Trustees and directors both have fiduciary duties – how do they differ?
In South Africa, being nominated as a trustee or a corporation director includes a slew of fiduciary duties and legalities. Failure to follow the rules governing directorship and trustee can lead to you being held personally liable – and punished.
The fiduciary duties, responsibilities, and liabilities of directors and trustees in South Africa are discussed in this article. It is by no means comprehensive; we strongly advise you to become acquainted with the Acts that set forth the rules for either position.
What are fiduciary duties?
Fiduciary duties, often known as fiduciary relationships, refer to a trust, assurance, or confidence connection between two or more people.
Although there is no innate restriction to the relationships that can be interpreted as fiduciary under common law, some are automatically fiduciary, such as those between a trustee and a benefactor, a lawyer and a client, an owner and an agent, a business associate and co-partners, and a mortgagor and a mortgagee.
What are the obligations and fiduciary duties of a director?
The Companies Act No. 71 of 2008, referred to as “the Companies Act,” outlines the laws relating to a director of a company in South Africa.
Except where the Companies Act or the company’s Memorandum of Incorporation (MOI) delivers alternatively, Section 66 of the Act states that the company’s business and relationships must be handled or guided by its board of directors, who are authorized to practice all of the company’s abilities and undertake all of its operations.
The Companies Act places a strong focus on the responsibility and accountability of directors, even prescribing a codified code of conduct. Directors have fiduciary duties under Section 76 of the Companies Act to act in the best interests of the firm (as a legal entity).
Their decisions—and the use of their authority—must always be in the best interests of the organization. They are not allowed to utilise their authority or influence judgments to benefit any person or group of shareholders, irrespective of ownership.
Directors’ liabilities under the Companies Act
The judgments of the board of directors bind the firm. Any breach of their legal requirements under the Companies Act can result in financial loss, as well as physical and reputational harm. As a result, if proven to violate their fiduciary duties to act with care, competence, and attention, a director may be held personally accountable for these repercussions.
Under the Companies Act of South Africa, a director’s liability is insured. Unless a director is convicted of a crime, a firm may purchase indemnity insurance to protect the director. In addition, under Section 78 of the Companies Act, the business may insure itself against expenditures advanced to a director under such indemnification. The businesses act, on the other hand, specifies the circumstances in which identification is prohibited.
Fiduciary duties and responsibilities of a trustee?
The Trust Property Control Act (TPCA) No. 57 of 1988 is the main statute that controls South African trust law. Trustees’ responsibilities are governed by the TPCA, common law, and the trust deed.
A trustee, like a corporation director, has a fiduciary obligation to act “with the care, diligence, and competence that might fairly be anticipated of someone who controls another’s affairs.”
Trustees act in the best interests of all stakeholders for and on account of the trust and its resources. This is, of course, per the Trust Deed’s and the TPCA’s regulations.
As a result, trustees should be well-versed in the contents of the trust deed, which typically specifies the trustees’ responsibilities and the purpose for the trust’s and its assets’ governance.
Asset Management for Trusts
When a trustee accepts the position of trustee, he or she must assume control of the trust’s assets. Immovable property must be registered in the name of the trust trustees as part of the fiduciary duties in the case of an ownership trust. Immovable properties are registered in the beneficiaries’ names (but under the trustees’ authority) in ‘bewind’ trusts.
An important element is that movable property must be securely secured and insured. In the case of testimonial trusts, investments and private company shares are also included.
Inventory and managerial accounts must be meticulously recorded. Trustees are required to open a bank account in the trust’s name and maintain statutory accounting track of all transactions.
Is it possible for a trustee to be held personally and financially liable?
Yes. Trustee personal culpability is, in fact, more severe than that of directors.
Any attempt to shield a Trustee from accountability for carelessness is void, even if a company may protect a director from personal culpability. A trust deed clause like this will not be enforced.
A trustee who violates their fiduciary duties may be held accountable for the trust’s financial losses.
The best part is that you aren’t alone
Recognizing and following the complexities of trust rules can be difficult. Most trust documents, fortunately, allow trustees to consult with expert accountants and attorneys. When it comes to making decisions, such advice is vital. Tax and business law are well-understood by qualified tax practitioners and accountants, whereas conveyancing and legal agreements are handled by lawyers. As a director or trustee, you have a lot on your plate; let Blue Evolution help you carry it. Speak with one of our knowledgeable consultants today.
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