to consider conduct that occurred even prior to 27 December 2024 and prior to the coming into effect of the 2024 Amendments. This confirms that the amendment applies retrospectively in a procedural sense and that historic misconduct may still form the basis of an application for delinquency or probation.
The legislature has thereby removed any doubt as to whether older conduct is insulated from scrutiny and has reinforced the protective purpose of section 162.
The Meaning of “Good Cause”
While the Act does not define “good cause”, it is clear that the threshold is intended to be substantive rather than formalistic. In determining whether good cause exists to extend the time period, a court is likely to consider the seriousness of the alleged misconduct, the extent of prejudice suffered by the company or its stakeholders, and the reasons for any delay in bringing the application.
The court will also have regard to the director’s role in the company, the nature of the duties breached, and whether the director continues to pose a risk to corporate governance. Ultimately, the enquiry is contextual and must be aligned with the protective purpose of section 162.
Application for Delinquency and Probation
The extended time period brough by the five-year look-back applies equally to applications for declarations of delinquency under section 162(5) and to applications for probation under sections 162(7) and (8). There is no distinction in principle between these remedies for purposes of jurisdiction or timing.
The difference lies in the severity of the relief sought. Delinquency is reserved for more serious forms of misconduct and may result in long-term or even lifetime disqualification, whereas probation is rehabilitative in nature and may be subject to conditions aimed at correcting deficient conduct.
Practical Implications for Directors and Shareholders
The amendments to section 162 have important practical consequences. Directors should be aware that resignation from office does not bring an immediate end to their exposure to accountability proceedings. Decisions taken during their tenure may be scrutinised years later, particularly where misconduct only comes to light after corporate failure or liquidation.
For shareholders, employees, and creditors, the amendments enhance the effectiveness of section 162 as a governance tool and provide greater flexibility to pursue accountability where serious breaches of duty have occurred.
Conclusion
The 2024 Amendments to section 162 represent a decisive shift towards enhanced director accountability in South African company law. By introducing a clear five-year look-back period while empowering courts to extend that period on good cause shown, the legislature has ensured that serious governance failures are not shielded by the mere passage of time.
Directors should regard section 162 as a continuing governance risk that extends beyond their term of office, while shareholders should view the amended provisions as a strengthened mechanism for protecting companies and stakeholders from unfit leadership and direction.
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