The concept of a “prescribed officer” was introduced into the Companies Act more than a decade ago. Yet, it still causes some confusion largely because its definition requires considered application to the different structures and functions within each company.
What’s in a name: Defining a “Prescribed Officer”
The first step in determining who falls within the definition of a prescribed officer falls within the Minister of Trade and Industry’s scope of duties,[1] as section 1 of the Act defines it as a person who, within a company, performs any function which has been designated by the Minister in terms of section 66(10) of the Act. This empowers the Minister to make regulations designating any specific function or functions within a company to constitute a prescribed office for the purposes of the Act.
In contemplating this empowering provision, the Minister has, through Regulation 38 of the Companies Regulations, 2011 (“Regulations”), highlighted the following functions of a prescribed officer:
“(1) Despite not being a director of a particular company, a person is a ‘prescribed officer’ of the company for all purposes of the Act if that person—
(a) exercises general executive control over and management of the whole, or a significant portion, of the business and activities of the company; or
(b) regularly participates to a material degree in the exercise of general executive control over and management of the whole, or a significant portion, of the business and activities of the company.” (Own emphasis.)
This applies irrespective of any title given by the company to an office held by the person in the company or a function performed by the person for the company.
The degree of executive control and management over the business affairs of the company is therefore decisive factor in determining which officers fall within the scope of a prescribed officer and should be assessed on a case-by-case basis.
Why is this important?
The effects of being a prescribed officer are significant. The Act places the same duties and liabilities on a prescribed officer as it does on a director of a company. In other words, a prescribed officer is held to the same standards of conduct that are statutorily prescribed to a director, including that a prescribed officer must:
Not use the position of a prescribed officer, or any information obtained while acting in the capacity of a prescribed officer to gain an advantage or to knowingly cause harm to the company;
Communicate to the board certain information that comes to his or her attention; and
Exercise the powers and perform the functions of a prescribed officer in good faith and for a proper purpose, in the best interests of the company, and with the degree of care, skill and diligence that may reasonably be expected of a person carrying out the same functions in relation to the company as those carried out by the prescribed officer and having the general knowledge, skill and experience of the prescribed officer.
In effect, therefore, being a prescribed officer significantly increases the level of exposure which may be attributed to a senior employee, as some consequences of trading no longer falls squarely on the shoulders of the directors.
If you need assistance in determining whether you or a senior employee are prescribed officers as contemplated by the Act, contact Kern, Armstrong & Du Plessis Incorporated for more information.
011 109 1055
info@kernattorneys.co.za
[1] As the Minister currently in charge of the Companies Act.
-written by Michelle Toxopeus-