Director's Duty to Act for a Proper Purpose in the Context of Distribution under the Companies Act 71 of 2008

44 Pages Posted: 2 Oct 2019

Date Written: September 19, 2019


This paper seeks to critically analyse the requirements of the duty imposed on directors to act for a proper purpose as provided in section 76(3)(a) of the 2008 Act (Companies Act 71 of 2008) whenever they distribute company money and/or property. This analysis is conducted with the obligations imposed under sections 4 and 46 of the 2008 Act in mind. The purpose is not to question the inclusion of this duty in the 2008 Act. It is simply to question whether the common law interpretation of the duty still suffices in the face of section 76(3) of the 2008 Act, which seems to suggest that a different standard of judgment must be used. The argument that is made here is that the use of common law principles in interpreting proper purpose is well and good when the actions of directors are challenged based on the common law, but, where this duty has been incorporated into statutory law the interpretation of the duty in the context of the wording of the statute should be paramount. In addition, when interpreting any provision of the Act, consideration of the objects of the statute becomes inevitable. The interpretation of the duty cannot, in the face of the changes brought about by the statute, remain stagnant as a result of reliance on common law standards of judgment. The wording of the provision in question and the purpose of the statute cannot and must not be ignored; they must be given effect. A comparative approach will be adopted, using legislation and case law from Australia and Canada. The selection of these particular jurisdictions is based solely on the fact that like South Africa, their legal heritage is based on English common law, and a comparison of the three jurisdictions therefore makes sense.

Keywords: company law, Companies Act 2008, proper purpose, duties of directors, distribution, primary purpose test, dominant test, subjective test, objective test

Suggested Citation

Bidie, Simphiwe S., Director's Duty to Act for a Proper Purpose in the Context of Distribution under the Companies Act 71 of 2008 (September 19, 2019). Potchefstroom Electronic Law Journal, Vol. 22, 2019, Available at SSRN:

Simphiwe S. Bidie (Contact Author)

University of Fort Hare ( email )

South Africa
040 6022462 (Phone)
+27(0) 86 231 7807 (Fax)


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