DIRECTORS Edit

DIRECTORS
INTRODUCTION
The fiction of corporate status was irrevocably enunciated by Lord Halsbury in the
landmark case of Salomon v Salomon.1 Davis calls it a justly celebrated case. 2 This
concept is so central to company law that any endeavours to expunge it from
company law will be like trying to bend the trunk of an old oak tree. One of the legal
consequences flowing thereto among others is that a company is capable of
enjoying rights and also being subjected to duties or obligations as a natural person.
However because it is an artificial/abstract entity, it has of necessity to act through
the agency of human beings or natural persons. A company does not have a body,
no soul, it cannot create intentions of its own, and a company cannot have hurt
feelings.3 Apart from other officers of the company, directors are seized with the task
of running the affairs of the company. The management of a company’s affairs is
ordinarily entrusted ultimately to its directors. 4 In Ferguson v Wilson5 Cairns LJ said
“The company itself cannot act in its own person…it can only act through directors.”
In this regard, directors act as agents of the company. The registered company was
invented to a legal form which would enable investors to put their money into a
business without being responsible for managing it.6 This again is because the
disparate nature of the shareholding in companies also militates against the
shareholders running companies themselves. The legal duties and powers of
directors therefore comprise the bulk of this chapter.
The legal nature of directorship
a) What is a director?
Directors have been taken to be commercial men/women of business, managing and

superintending over the affairs of a company. A director therefore becomes a
steward of a company’s business. In this regard directors make commercial
decisions on behalf of a company that ensure its financial vitality and economic well-
being. The Zimbabwe companies’ legislation provides that the business of the
company shall be managed by the directors. 7 In this regard, directors are certainly
agents of the company.8 Directors can also be referred to as trustees, though to a
limited extent. They are trustees of company money and property which comes into
1
[1897] AC 22 (House of Lords)
2
Davis, P.L. Gower and Davis: Principles of Modern Company Law 10th $d (Sweet & Maxwell, 2016)
3
Collins Stewart Ltd v Financial Times Ltd [2005] EWHC 262 (QB)
4
Girvin, S. Frisby, S. and Hudson, A. Charlsworth’s Company Law 18th ed (Sweet & Maxwell, 2010)
5
(1866) LR 2 Ch App 77
6
French, D. Mayson, S. & Ryan, C. Mayson, French & Ryan on Company Law 29th ed 2012-2013
(Oxford Press 2012)
7
Ibid n3
8
Ultraframe (Uk) Ltd v Feilding [2005] EWHC 1638. Though acting as an agent, a director has a lot of
discretion in the manner in which he discharges his mandate. A director is not under much control of
his principal the company, which exercises its control through the members in general meetings. This
is why a director has duty to exercise independent discretion. See also the discussion on separation
of ownership and control and the need for corporate governance.
their hands during the subsistence of the company.9 It is on these two platforms that
the duties of directors hinge.
Directors act as a collective in the form of a Board of Directors. The Board of
Directors is the most important organ in a company in respect of decision making 10.
The Companies and Other Business Entities Act11 does stipulate how the business
of the company should be run. The company’s Articles of Association prescribe the
powers and duties of directors. The functions of and responsibilities of directors are
now codified12. Every director must consider the long term effects of any decision 13.
Consideration should be had of the company’s interests14. Decisions are to foster
good relationships with suppliers, customers and others 15. The operations of the
business are to impact the community positively16. The impact of the decisions on
the environment among other interests are to be considered. 17 Maintenance of high
standard of business and the need to foster fairness among shareholders 18. Every
director is to exercise independent judgement in all decisions and to act only within
the powers provided for by the company, in good faith and promote the success of
the company for the benefit of all shareholders19. The duties include the duty of care
and business judgement, the duty of loyalty20.
An individual director cannot bind the company unless so authorized by the board.
This is very rare because board collective power is normally delegated to board
committees. In Burnstein v Yale 1958 (1) SA 768, it was held that the general rule is
that directors of a company can only act validly when assembled at a board meeting.
This position was confirmed by Muzenda J in Wentso Milling (Pvt) Ltd & Others v
Parson & Others21. An exception is where a meeting of directors and a resolution
would not be required is where a company has only one director who can perform all
judicial acts without holding a full meeting.22
9
See, e.g. Cook v Deeks [1916] 1 AC 554 (PC)
10
Note should be taken however of the fact that there exists two power blocks in a company, namely
the shareholders in general meeting and the board of directors. There are some company matters
which are a preserve of shareholder decision making where directors have no discretion. Statutory
provisions do not purport to stipulate the division of decision –making about the company’s business
activities as between the shareholders in general meeting and the board of directors. See also Shaw
& Sons (Salford) Ltd v Shaw [1935] 2 K.B. 113, CA. in which a resolution of the general meeting
disapproving the commencement of an action by the directors was held to be a nullity.
11
Companies and Other Business Entities Act [Chapter 24:31] from section 54
12
Ibid section 195
13
Ibid section 195 (5) (a)
14
Ibid section 195 (5) (b)
15
Ibid section 195 (5) ©
16
Ibid section 195 (5) (d)
17
Ibid section 195 (5) (e)
18
Ibid section 195 (5) €
19
Ibid section 195 (4)
20
21
Wentso Milling (Pvt) Ltd and Others v Parson and Others HH 208 of 2018
22
Cheda, J A in Tapson Madzivire and Others v Misheck Brian Zvarivadza and Others 2006 (1) ZLR
514 (S). See also African Diamond Distributors (Pvt) Ltd v Van de Wetheuzen N.O. and Ors 1988 (4)
SA 726.
b) Who is a director
The Zimbabwe Companies and Other Business Entities Act 23 does not define a
director in specific terms. Section 2 simply provides that a director
“includes any person occupying the position of a director or alternate director
of a company, by whatever name he may be called.”24]
Reliance therefore is placed on the legal interpretation of this provision in
determining who a director is. A general interpretation would be that a director is any
person not only appointed and registered in accordance with the prescribed
procedures but also a person who has exercised or is exercising the actual legal
functions of a director and taking part as a full member of the board of directors in
the process of making the sort of decisions directors routinely make. 25 This broad
definition is a wide net which captures all those who might ordinarily not be
considered directors. Focus is placed on the role a person plays in relation to the
company especially his role in decision making. The law relating to directors will be
applied equally to persons who have not been formally appointed as directors but act
as directors26.
Under Zimbabwe company law some persons are deemed to be directors. of the
Companies and Other Business Entities Act27 Chapter 24:31 provides that:
‘Every person signing the memorandum of a company shall, until other
directors are appointed, be deemed to be a director of the company and be
liable for all the duties and obligations of a director:
Provided that where a person signs the memorandum, whether as agent or
otherwise, on behalf of some other person who is not qualified to be a director
of a company, the first-mentioned person shall be deemed to be a director.]’
The Act now restricts directors to no more than six directorships of public companies
and one’s service to other boards must be disclosed at all meetings 28. The lack of a
concise definition of a director in the Zimbabwe Companies and Other Business
Entities Act, gives rise to the capturing of a number of persons under the umbrella of
the term director.
i. The executive directors
An executive director acts in two capacities. Firstly he is appointed as a director and

sits on the board of directors. Apart from being a director he is also employed as a
full time officer of the company involved in the day to day activities of the company.
23
Companies and Other Business Entities Act [Chapter 24:31 section 2
24
Companies and Other Business Entities Act [Chapter 24:31]
25
Kershaw, D. Company Law in Context: Text and Materials (Oxford Press 2009)
26
Phiri, C. (2017) Commercial Bank Regulation Enhancing Corporate Governance in Zimbabwe: A
Critical Analysis (Unpublished)
27
Companies and Other Business Entities Act [Chapter 24:31] section 195 (7)
28
Such a director is tasked with the function of running the affairs of the company on a
day-to-day basis as an employee. The commonly known office of an executive
director is that of a Managing Director (MD) or Chief Executive Officer (CEO). An
executive director enters into a service contract with the company whose terms are
determined by the Board of Directors as a collective.
ii. The non-executive directors
These directors are at times referred to as ordinary directors. Though appointed by

the company they are not employees of the company in that they do not take up full
time appointments. They are expected to attend scheduled meetings as and when
required to do so.29 These directors are usually appointed for their particular
expertise which they bring to the board. Because they are removed from the
company in terms of its day-to-day operations, they are also referred to as
independent directors. They act as oversight on the company’s executives including
the executive directors.30
iii. De facto directors
The Zimbabwe Companies Act Chapter 24:03 does not define who a de facto
director is. In the absence of a definition for a de facto director in the Companies Act,
reference should be made to the case law. English court decisions on the matter are
of great assistance in determining the nature of this type of a director. It should be
noted though that the courts’ criteria for determining a de facto director has not been
the same. In the case Re Richborough Furniture Ltd31 Lloyd J had this to say:
It seems to me that for someone to be made liable . . . as a de facto director,
the court would have to have clear evidence that he had either been the sole
person directing the affairs of the company . . . or, if there were others who
were true directors, that he was acting on an equal footing with the others in
directing the affairs of the company. It also seems to me that, if it is unclear
whether the acts of the person in question are preferable to an assumed
directorship, or to some other capacity such as a shareholder or, as here, a
consultant, the person in question must be entitled to the benefit of the doubt.
The same reasoning was applied in a latter case of Elsworth Ethanol Company Ltd &
Anor v Hartley & Ors,32 where the court gave some guidelines in determining
whether an individual is to be termed a de facto director for the purposes of the law.
The following factors are to be taken into account though there is no single test for
defining a de facto director.
29
These directors are not expected to attend all board meetings. However they owe a duty of care,
skill and diligence Companies and Other Business Entities Act [Chapter 24:31] section 54, 55, and 56
30
As to the effectiveness of these independent directors in this regard, it is a matter of discussion
under corporate governance.
31
[1996] 1 B.C.L.C. 507.
32
[2014] EWHC 99 (IPEC) See also Commissioners of HM Revenue and Customs v Holland [2010]
UKSC 51, [2010] I WLR 2793
 If an individual is acting with one or more others who are true directors, that
he is doing so on an equal footing with them in directing its affairs. This factor
is particularly important and there must be clear evidence.
 Where an individual is held out by the company as a director.
 Whether he uses the title of director.
 Taking all circumstances into account, the individual is part of the company’s
corporate governing structure – that is to say, the system by which the
company is directed and controlled.
 If an alleged de facto director’s acts could be explained by some other role
they hold, such as consultant to the company, they are entitled to the benefit
of the doubt. There is no inference that they are a de facto director.
On the other hand Miller J in Re Hydrodan (Corby) Ltd33 put the position as follows:
A de facto director is a person who assumes to act as a director. He is held
out as a director by the company, and claims and purports to be a director,
although never actually or validly appointed as such. To establish that a
person was a de facto director of a company it is necessary to plead and
prove that he undertook functions in relation to the company which could
properly be discharged only by a director. It is not sufficient to show that he
was concerned in the management of the company’s affairs or undertook
tasks in relation to its business which can properly be performed by a
manager below board level(…)]’.
There seems however to be a general legal convergence on the fact that a de facto
director is one not formally appointed but acts as a director in that he discharges the
functions of a director. How this comes about is a matter of fact relating to each
case.34
iv. Shadow directors
Unlike the English Companies Act of 2006, the Zimbabwe Act does not define a
shadow director. Extensive reference will then be made to English law on the matter.
In terms of section 251 of the 2006 English Act, describes a shadow director as a
person in accordance with whose instructions the directors are accustomed to act,
excluding those acting in a professional capacity in terms of giving professional
advice. What this translates into is that at least a consistent governing majority of the
directors must be accustomed to act in that way.35 As decided in Re Unisoft Group
Ltd (No3)36 a person will not be a shadow director of a company unless the directors
33
[1994] 2 BCLC 161
34
See also Secretary of State v Tjolle [1998] BCLC 333 where the court took into consideration a
number of factors
35
French, D. Mayson, S. & Ryan, C. Mayson, French &Ryan on Company Law 29th edition (Oxford
Press 2012) See also Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch)
36
[1994] 1 BCLC 609
of that company act on the person’s directions or instructions as a matter of regular
practice, over a period of time.37
The position of shadow director was explained in Secretary of State for Trade and
Industry v Deverell.38 The court of appeal laid down the following guidelines in
determining a shadow director:39
 ‘It is not necessary to show that the person gives directions or instructions on
every matter on which the directors act, but it must be shown that the person
has real influence in the company’s corporate affairs;
 Whether any particular communication should be classified as a direction or
instruction is for the court to determine objectively;
 Advice (provided it is not professional advice) may be a direction or
instruction;
 It is not necessary to show that the directors adopted a subservient role or
surrendered their discretion;
 Despite the use of the term “shadow director” it is not necessary to
characterize the person as “lurking in the shadows”: it is possible for a person
to be a shadow director openly (….)]’.
v) De jure directors
A person is taken to be a de jure director if:40
a) The person has been appointed to the office of a director in accordance with
the rules governing such appointment;
b) The person has agreed to hold office of director;
c) The person is not disqualified from being a director of the company; and
d) The person has not vacated office (…)]’.
APPOINTMENT OF DIRECTORS
Generally the power to appoint directors is vested in the shareholders which power is
exercised by them through the general meeting. This power on the part of the
company can be inferred from the Act. At least one director must be ordinarily
resident in Zimbabwe41.
Though not appointed by members in general meeting, every subscriber to the
Memorandum of Association shall be deemed to be a director until a substantive
board of directors has been appointed42. This is designed to fill in the void in
directorship between the time of incorporation and the holding of the first general
meeting appointing directors.
37
Ibid n22
38
[2001] Ch 340
39
Ibid n22
40
Ibid n22
41
Companies and Other Business Entities Act [Chapter24:31] section 195 (2)
42
QUALIFICATIONS OF DIRECTORS
A person need not have any particular qualifications to qualify as director. The
Companies and Other Business Entities Act43 simply lists those who are disqualified
from occupying the office of a director. The interesting case of Re Cardiff Savings
Bank, Marquis of Bute’s Case [18920 2 Ch. 100 is illustrative. This casual approach
to qualification of directors has an impact on the duty of care of directors as
discussed later. However the UK system has some statutory disqualifications from
office in terms of the Company Directors Disqualification Act of 1986. Further the UK
Institute of Directors has also introduced a professional qualification for directors.
Articles of Association may provide that a person must hold some shares (share
qualification) to qualify as director. In this regard it becomes a must for one to be a
shareholder to qualify. The Act44 provides that it shall be the duty of every director
who is by the articles of the company required to hold a specified share qualification
and who is not already qualified, to obtain his qualification within two months after his
appointment or such shorter time as may be fixed by the articles.
Apart from the provisions of s172 and s173, it would therefore be left to the dictates
of common law to determine the fitness of a particular individual to qualify as
director. The frequently used measure is the “fit and proper person” test. Each case
will then have to be determined on its own merits.
Disqualification of Directors
The Companies and Other Business Entities Act45 in section 200, stipulates
disqualifications of directors. Some individuals are disqualified from being directors.
These are as follows:
 A corporate body is disqualified from being a director of a company46. This
could be because a corporate body has no soul, no body and cannot exercise
its own free will.
 Any minor is precluded from being a director as well as any person suffering
from any mental disability47. In our jurisdiction minority ends on the attainment
of eighteen years. In other jurisdictions such as England a person who has
attained the age of sixteen is qualified to be a director of a company48.
 Persons who have been declared insolvent or bankrupt in Zimbabwe or any
other country who have not been rehabilitated are disqualified from being a
director of a company49.
43
Companies and Other Business Entities Act Chapter 24:03] section 200
44
45
46
47
Ibid section n200 (1) (b)
48
Mayson French and Ryan o
n Company Law (supra)
49
Companies and Other Business Entities Act [Chapter 24:31] section 200 (1) (c)
 The Companies and Other Business Entities Act50 disqualifies persons who
have been convicted of offences involving dishonesty for crimes such as theft,
forgery, fraud, uttering a forged document or perjury, whether in Zimbabwe or
elsewhere, and sentenced to imprisonment without the option of a fine or up
to level five fine except with the leave of the court.
What is not clear from a reading of the section is what criteria the court considers to
grant the leave. Janet Dine51 fleshes out aspects of dishonesty as including
misappropriation of company property and explains that this might happen in a
sophisticated manner than merely taking property from the company. In Menier v
Hooper’s Telegrapgh Works52 where in the majority shareholders appropriated a
corporate opportunity of the company; James L J said:
‘Hooper’s company has obtained certain advantages by dealing with
something which was the property of the whole company. The minority of the
shareholders say in fact that the majority have divided the assets of the
company more or less between themselves to the exclusion of the minority. I
think that could be a shocking thing if that could be done, because if that is so
the majority might divide the whole assets of the company and pass a
resolution that everything must be given to them and that the minority should
do nothing about it (….)]’.The disqualification extends to persons who have
been disqualified by the court from being a director of a company53.This type
of disqualification could arise from failing or neglecting from complying with
stipulations of the law.
 A director of a public company must cease from holding office upon being
declared insolvent or bankrupt in any country54.
 Any person who has been convicted of any offence involving dishonesty
(fraud, theft forgery or perjury) and sentenced to imprisonment without the
option of a fine or to a fine exceeding level five55.
 This applies to anyone who has been adjudged to be bankrupt or insolvent
and has not been rehabilitated or discharged56.
 Contravening the provision attracts a penalty of a fine of up to level ten or
imprisonment of up to two years57. Apart from these stipulated cases of
disqualification the company itself may disqualify some persons from being
directors on other justifiable grounds58. The principal shareholder of a private
company may notify the Registrar of the disqualification of any director59.
The law disqualifies any person who has been removed by a competent court from
an office of trust from being a director of a company. Trust is fundamental in
50
763 Companies and Other Business Entities Act [Chapter 24:31] section 200 (1) (d)
51
Janet Dine: Company Law; Palgrave Law Masters; p 219
52
Menier v Hoopper Telegraph’s Works [!874] LR 9 Ch. D 350
53
Companies and Other Business Entities Act [Chapter 24”31] 200 (1) (e)
54
55
Ibid section 200 (2) (b)
56
Ibid section 200 (2) ©
57
58
59
business. Any person who is untrustworthy cannot be trusted to manage the affairs
of a company honestly. For that reason the leave of the court is required for that
person to be appointed a director60. Any person who is disqualified from being a
director under the section commits an offence if s/he acts as a director of a
company.
REMOVAL OF DIRECTORS
A company may by resolution of which special notice has been given remove a
director before the expiration of his period of office notwithstanding anything in the
articles or in any agreement between it and him 61. A director enters into a service
contract with the company. If a director is wrongfully removed from office, apart from
the procedural right the director can use his common law rights under the contract to
litigate62.
LOANS TO DIRECTORS
A company may not make a loan to a director or give a guarantee or provide security
in connection with a loan made by any person to a director 63. However there are
exceptions to this prohibition64. The main exception is that the granting of the loan
must be approved by the resolution of members in general meeting. If the approval is
not given by the members as required by the Act65, the directors authorising the
making of the loan or the entering into the guarantee or the provision of security shall
be jointly and severally liable to indemnify the company against any loss arising from
the transaction. This prohibition is designed to prevent unscrupulous directors from
taking advantage of their positions to “feather their nests.” In Zimbabwe, the banking
crisis between the years 2003 and 2004 bears testimony to this. One of the causes
of bank curatorship and bank closures among others was poor corporate
governance. Some of the elements at play were high non-performing loans (NPL)
which had been made to directors. It is beyond the scope of this book to deal with
the effectiveness or otherwise of this prohibition in the Zimbabwean context.
PAYMENT FOR LOSS OF OFFICE
Some business practices may be that on loss of office, a director may be given a
golden handshake for whatever reason. However this payment is circumscribed by
the Act.66 It shall not be lawful for a company to make to a director any payment by
way of compensation for loss of office or as consideration for or in connection with
his retirement from office, without particulars of the payment being disclosed to the
members of the company and the members approving of the said payment 67. The
same prohibition applies to payment in relation to a transfer of the company’s
60
Ibid section 200 (1) (f)
61
The Companies Act [Chapter 24:03] section 202 (1)
62
63
64
65
66
Companies and Other Business Entities Act Chapter 24:31] section 209 (1)
67
undertaking or property68. These provisions are designed to ensure transparency on
the part of directors and also to enhance corporate governance.
POWERS OF DIRECTORS
There are basically two power blocks in a company namely the shareholders and
directors. Shareholders run a company through general meetings and directors run
the company collectively through board meetings. There are some matters which
have to be dealt with exclusively by shareholders in general meeting and other
matters are left to the discretion of directors. Because of the disparate nature of
shareholding in most companies and lack of professional expertise of shareholders,
companies will delegate considerable management powers to directors. Table A of
the Companies and Other Business Entities Act in Article 81 provides that:
‘The business of the company shall be managed by the directors, who pay ‘
all expenses incurred in promoting and registering the company, and may
exercise all such powers of the company as are not, by the Act or by these
regulations, required to be exercised by the company in general meeting,
subject, nevertheless, to any of these regulations, to the provisions of the Act
and to such regulations, being inconsistent with the aforesaid regulations or
provisions, as may be prescribed by the company in general meeting; but no
regulation made by the company in general meeting shall invalidate any prior
act of the directors which would have been valid if that regulation had not
been made].’
It means therefore that there is a segregation of duties between shareholders and
directors in the management of company business. This is the basis of the agency
theory which has its genesis in the works of Adam Smith who argued that in
corporations there is a separation of ownership and control between shareholders
who are owners and managers (directors) who have control over the affairs of the
company.69 Though there is this segregation, shareholders in general meeting may
in exceptional cases assume management powers for example. where the directors
are unable to act70 as in situations of a deadlock in decision making by the directors
or in rare situations where there might be no directors.71
In terms of common law, directors (agents) having delegated authority and power,
have to act intra vires both the Memorandum and the Articles of Association. The
principles of the law of agency stipulate that agents (directors) can only act within
actual or ostensible authority to bind the principal (the company). Directors may in
some circumstances overstep their authority in the management of the company and
68
69
Critical Analysis (Unpublished). See also Adam Smith The Wealth of Nations published in 1776.
70
Foster v Foster [1916] 1 Ch 532 where there were three directors and there was a dispute as to who
should be appointed managing director. The articles provided for the appointment to be made by the
board of directors. Directors could not vote on a matter on which they had an interest. The general
meeting was allowed to act. See also Re Argentum Reductions (UK) Ltd [1975] 1 WLR 186
71
Alexander Ward & Co v Samyang Navigation Co [1975] 1 WLR 673,
in their dealings with third parties. The question to be asked is whether the company
is bound to third parties by such acts? This question was answered by Diplock LJ in
Freeman and Lockyer v Buckhurst Properties (Mangal )Ltd [1964] 2 QB 480 at 505
when he said:
‘The commonest form of representation by a principal creating an ‘apparent’
authority of an agent is by conduct, namely, by permitting the agent to act in
the management or conduct of the principal’s business. Thus, if in the case of
a company, the board of directors who have ‘actual’ authority under the
memorandum and articles of association to manage the company’s business,
permit the agent to act in the management or conduct of the company’s
business, they thereby represent to all persons dealing with such agent that
he has authority to enter on behalf of the corporation into contracts of a kind
which an agent authorized to do acts of the kind which he is in fact permitted
to do, normally enters into in the ordinary course of such business (….)]’
In these circumstances a company is bound and authority is established on the basis
of estoppel and the Act72. The company can also be held liable to a third party on the
basis of the Turquand Rule, the Indoor Management Rule.73 According to the rule, a
third party is allowed to assume that all internal regulations have been observed or
formalities fulfilled74. This common law position has been buttressed by section 24 of
the Companies and Other Business Entities Act 75 in terms of presumption of
regularity. The acts of a director or manager shall be valid notwithstanding any
defect that may afterwards be discovered in his appointment or qualification. 76
The powers of the directors lay the foundation of directors’ duties.
DUTIES OF DIRECTORS
The duty of care and the Business Judgement rule
In Zimbabwe, primary legislation relating to companies in the form of Companies and
Other Entities Act77, just like the English statute, is now largely codified. The
legislation now provides for the duty of care and business judgement rule 78. Every
director of a company or manager of a business entity is required to act in good faith.
viz-a-vis the company79. The duty of care has to be exercised at all times. Acting in
good faith means acting bona fides. All the decisions or acts of the director are to be
in the best interests of the company and not selfish interests. The care skill and
72
See the requirements for the establishment of this type of authority in Freeman and Lockyer v
Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 and section 24 of thee Companies and
Other Business Entities Act [Chapter 24:31]
73
See the case Royal British Bank v Turquand (1856) 6 EI & B1 327
74
Companies and Other Business Entities Act [Chapter 24:31] section 24
75
Ibid
76
Companies and Other Business Enties Act [Chapter 24:31] section 24
77
Companies and Other Business Entities Act [Chapter 24}31] section 54 (1)
78
Ibid section 54
79
attention expected is that of a business person with the requisite skill and no less 80.
In the exercise of the duty the director or manager may rely on reports of other
professionals such as lawyers, accountants, auditors and others 81. Here it is
essential to consult experts in any field, the director or manager is expected to act
with due diligence82. A business judgement entered after a due diligence exercise is
commendable and fulfils the duty83. A business manager or director who acts without
a personal interest in the matter also fulfils the requirements. One has to be fully
informed about the subject matter and avoid a conflict of interest 84. There is no
excuse for acting outside the parameters of this section whether the company
documents provide for it or not85. Ignorance is not a defence. Like the English
system, this duty has now been codified by the Act 86. It remains worthwhile to turn to
the common law of delict and equitable principles in considering this duty. This duty
lays the basis of liability of directors for negligence. It is important to appreciate that
the duty of care and skill is not a fiduciary duty and also that under common law the
duty is not premised on contract though a contractual arrangement may have a
bearing on the nature and scope of the duty. The Act 87 imposes liability on past and
present directors for carrying on of business recklessly or with gross negligence. The
question to be answered is what standard of care and skill is to be exercised by a
director. The consideration of this duty commences with the decision in Re Equitable
Fire Insurance Co Ltd.88The case established a subjective test in dealing with the
liability based on negligence. The degree or standard of care, skill and diligence has
evolved over the years since then. In the case Romer J. held that “[a] director need
not exhibit in the performance of his duties a greater degree of skill than may
reasonably be expected from a person of his knowledge and experience.” 89 The
focus was on the circumstances of the individual director in terms of his knowledge
and experience and not what would be expected of him from the reasonable man’s
perspective. In support of this position the judge quoted the words of Lindley M.R. in
Lagunas Nitrate Co v Lagunas Syndicate when he said:
‘If directors act within their powers, if they act with such care as is reasonably
to be expected from them, having regard to their knowledge and experience,
and if they act honestly for the benefit of the company they represent, they
discharge both their equitable as well as their legal duty to the company. 90
(….)]’
Further Romer J. held that:
80
Ibid
81
Ibid section 54 (2)
82
Ibid section 54 (3)
83
Ibid section 54 (4)
84
Ibid section 54 (4)
85
Ibid section 54 (4)
86
Ibid section 68
87
88
[1925] Ch 407 (Chancery Division)
89
[1925] Ch 407 at 428
90
[1899] 2 Ch 392 at 435
‘A director is not bound to give continuous attention to the affairs of his
company. His duties are of an intermittent nature to be performed at periodical
board meetings, and at meetings of any committee of the board upon which
he happens to be placed. He is not, however, bound to attend all such
meetings, though he ought to attend whenever, in the circumstances, he is
reasonably able to do so.91 (…)]’
This proposition is amply exemplified by Re Cardiff Savings Bank, Marquis of Bute’s
Case [18920 2 Ch 100. In this case, the bank had appointed the Marquis of Bute as
president and director at the age of six months only. He thus became a leading
figure in the corporate structure of the bank. In the following 38 years the Marquis
only attended one board meeting. During this period, frauds at unprecedented levels
were perpetrated by another director. The bank subsequently sued him for
negligence. The court held that the Marquis was not liable for breach of duty in failing
to attend board meetings. The case shows that the bank did not expect any
professional advice from their leading board member but just as a window dresser.
Nothing more was expected of the director. At the time of the case, the social system
was such that directorship was simply viewed as a status symbol without much being
attached to it in terms of obligations towards the company. Directors were
considered to be simply figureheads.
These decisions placed a very low standard of care on directors. The judges took the
approach that directors bore little personal responsibility to turn up for anything more
than board meetings and that they could delegate the day to day administration of
the company’s business to subordinate managers and employees.92 A number of
judicial decisions were passed since then but what comes out of these judgments is
the fact that in this new world, the company director bears positive obligations to
ensure the well-being of the company which were not understood to be the norm in
1925 when the Re Equitable Fire Insurance Co was decided.93 The standard of care
has been gradually rising as evidenced by Dorchester Finance Co Ltd v Stebbing94
where two non-executive directors were held to be negligent for not attending board
meetings of a subsidiary company even though it was shown that it was not the
usual business practice in that company to do so.
It is interesting to note that the law places a higher degree of care on bank directors
which is more extensive than that of other directors. This is because of the inherent
difficulties in monitoring banks due to the fact that a bank’s balance sheet is
notoriously opaque. Also the banking environment is susceptible to rapid
technological developments and increased financial sophistication of financial
products.95
91
[1925] Ch 407 at 428
92
Girvin. S et al, Charlesworth’s Company Law 18th Ed (Sweet & Maxwell 2010)
93
ibid
94
[1989] BCLC 498
95
See the American cases Briggs v Spauding 141 US 132, 151 (1891) and Letwin v Allen 25 N.Y.S.
2d 667 (N.Y. Sup.Ct. 1940) where a higher standard of care for bank directors than for non-bank
English courts have adopted both the subjective and objective tests in dealing with
the duty of care of directors. In Re D’Jan of London Ltd Hoffmann LJ held that:
‘It is the conduct of a reasonably diligent person having both- (a) the general
knowledge, skill and experience that may reasonably be expected of a person
carrying out the same functions as are carried out by that director in relation to
the company, and (b) the general knowledge, skill and experience that that
director has.96 (….)]’
Directors at times might delegate their duties to other officers or employees of the
company. The question is whether such a director might be held liable if loss arises.
This issue arose in Re Barings Plc97. Raising the bar of the duty of care further,
Jonathan Parker J held that:
(1) ‘Directors have, both collectively and individually, a continuing duty to acquire
and maintain a sufficient knowledge and understanding of the company’s
business to enable them properly to discharge their duties as directors. (ii)
Whilst directors are entitled (subject to the articles of association of the
company) to delegate particular functions to those below them in the
management chain, and to trust their competence and integrity to a
reasonable extent, the exercise of the power of delegation does not absolve a
director from the duty to supervise the discharge of the delegated function. (iii)
No rule of universal application can be formulated as to the duty referred to in
(ii) above. The extent of the duty, and the question whether it has been
discharged, must depend on the facts of each particular case, including the
director’s role in the management of the company.98 (….)]’
Directors therefore have to continually improve themselves in their area of expertise

to acquire knowledge and understanding of business processes. The modern trend
is to appoint to the positions of directors persons who add real value to the company.
In this regard companies look for individuals who have special professional attributes
and appoint them to directorship even if they are non-executive directors. This is
despite the Companies and Other Business Entities Act not specifying any
professional qualifications for directors.99 There is no prior test of competence that
must be passed by a person intending to become a director. However English law
has in place the Company Directors Disqualification Act 1986. The rationale behind
this Act is that since companies operate through the agency of human beings means
that inappropriate people must be prevented from acting as directors to prevent
inappropriate use of companies.100 The UK Institute of Directors has also introduced
a professional qualification for directors. The object of the qualification is to enable
directors was established.

96
[1994] 1 BCLC 561
97
[2000] 1 BCLC 523
98
[2000] 1 BCLC 523 at 535
99
See s173 of Companies Act [Chapter 24:03] on disqualification for appointment as director
100
See Girvin. S et al, Charlesworth’s Company Law 18th Ed (Sweet & Maxwell 2010) on directors
them to distinguish themselves from those without any recognized training. 101 It is
argued that in all areas of specialisation, professional qualifications are a sine qua
non for the effective and efficient discharge of professional duties, which directors
are expected to discharge.
In Toakoana Trading Pvt) v van Rooyen and Another102 the court per Mafusire J,
declared:
‘The court may declare that any past or present directors of a company or any
other person who knowingly carried on business (a) recklessly, or (b) grossly
negligently or (c) with intent to defraud any person or with fraudulent purpose
declare such a person, personally liable for all the debts of a company or
other liabilities as the court may declare under section 318 of the Companies
Act103.are practically synonymous in this context. They mean that a person
concerned the judicial officer must avoid the arm-chair approach, where harm
has ensued. Directors are to be diligent and devote their skill and energy for
the good of the company.
Important decisions are to be made on the spur of the moment. The terms
grossly negligent and recklessness are practically synonymous in this context.
They mean that the person concerned exhibits an “I do not care attitude”
where the person may not intend the harmful consequences of his actions
which are reasonably foreseeable but nonetheless persists with the conduct in
total disregard of the harmful consequences. Despite the separate depiction
of recklessness and gross negligence in section 318 of the Act both refer to
the conduct of business in an extremely bad manner. No matter how bad that
conduct may be (….)]’.
The duty of loyalty
Directors and controlling members are vested with duty of loyalty towards the
business entity104. The Companies and Other Business Entities Act 105 introduced the
concept of the duty of loyalty. Prior to its enactment reliance was placed on the
common law. The downside was that the law not available to all. The advantage of
codification is that the law can be discerned from one place. Managers, directors and
controlling members do have a duty of loyalty towards the enterprise.
The duty of loyalty includes the obligation not to unlawfully appropriate the property
of the enterprise for personal use 106. The confidential information or trade secrets of
the entity belong to the entity107. These are not to be disclosed to anyone or used by
101
Charles Wild and Stuart Weinstein, Smith and Keenan Company Law 15th Ed (Pearson 2011)
102
Toakoana Trading (Pvt) Ltd v van Rooyen and Another HH 684 of 2014
103
Companies Act [Chapter24:03]
104
Companies and Other Business Entities Act [chapter 24;31 section 56
105
Companies and Other Business Entities Act [Chapter 24;31] section 56
106
Ibid section 56 (3)
107
Ibid
a director108. All material information gathered by a director has to be relayed to the
board of directors at the nearest opportunity 109. Abusing a position in the company is
proscribed 110and so is the appropriation of the company’s business opportunity. The
duty of loyalty encompasses the obligation of the director or manager or the
controlling member not to compete with the business of the entity. 111. One’s position
in the entity is not to be abused for personal gain112. By the same token the
acceptance of personal benefits or demanding of personal benefits for doing
business with business partners goes against the ethos of the duty of loyalty 113. The
director is restricted to serving only the interests of the entity 114. At no time is a
director to do anything which deliberately harms the entity115. Personal or financial
interests in transactions have to be disclosed to the board of directors in advance 116.
Whenever the director or close relative or friend is involved the notice must be
submitted in advance117. The notice shall set out the nature of the transaction to be
entered into and the relationship involved118. The shareholders may in a general
meeting approve of the transaction or disapprove it 119. A failure to disclose as
aforesaid attracts a criminal penalty120.
The duties relating to directors fall into broad categories namely the fiduciary duties
which are based on the English law of equity and the common law duty of care, skill
and prudence. A brief discussion of the law of equities will put the position of
directors, vis-à-vis the company, into perspective. It is beyond the scope of this
chapter to trace the origins and the subsequent development of the law of equity.
However, the equitable duties of directors are based on the celebrated words of Lord
Ellesmere in Earl of Oxford’ Case121 where he said:
‘…men’s actions are so diverse and infinite that it is impossible to make any
general law which will aptly meet with every particular and not fail in some
circumstances. The office of the Chancellor is to correct men’s conscience for
fraud, breaches of trust, wrongs and oppressions of whatever nature so ever
they be, and so soften and mollify the extremity of the law.(….)]’
Against this background and in some circumstances, the common law is a relatively
blunt instrument which is capable of dealing with very obvious instances of fraud for
example, forgery but is less suited to dealing with conduct that is not expressly
108
Ibid
109
Ibid
110
Ibid
111
Companies and Other Business Entities Act [Chapter 24;31] 56
112
Ibid
113
Ibid
114
Ibid
115
Ibid
116
Ibid section 55 (4)
117
118
Ibid
119
Ibid section 56 (3)
120
Ibiid
121
[1615]1 Rep Ch 1 4, at 11
“criminal” but is nevertheless unconscionable.122 In relation to equity, the term fraud
is not used as used in common law. A breach of a fiduciary duty is seen as fraud
even if there has been no dishonesty involved. 123 The imposition by law of equitable
duties on directors essentially revolves around the issue of conscience. The
defendant’s unconscionable conduct will have resulted in the defendant acquiring
some advantage, whether personal or proprietary, which cannot be rightfully retained
by the defendant.124
Directors being agents of a company are in a fiduciary relationship with the
company. This was aptly captured by Lord Cranworth LC in Aberdeen Rly Co v
Blackie Bros 125 when he said:
‘The directors are a body to whom is delegated the duty of managing the
general affairs of the company. A corporate body can only act by agents, and
it is of course the duty of those agents so to act as best to promote the
interests of the corporation whose affairs they are conducting. Such agents
have duties to discharge of a fiduciary nature towards their principal (…)]’.
Because of the separation of ownership and control of companies and on the basis
of the agency theory, directors are expected to act in the best interests of the
company. In agency theory, shareholders as owners of the company expect their
agents, those in control, to act and make decisions in the principal’s interest. 126
However those in control may not necessarily make decisions in the best interests of
their principals since they may succumb to the self-interest opportunistic behaviour
and falling short of congruence between the aspirations of the principal and the
agent’s pursuits.127 This theory underpins the current legal framework of commercial
and corporate law on the fiduciary duties of the directors.
Generally the duties of directors are owed by the directors to the company as a
whole and not to individual shareholders in their personal capacities as was decided
in Percival v Wright128. Directors though appointed by the shareholders in general
meeting have but only one entity to be responsible and accountable to that is the
company as an aggregate of the corporators.129 Note must be taken that the
122
123
See Nocton v Lord Asburton [1914] AC 932
124
Sukhninder Panesar, Exploring Equity and Trusts (Pearson 2010)
125
(1854) 1 Macq 461 See also Multinational Gas and Petrochemical Co Ltd v Multinational Gas and
Petrochemical Services Ltd (1983) Ch 258 where the fiduciary nature of a director’s position was also
discussed.
126
See also M.M. Jensen & W.H. Meckling. “Theory of the Firm: Managerial Behaviour, Agency Cost
and Ownership Structure” (1976) 3 (4) JFE 305 on their discussion of the agency theory and the
relationship the directors have with the companies they superintend over.
127
Haslinda Abdullah & Benedict Valentine, “Fundamental and Ethics Theories of Corporate
Governance (2009) 4 MEFE 1450
128
[1902] 2 Ch 421
129
See Bell v Lever Bros Ltd [1932] AC 161 where it was held that the general duties of directors are
not owed to other companies with which the company is associated, e.g. its holding company ( cited
in John Birds et al Boyle & Birds’ Company Law 6th Ed ( Jordans 2007)
application of this legal position will depend on the circumstances of each case. This
was aptly summarized in Peskin v Anderson130 where Neuberger J said:
‘I am satisfied, both as a matter of principle and in light of the state of the
authorities, that Percival v Wright is good law in the sense that a director of a
company has no general fiduciary duty to shareholders. However, I am also
satisfied that, in appropriate and specific circumstances, a director can be
under a fiduciary duty to a shareholder. To hold that he has some sort of
general fiduciary duty to shareholders (a) would involve placing an unfair,
unrealistic and uncertain burden on a director and (b) would present him
frequently with a position where his two competing duties, namely his
undoubted fiduciary duty to the company and his alleged fiduciary duty to
shareholders would be in conflict (….)]’.
There are some circumstances where a fiduciary relationship may be created
between a director and individual shareholders especially where shares are held by
very few individuals. Such a situation may arise in a closed family company. In
circumstances where directors undertake to act as agents of members or
shareholders a fiduciary relationship arises between that director and the member or
shareholder. In Colman v Meyers [1977] 2 NZLR 225 (New Zealand Court of Appeal)
the court laid out some factors to be considered in determining the existence of a
fiduciary relationship which include, dependence upon information and advice, the
existence of a relationship of confidence, the significance of some particular
transaction for the parties and the extent of any positive action taken by and on
behalf of the director or directors to promote it.131
Liability of directors
Directors may be held liable civilly for any loss, or damage occasioned by an
infringement of sections; 54, 55, 56 and 57 132. A director who causes loss, damage
or cause a company to incur costs by acting without authority on behalf of the
company stands liable133. Acquiescence in the carrying on of business fraudulently,
recklessly, or negligently has civil liability consequences134.
General duties of directors
Since the Zimbabwe Companies and Other Entities Act codified the duties of
directors, their duties will also be discussed in line with other jurisdictions from which
the Zimbabwe system heavily borrows. Zimbabwe corporate law is hinged on the
Anglo-Saxon model of corporate law. Note is to be taken that the English system has
codified the duties of directors which had hitherto been a matter of determination by
130
[2001] 2 BCLC 1 at 10 cited in Alan Dignam & John Lowry Company Law 8th Ed (Oxford 2014)
131
See also Heron International Ltd v Lord Grade [1983] BCLC 9Court of Appeal) where a court
decided laid down that a director may owe duties to the company shareholders or members in a take-
over bid.
132
Companies and Other Business Entities Act [Chapter 24;31] section 197
133
Ibid
134
Ibid
common law rules and equitable principles. The codification of the duties does not
render previous case law redundant or irrelevant. The statutory provisions have to be
interpreted and applied by a court having “regard to the existing interpretation and
the continuing development of the common law rules and equitable principles on
which the statutory statement is based”.135 Legal duties of directors are designed to
deal with the agency problems which arise from the broad discretion given to
directors by virtue of the position which they occupy vis-à-vis the company.
In general terms, directors are expected to be loyal to companies on whose boards
they sit. Professor Robert C Clark136 explained this duty in the following words:
‘The most general formulation of corporate law’s attempted solution to the
problem of managerial accountability is the fiduciary duty of loyalty: the
corporation’s directors…owe a duty of undivided loyalty to their corporations,
and they may not so use corporate assets, or deal with the corporation, as to
benefit themselves at the expense of the corporation and its shareholders.
The overwhelming majority of particular rules, doctrines, and cases in
corporate law are simply an explication of this duty or of the procedural rules
and institutional arrangements involved in implementing it. The history of
corporate law is largely the history of the development of operational content
for the duty of loyalty. Even many cases that appear to be about dull
formalities or rules of the road in fact involve disputes arising out of alleged
managerial disloyalty…Most importantly, this general fiduciary duty of loyalty
is a residual concept that can include factual situations that no one has
foreseen and categorized. The general duty permits, and in fact has led to, a
continuous evolution in corporate law (….)]’.
From this general duty of directors stems other sub-duties of directors. The duties
relating to directors fall into broad categories namely the fiduciary duties which are
based on the English law of equity and the common law duty of care, skill and
prudence. The law of equities will put the position of directors, vis-à-vis the company,
into perspective. It is beyond the scope of this chapter to trace the origins and the
subsequent development of the law of equity. However, the equitable duties of
directors are based on the celebrated words of Lord Ellesmere in Earl of Oxford’
Case137 where he said:
‘…men’s actions are so diverse and infinite that it is impossible to make any
general law which will aptly meet with every particular and not fail in some
circumstances. The office of the Chancellor is to correct men’s conscience for
fraud, breaches of trust, wrongs and oppressions of whatever nature so ever
they be, and so soften and mollify the extremity of the law.(….)]’
135
The practical effect of this is that reference will have to be made to the statutory statement of duties,
but in order to understand and apply these duties the surrounding case law must be read.
Practitioners and judges will therefore continue to be required to refer back to the cases: L. Sealy & S.
Worthington Sealy’s Cases and Materials in Company Law 9th Ed (Oxford 2010) at 310
136
Cited in D. Kershaw Company Law in Context : Text and Materials (Oxford University Press, 2009)
137
[1615]1 Rep Ch 1 4, at 11
Against this background and in some circumstances, the common law is a relatively
blunt instrument which is capable of dealing with very obvious instances of fraud for
example, forgery but is less suited to dealing with conduct that is not expressly
“criminal” but is nevertheless unconscionable.138 In relation to equity, the term fraud
is not used as used in common law. A breach of a fiduciary duty is seen as fraud
even if there has been no dishonesty involved.139The imposition by law of equitable
duties on directors essentially revolves around the issue of conscience. The
defendant’s unconscionable conduct will have resulted in the defendant acquiring
some advantage, whether personal or proprietary, which cannot be rightfully retained
by the defendant.140
Directors being agents of a company are in a fiduciary relationship with the
company. This was aptly captured by Lord Cranworth LC in Aberdeen Rly Co v
Blackie Bros 141 when he said:
‘The directors are a body to whom is delegated the duty of managing the
general affairs of the company. A corporate body can only act by agents, and
it is of course the duty of those agents so to act as best to promote the
interests of the corporation whose affairs they are conducting. Such agents
have duties to discharge of a fiduciary nature towards their principal (…)]’.
Because of the separation of ownership and control of companies and on the basis
of the agency theory, directors are expected to act in the best interests of the
company. In agency theory, shareholders as owners of the company expect their
agents, those in control, to act and make decisions in the principal’s interest. 142
However those in control may not necessarily make decisions in the best interests of
their principals since they may succumb to the self-interest opportunistic behaviour
and falling short of congruence between the aspirations of the principal and the
agent’s pursuits.143 This theory underpins the current legal framework of commercial
and corporate law on the fiduciary duties of the directors.
Generally the duties of directors are owed by the directors to the company as a
whole and not to individual shareholders in their personal capacities as was decided
in Percival v Wright144. Directors though appointed by the shareholders in general
meeting have but only one entity to be responsible and accountable to that is the
138
139
See Nocton v Lord Asburton [1914] AC 932
140
Sukhninder Panesar, Exploring Equity and Trusts (Pearson 2010)
141
(1854) 1 Macq 461 See also Multinational Gas and Petrochemical Co Ltd v Multinational Gas and
Petrochemical Services Ltd (1983) Ch 258 where the fiduciary nature of a director’s position was also
discussed.
142
See also M.M. Jensen & W.H. Meckling. “Theory of the Firm: Managerial Behaviour, Agency Cost
and Ownership Structure” (1976) 3 (4) JFE 305 on their discussion of the agency theory and the
relationship the directors have with the companies they superintend over.
143
Haslinda Abdullah & Benedict Valentine, “Fundamental and Ethics Theories of Corporate
Governance (2009) 4 MEFE 1450
144
[1902] 2 Ch 421
company as an aggregate of the corporators.145 Note must be taken that the
application of this legal position will depend on the circumstances of each case. This
was aptly summarized in Peskin v Anderson146 where Neuberger J said:
‘I am satisfied, both as a matter of principle and in light of the state of the
authorities, that Percival v Wright is good law in the sense that a director of a
company has no general fiduciary duty to shareholders. However, I am also
satisfied that, in appropriate and specific circumstances, a director can be
under a fiduciary duty to a shareholder. To hold that he has some sort of
general fiduciary duty to shareholders (a) would involve placing an unfair,
unrealistic and uncertain burden on a director and (b) would present him
frequently with a position where his two competing duties, namely his
undoubted fiduciary duty to the company and his alleged fiduciary duty to
shareholders would be in conflict (….)]’.
There are some circumstances where a fiduciary relationship may be created
between a director and individual shareholders especially where shares are held by
very few individuals. Such a situation may arise in a closed family company. In
circumstances where directors undertake to act as agents of members or
shareholders a fiduciary relationship arises between that director and the member or
shareholder. In Colman v Meyers [1977] 2 NZLR 225 (New Zealand Court of Appeal)
the court laid out some factors to be considered in determining the existence of a
fiduciary relationship which include, dependence upon information and advice, the
existence of a relationship of confidence, the significance of some particular
transaction for the parties and the extent of any positive action taken by and on
behalf of the director or directors to promote it.147
General duties of directors
The Zimbabwe Companies and Other Business Entities Act does codify the duties of
directors, it is worthwhile to discuss the duties in line with other jurisdictions from
which the Zimbabwe system heavily borrows. These jurisdictions share the same
common law. Zimbabwe corporate law is hinged on the Anglo-Saxon model of
corporate law. Note is to be taken that the English system has codified the duties of
directors which had hitherto been a matter of determination by common law rules
and equitable principles. The codification of the duties does not render previous case
law redundant or irrelevant. The statutory provisions have to be interpreted and
applied by a court having “regard to the existing interpretation and the continuing
development of the common law rules and equitable principles on which the
145
See Bell v Lever Bros Ltd [1932] AC 161 where it was held that the general duties of directors are
not owed to other companies with which the company is associated, e.g. its holding company ( cited
in John Birds et al Boyle & Birds’ Company Law 6th Ed ( Jordans 2007)
146
[2001] 2 BCLC 1 at 10 cited in Alan Dignam & John Lowry Company Law 8th Ed (Oxford 2014)
147
See also Heron International Ltd v Lord Grade [1983] BCLC 9Court of Appeal) where a court
decided laid down that a director may owe duties to the company shareholders or members in a take-
over bid.
statutory statement is based”.148 Legal duties of directors are designed to deal with
the agency problems which arise from the broad discretion given to directors by
virtue of the position which they occupy vis-à-vis the company.
In general terms, directors are expected to be loyal to companies on whose boards
they sit. Professor Robert C Clark149 explained this duty in the following words:
‘The most general formulation of corporate law’s attempted solution to the
problem of managerial accountability is the fiduciary duty of loyalty: the
corporation’s directors…owe a duty of undivided loyalty to their corporations,
and they may not so use corporate assets, or deal with the corporation, as to
benefit themselves at the expense of the corporation and its shareholders.
The overwhelming majority of particular rules, doctrines, and cases in
corporate law are simply an explication of this duty or of the procedural rules
and institutional arrangements involved in implementing it. The history of
corporate law is largely the history of the development of operational content
for the duty of loyalty. Even many cases that appear to be about dull
formalities or rules of the road in fact involve disputes arising out of alleged
managerial disloyalty…Most importantly, this general fiduciary duty of loyalty
is a residual concept that can include factual situations that no one has
foreseen and categorized. The general duty permits, and in fact has led to, a
continuous evolution in corporate law (….)]’.
From this general duty of directors stems other sub-duties of directors.
Duty to avoid conflict of interest
A director should not allow a situation to develop where his interests and those of the
company are in conflict150. This duty is based on equity. It is an overriding principle of
equity that a man must not be allowed to put himself in a position in which his
fiduciary duty and his interest conflict.151 No matter how the conflict arises, it must be
disclosed. The disclosure in terms of section 58 has to be made to the board of
directors as soon as the director becomes aware of the conflict. The section does
impose on a director a continuous duty to disclose. From the wording of the
provision, the director need not be party to the transaction concerned. The disclosure
must be of the nature and full extent of his interest. The nature of disclosure was
captured by Trollip J in S v Heller 1964 (1) SA 524 (W) when citing Spencer Bower
Actionable Non-disclosure when he said;
‘According to common law, material facts relating to the nature of his interest
(director’s interest) must ordinarily be disclosed, that is those which if
148
The practical effect of this is that reference will have to be made to the statutory statement of duties,
but in order to understand and apply these duties the surrounding case law must be read.
Practitioners and judges will therefore continue to be required to refer back to the cases: L. Sealy & S.
Worthington Sealy’s Cases and Materials in Company Law 9th Ed (Oxford 2010) at 310
149
Cited in D. Kershaw Company Law in Context : Text and Materials (Oxford University Press, 2009)
150
151
See Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443, [1972] All ER 162.
disclosed, would influence the mind of a reasonable person in determining
whether to enter into the proposed contract or transaction at all, or deciding
upon the terms of such contract or transaction, having regard to its class and
character (….)]’.
The director can be directly conflicted as in the case Robinson v Randfontein
Estates Gold Mining Company Ltd152 or the interest can be indirect as in the case of
Aberdeen Rail Co v Blaikie Bros House of Lords (1854) 1 Macq 461 where a director
of a company was a partner of a partnership which concluded a contract with his
company and the goods subject to the sale were over-priced. Lord Cranworth LC
contended:
‘A corporate body can only act by agents, and it is, of course, the duty of
those agents so to act as best to promote the interests of the corporation
whose affairs they are conducting. Such an agent has duties of a fiduciary
character towards his principal, and it is a rule of universal application that no
one having such duties to discharge shall be allowed to enter into
engagements in which he has or can have a personal interest conflicting or
which possibly may conflict with the interest of those whom he is bound to
protect (….)]’.
In line with this line of reasoning, in Cook v Deek [1916] 1 AC 554 Lord Buckmaster
LC had this to say regarding this particular duty:
‘It is quite right to point out the importance of avoiding the establishment of
rules as to directors’ duties which would impose on them burdens so heavy
and responsibilities so great that men of good position would hesitate to
accept the office.153 But, on the other hand, men who assume complete
control of a company’s business must remember that they are not at liberty to
sacrifice the interests which they are bound to protect, and, while ostensibly
acting for the company, divert in their own favour business which should
properly belong to the company they represent (….)]’.
The issue of corporate opportunities frequently arises when dealing with the conflict
of interests between those of a director and those of the company. This relates to a
situation where a director takes opportunities for himself which opportunities could
have been pursued by the company.154 Consider also the case Regal (Hastings) Ltd
v Gulliver [1942] 1 All ER 378, [1967] 2 AC 134n (House of Lords). There are
arguments that if a company considers a new venture and concludes, on a properly
informed and bona fide basis, that it will not pursue the venture, then the company’s
directors will be free to pursue the venture on their own account without being in
152
[1921] AD 168
153
However times have changed since this case was decided. The bar relating to directors duties has
been raised and a lot is now expected of directors in the discharge of their duties.
154
See Cook v Deeks [1916] 1 AC 554 where directors pursued commercial contracts for themselves
instead on behalf of the company.
breach of their fiduciary duty to the company. 155 It goes without saying that on the
basis of common law, prior authorisation by the board of directors will excuse a
director from liability for conflict of interest. Further, members in general meeting may
ratify a breach of the duty thereby providing consent, approval and authorization of
the actions of a director ex post facto.
The directors and managers of companies do have a duty to disclose a conflict of
interest156. The duty of loyalty entails an additional duty to disclose all transactions
where the director has a conflict of interest 157. Disclosure takes place before the
matter is tabled at the directors’ meeting or general meeting 158. There has to be full
disclosure to enable the meeting to know what exactly is at stake 159. The director or
manager has to disclose all before the meeting, but must leave the meeting prior to
the deliberations on the matter 160. It goes without saying that the conflicted individual
must not take part in the discussion, except that he is counted for the purposes of
the quorum he is counted as if he was present 161. She may not execute any
document related to the issue at hand unless specifically requested to do so by the
meeting162. A criminal offence is created for any failure to comply with the
provision163. Moreover the Registrar may serve a category 1 civil penalty on the
person whether or not she is prosecuted164. The court on application may confirm the
transaction or decline to so confirm it as the case may be 165. A member or two
members may bring an action against director for loss occasion her through
contravening sections 54 and 55166. A member or shareholder may bring a derivative
167
action against a director, officer, or member the enforcement of sections 54 and 55
of the Act 168. The action may be in the name of the individual or in the company’s
name169. Some condionalities must be fulfilled before a member can institute the
proceedings170. Breach of duty or damages must be claimed 171. One must have been
a shareholder at the time of the transgression 172. The member is to hold at least ten
per cent of the voting power173. The plaintiff must have requested the director or
155
See Len Sealey & Sarah Worthington, Sealy’s Cases and Materials in Company Law 9th Ed
(Oxford 2010) at 341
156
157
Ibid
158
Ibid
159
Ibid
160
Ibid
161
Ibid
162
163
Ibid
164
Ibid
165
Ibid
166
Ibid section 60
167
Ibid section 61
168
Ibid section 61
169
Ibid
170
Ibid
171
Ibid
172
Ibid
173
Ibid
controlling member to rectify the issues174. The complaint is to be accompanied by
the request to rectify175. Complaints under this section may not be settled out of court
the court say so176. Any damages awarded are due to the company 177. Plaintiff is
entitled only to taxed costs178.
Duty to act within powers
The Articles of Association confer authority on directors to manage the affairs of the
company. Table A Articles of the Zimbabwe Companies and Other Business Entities
Act179 article.81, provide that the business of the company shall be managed by the
directors…and may exercise all such powers of the company as are not, by the Act
or by these regulations, required to be exercised by the company in general meeting,
subject, nevertheless, to any of these regulations, to the provision of the Act, and to
such regulations, being not inconsistent with the aforesaid regulations or provisions,
as may be prescribed by the company in general meeting…
The import of this provision is that, directors as agents of the company have to act
intra vires the powers conferred on them by the articles. Because the articles
compliment the Memorandum of Association, directors must also comply with the
provisions of the company’s constitution which is the Memorandum of Association. It
follows therefore that a director must not allow the company to act outside the
powers conferred to it by its constitution. This is the basis of the liability of an officer
where a company suffers loss arising out of an ultra vires transaction in relation to
the objects clause. It follows therefore that the use of power outside the objects
clause is an example of the use of power for an improper or extraneous purpose.
This was aptly captured by Turner LJ in the old English case Re Cameron’s
Coalbrook Steam Coal, and Swansea and Lougher Railway Co, Bennett’s Case
(1854) 5 De G M & G 284180 when he said:
‘…in the exercise of the powers given to them…[directors] must, as I
conceive, keep within the proper limits. Powers given to them for one purpose
cannot, in my opinion, be used by them for another and different purpose. To
permit such proceedings on the part of directors of companies would be to
sanction not the use but the abuse of their powers. It would be to give effect
and validity to an illegal exercise of a legal power.
As with all agency situations, a director has to exercise the company’s powers for
the purposes for which they are conferred. However it might be impossible to
circumscribe every conceivable circumstance where directors can be said to have
utilized their powers for an improper purpose. Each case therefore has to be
174
Ibid
175
Ibid
176
Ibid
177
Ibid
178
Ibid
179
Companies and Other Business Entities Chapter [24;31]
180
Cited in D. French, S. Mayson and C. Ryan Mayson, French &Ryan on Company Law 29th Ed
2012-2013 (Oxford University Press 2012)
determined by the courts on its own merits. In Howard smith Ltd v Ampol Petroleum
Ltd [1974] AC 821, at 835 Lord Wilberforce said:
‘In their lordships’ opinion it is necessary to start with a consideration of the
power whose exercise is in question… Having ascertained, on a fair view, the
nature of the power, and having defined as can best be done in light of
modern conditions the, or some, limits within which it may be exercised, it is
then necessary for the court, if a particular exercise of it is challenged, to
examine the substantial purpose for which it was exercised, and to reach a
conclusion whether that exercise was proper or not. In doing so it will
necessarily give credit to the bona fide opinion of the directors, if such is
found to exist, and will respect their judgment as to matters of management;
having done this, the ultimate conclusion has to be as to the side of a fairly
broad line on which the case falls (….)]’
This reasoning resonates well with the American Business Judgment Rule, though
the rule is usually employed in circumstances of directors’ negligence. The
framework of this rule is that courts presume that in making a business decision, the
directors of a corporation acted on an informed basis, in good faith and in the honest
belief that the action was taken in the best interests of the company. 181 When this
rule is applied the plaintiff carries the burden of rebutting the presumption in favour of
sound business judgment by showing that the directors were not sufficiently
informed, the directors could not rationally believe that the decision was in the best
interests of shareholders.182 Situations of take-overs either to block a take-over or to
facilitate a take-over create serious challenges. This is usually done by directors
allotting shares to secure a dominant position on a vote either by themselves or by
close confidantes.
Avoidance and other remedies for conflict of interest transactions
An entity may seek to have a contract entered into on its behalf declared void,
although such voidance shall be without prejudice to third parties rights acquired in
good faith183. The entity may assert for other remedies as stipulated in sections 60,
61 and 62184. For purposes of accountability a director of company who is the Chief
Executive of the company shall not be the chairperson of the board of directors 185. It
is pertinent to note that for every company at least one director is to be resident in
Zimbabwe186. Any personal gain acquired by the director or manager may be
transferred to the entity or the entity may be indemnified for any loss or damage 187. A
court dealing with the case in terms of the Act may if satisfied that the director, acted
181
See Aronson v Lewis 473 A.2d 805, 812 (Del)
182
See John Armour and Jeffrey Gordon, ‘Systemic Harms and Shareholder Value’ (2014) 34 (6) JLA
64, on their discussion of tort liability of directors of banks.
183
Companies And Other Business Entities Act [Chapter 24:31] section 58
184
Ibid
185
186
Ibid
187
Ibid
honestly in all respects can relieve him wholly or partially from his liability 188. The
director may apply to court for a declaration in terms of the section prior to being
sued by the entity189. A member of a company or business corporation may bring an
action against an officer or director for damages or loss caused by her through a
violation or a duty190. An individual may in her own name bring an action or two or
more members may bring the action in their own names. 191 There is an improvement
on the repealed Act192.
Duty to promote the success of the company
Directors or managing persons of private business corporations owe a duty to
promote the success of the company193. The new Act194 lays down what is expected
of directors of companies. The duty to promote the success of the company includes
inter alia; the exercise of independent judgement in all matters concerning the
company; acting within the powers given and acting in good faith at all times for the
success of the company195. It goes without saying that in every decision due regard
is to be given to the long term effects of the decision on the company and on the
employees of the company196. The decisions are to foster good relationships with
customers suppliers and the generality of the population 197. Decisions must foster
high standards of professionalism at the same time acting fairly towards
shareholders198. The maximum number of directorships held by a director in a public
company is now limited to six and these are to be declared at each board meeting 199.
Directors who were serving on more than six boards at the time of promulgation of
the Act are exempt from the penalties but must cease some at their expiry to avoid
transgressing200. A director who contravenes this provision may be served with a
category 2 civil penalty201. A defect or default in the appointment of director does not
affect the validity of transactions entered into by him in good faith 202. Directors are
obliged to maintain high ethical standards and reputation 203. The responsibilities of
director may not be delegated or assigned to anyone including the responsibility of
188
Ibid
189
Ibid
190
Ibid section 60
191
Ibid
192
Companies Act [Chapter 24:03}
193
Companies and Other Business Entities CT [Chapter 24;31] section 195
194
Ibid4)
195
196
197
Ibid
198
Ibid
199
200
201
202
203
Ibid
accountability204. Be that as it may, non-co-management duties like clerical and
administrative duties may be delegated205.
However as an exception, S 57206 requires a director to disclose any conflict of

interest and also to have regard to the interests of employees. The English
Companies Act 2006 provided a statutory code of the directors’ duties. Before then it
was a matter of common law and equitable principles of fiduciaries circumscribing
the duties of directors. Reliance on common law in articulating directors’ duties has
its own drawbacks. Not all directors have legal training and in this regard they might
find it difficult to comprehend the import of their duties. Ambiguities and gaps existing
in case law also pose a challenge for circumscribing the behaviour of directors. The
business environment is also a dynamic environment which is continually in a state
of flux. Case law might be slow to deal with the rapidly changing circumstances. The
unscrupulous directors are prone to utilise this statutory loophole to feather their own
nests at the expense of the company and other stakeholder interests.207
Directors having been appointed to superintend over the affairs of the company and
the company being in business to make profit, it is therefore incumbent upon
directors to ensure that this objective is realised. It therefore goes without saying that
the fundamental duty of directors is to ensure that the business enterprise of the
company is a success. It must be noted however that success does not only relate to
financial success. It also relates to relationships with various stakeholders, the
environment and the community at large. This is why in terms of reporting, directors’
reports must include non-financial issues.208 The current standard of financial
reporting in line with corporate governance, directors must engage in sustainable or
integrated reporting which takes account of environmental and social responsibility
issues.
The activities of the directors should be for the benefit of the shareholders as a
whole and not for the benefit of an individual shareholder or director. It was held in
Smith and Fawcett Ltd, Re209 that directors were required to act bona fide in what
they consider is in the best interests of the company and not for any collateral
purpose. This has been the traditional approach of both American and English
systems to corporate law.210 Times have since changed and corporate law has
evolved over the years where other factors have become part of the matrix in
determining the success of a company. 211 What this duty entails has been eloquently
204
205
Ibid
206
207
208
Note should be taken though that this position does not supersede the shareholder supremacy of a
firm’s objectives.
209
[1942] Ch 304 CA
210
See Dodge v Ford Motor Co 204 Mich. 459, 170 N.W. 668, Michigan Supreme Court.
211
See the argument in Len Sealey & Sarah Worthington, Sealy’s Cases and Materials in Company
Law 9th Ed (Oxford 2010) at 301-303 regarding the enlightened shareholder value approach were
interests of other stakeholders have to be taken into account by directors. The debate on the issue is
outlined by the English Act CA 2006 s 172, what can be referred to as the six factors.
In this regard the success of any company should be determined on its own merits.
In dealing with the issue Pennycuick J in Charterbridge Corporation Ltd v Lloyds
Bank Ltd212 proposed the use of an objective test. The judge had this to say:
‘The proper test, I think, in the absence of actual separate consideration, must
be whether an intelligent and honest man in the position of a director of the
company concerned, could, in the whole of the existing circumstances, have
reasonably believed that the transactions were for the benefit of the company.
If, therefore, a director of a company has acted without separately considering
the company’s interests and there is no basis on which a director could
reasonably have concluded that the action was in the company’s interests, the
court will find that the director was in breach of duty (….)]’.
Fraudulent, reckless or wilful failure of financial accounting and falsification of
records
A director who fraudulently, recklessly, or wilfully, fails to take reasonable steps to
comply with the requirement of: keeping financial records and statement of financial
position; statement of financial records, statement of comprehensive income, general
provisions as to contents, obligation to lay group accounts before holding company,
commits a crime in respect of each failure213. Where the directors believed on
reasonable grounds that the person or persons employed were capable of complying
and that the requirements of the provision were met is a defence. However if that is
proved then the Registrar will raise a civil penalty order against the director 214.
The high court may on application restrain a person who has been convicted for any
offence involving dishonesty of contravening the Companies and Other Business
Entities Act215 from becoming a director of a company.
Duty not to make a secret profit
This duty is tied up with the duty to avoid a conflict of interest.
The legal position of this duty was stated by Lord Russell of Killowen in Regal
(Hastings) Ltd v Gulliver [1942] 1 All ER 378. He stated:
‘The rule of equity which insists on those, who by use of a fiduciary position
make a profit, being liable to account for that profit, in no way depends on
fraud, or absence of bona fides; or upon such questions or considerations as
whether the profit would or should otherwise have gone to the plaintiff, or
well encapsulated by the exchanges between A A Berle and E M Dodd in (1931) 44 Harv LR 1049.
See also M Friedman’s retort ‘The Social Responsibility of Business is to Increase Its Profit’ The New
Times Magazine September 13, 1970.
212
[1970] Ch 62 The case was later followed in Item Software (UK) Ltd v Fassihi [2004] EWCA Civ
1244.
213
Companies and Other Entities Act [Chapter 24:31] section 69
214
Companies and Other Business Entities Act [Chapter 24:31[ section 69
215
whether the profiteer was under a duty to the source of the profit for the
plaintiff, or whether he took a risk or acted as he did for the benefit of the
plaintiff, or whether the plaintiff has in fact been damaged or benefited by his
action. The liability arises from the mere fact of the profit having, in the stated
circumstances, been made. The profiteer, however honest and well-
intentioned, cannot escape the risk of being called upon to account (…)]’.
The same reasoning was applied in Industrial Development Consultants Ltd v
Cooley216 where a director was held to account for profit realised after he had
resigned his directorship. However, it is contended that the Regal position should not
be applied in a straight-jacked manner. Each case has to be decided on its own
merits. Some persuasive arguments were advanced by Laskin J in the Canadian
case Canadian Aero Services Ltd v O’Malley (1974) 40 DLR (3d) 371 (SCC) when
he said that;
‘The general standards of loyalty, good faith and avoidance of a conflict of
duty and self-interest to which the conduct of a director or similar officer must
conform, must be tested in each case by many factors which it would be
reckless to attempt to enumerate exhaustively. Among them are the factor of
position or office held, the nature of the corporate opportunity, its ripeness, its
specific-ness and the director’s or managerial officer’s relation to it, the
amount of knowledge possessed, the circumstances in which it was indeed
obtained and whether it was special or, indeed, even private, the factor of time
in the continuation of fiduciary duty where the alleged breach occurs after the
termination of the relationship with the company, and the circumstances under
which the relationship was terminated, that is whether by retirement or
resignation or discharge (….)]’.
Duty to exercise reasonable care, skill and diligence
This duty has now been codified by the Zimbabwe Act This duty lays the basis of
liability of directors for negligence. It is important to appreciate that the duty of care
and skill is not a fiduciary duty and also that under common law the duty is not
premised on contract though a contractual arrangement may have a bearing on the
nature and scope of the duty. Judicial pronouncements will be utilized to determine
its application. The question to be answered is what standard of care and skill is to
be exercised by a director.
The consideration of this duty commences with the decision in Re Equitable Fire
Insurance Co Ltd.217. The case established a subjective test in dealing with the
liability based on negligence. The degree or standard of care, skill and diligence has
evolved over the years since then. In the case Romer J. held that “[a] director need
not exhibit in the performance of his duties a greater degree of skill than may
216
[1972] All ER 162
217
[1925] Ch 407 (Chancery Division)
reasonably be expected from a person of his knowledge and experience.” 218 The
focus was on the circumstances of the individual director in terms of his knowledge
and experience and not what would be expected of him from the reasonable man
perspective. In support of this position the judge quoted the words of Lindley M.R. in
Lagunas Nitrate Co v Lagunas Syndicate when he said:
‘If directors act within their powers, if they act with such care as is reasonably
to be expected from them, having regard to their knowledge and experience,
and if they act honestly for the benefit of the company they represent, they
discharge both their equitable as well as their legal duty to the company. 219
(….)]’
Further Romer J. held that:
‘A director is not bound to give continuous attention to the affairs of his
company. His duties are of an intermittent nature to be performed at periodical
board meetings, and at meetings of any committee of the board upon which
he happens to be placed. He is not, however, bound to attend all such
meetings, though he ought to attend whenever, in the circumstances, he is
reasonably able to do so.220 (…)]’
This proposition is amply exemplified by Re Cardiff Savings Bank, Marquis of Bute’s
Case [18920 2 Ch 100. In this case, the bank had appointed the Marquis of Bute as
president and director at the age of six months only. He thus became a leading
figure in the corporate structure of the bank. In the following 38 years the Marquis
only attended one board meeting. During this period, frauds at unprecedented levels
were perpetrated by another director. The bank subsequently sued him for
negligence. The court held that the Marquis was not liable for breach of duty in failing
to attend board meetings. The case shows that the bank did not expect any
professional advice from their leading board member but just as a window dresser.
Nothing more was expected of the director. At the time of the case, the social system
was such that directorship was simply viewed as a status symbol without much being
attached to it in terms of obligations towards the company. Directors were
considered to be simply figureheads.
These decisions placed a very low standard of care on directors. The judges took the
approach that directors bore little personal responsibility to turn up for anything more
than board meetings and that they could delegate the day to day administration of
the company’s business to subordinate managers and employees. 221 A number of
judicial decisions were passed since then but what is coming out of these judgments
is the fact that in this new world, the company director bears positive obligations to
ensure the well-being of the company which were not understood to be the norm in
218
[1925] Ch 407 at 428
219
[1899] 2 Ch 392 at 435
220
[1925] Ch 407 at 428
221
Girvin. S et al, Charlesworth’s Company Law 18th Ed (Sweet & Maxwell 2010)
1925 when the Re Equitable Fire Insurance Co was decided.222 The standard of care
has been gradually rising as evidenced by Dorchester Finance Co Ltd v Stebbing 223
where two non-executive directors were held to be negligent for not attending board
meetings of a subsidiary company even though it was shown that it was not the
usual business practice in that company to do so.
It is interesting to note that the law places a higher degree of care on bank directors
which is more extensive than that of other directors. This is because of the inherent
difficulties in monitoring banks due to the fact that a bank’s balance sheet is
notoriously opaque. Also the banking environment is susceptible to rapid
technological developments and increased financial sophistication of financial
products.224
English courts have adopted both the subjective and objective tests in dealing with
the duty of care of directors. In Re D’Jan of London Ltd Hoffmann LJ held that:
‘It is the conduct of a reasonably diligent person having both- (a) the general
knowledge, skill and experience that may reasonably be expected of a person
carrying out the same functions as are carried out by that director in relation to
the company, and (b) the general knowledge, skill and experience that that
director has.225 (….)]’
Directors at times might delegate their duties to other officers or employees of the
company. The question is whether such a director might be held liable if loss arises.
This issue arose in Re Barings Plc.226 raising the bar of the duty of care further,
Jonathan Parker J held that:
(2) ‘Directors have, both collectively and individually, a continuing duty to acquire
and maintain a sufficient knowledge and understanding of the company’s
business to enable them properly to discharge their duties as directors. (ii)
Whilst directors are entitled (subject to the articles of association of the
company) to delegate particular functions to those below them in the
management chain, and to trust their competence and integrity to a
reasonable extent, the exercise of the power of delegation does not absolve a
director from the duty to supervise the discharge of the delegated function. (iii)
No rule of universal application can be formulated as to the duty referred to in
(ii) above. The extent of the duty, and the question whether it has been
discharged, must depend on the facts of each particular case, including the
director’s role in the management of the company.227 (….)]’
222
ibid
223
[1989] BCLC 498
224
See the American cases Briggs v Spauding 141 US 132, 151 (1891) and Letwin v Allen 25 N.Y.S.
2d 667 (N.Y. Sup.Ct. 1940) where a higher standard of care for bank directors than for non-bank
directors was established.
225
[1994] 1 BCLC 561
226
[2000] 1 BCLC 523
227
[2000] 1 BCLC 523 at 535
Directors therefore have to continually improve themselves in their area of expertise
to acquire knowledge and understanding of business processes. The modern trend
is to appoint to the positions of directors persons who add real value to the company.
In this regard companies look for individuals who have special professional attributes
and appoint them to directorship even if they are non-executive directors. This is
despite the Companies Act not specifying any professional qualifications for
directors.228There is no prior test of competence that must be passed by a person
intending to become a director. However English law has in place the Company
Directors Disqualification Act 1986. The rationale behind this Act is that since
companies operate through the agency of human beings means that inappropriate
people must be prevented from acting as directors to prevent inappropriate use of
companies.229 The UK Institute of Directors has also introduced a professional
qualification for directors. The object of the qualification is to enable them to
distinguish themselves from those without any recognized training. 230 It is argued that
in all areas of specialization, professional qualifications are a sine qua non for the
effective and efficient discharge of professional duties, which directors are expected
to discharge.
In Toakoana Trading Pvt) v van Rooyen and Another231 the court per Mafusire J,
declared:
‘The court may declare that any past or present directors of a company or any
other person who knowingly carried on business (a) recklessly, or (b) grossly
negligently or (c) with intent to defraud any person or with fraudulent purpose
declare such a person, personally liable for all the debts of a company or
other liabilities as the court may declare under section 318 of the Companies
Act232.are practically synonymous in this context. They mean that a person
concerned. The judicial officer must avoid the arm-chair approach, where
harm has ensued. Directors are to be diligent and devote their skill and
energy for the good of the company.
Important decisions are to be made on the spur of the moment. The terms
grossly negligent and recklessness are practically synonymous in this context.
They mean that the person concerned exhibits an “I do not care attitude”
where the person may not intend the harmful consequences of his actions
which are reasonably foreseeable but nonetheless persists with the conduct in
total disregard of the harmful consequences. Despite the separate depiction
of recklessness and gross negligence in section 318 of the Act both refer to
the conduct of business in an extremely bad manner. No matter how bad that
conduct may be the conduct did not (….)]’
228
See s173 of Companies Act [Chapter 24:03] on disqualification for appointment as director
229
See Girvin. S et al, Charlesworth’s Company Law 18th Ed (Sweet & Maxwell 2010) on directors
230
Charles Wild and Stuart Weinstein, Smith and Keenan Company Law 15th Ed (Pearson 2011)
231
Toakoana Trading (Pvt) Ltd v van Rooyen and Another HH 684 of 2014
232
Companies Act [Chapter24:03]
In The Sheriff and Others v Taruwinga and Others233 the claimants resisted the
attachment of property in interpleader proceedings. Their claim was that the property
was personal and not the property of the company. The judgement debt was that of
the company. It was proved that they were the sole directors of the company. The
Sheriff had also discovered that the company was run from the claimants’ home
where the property in question was attached. The claimants argued that the
company was a separate legal persona from themselves and as such company
obligations could not be visited upon them. The judgement creditor directed the
Sheriff to attach the property at the directors’ residence, they being the persons who
solely ran the company and were the alter ego of the company. It was not necessary
to approach court for the piercing of the corporate veil before attaching the property.
The court per Matanda Moyo J held:
‘The directors of the company may be held personally liable for their actions
when they have acted fraudulently, unjustly and when for the court to refuse
to do so would deprive an innocent victim of redress for any injury caused to
them. Where the directors have failed to observe separateness themselves
and the company; then that remedy should not be refused at interpleader
stage. Where the directors are the alter ego of the company the courts can
confirm the attachment of their property without having cited them in the
proceedings because the alter ego of the company is always aware of the
happenings at the company at any given time and the issue of non-
observance of the principle of audi alteram partem does not apply. There is no
reason to require the judgement creditor to institute fresh proceedings to
pierce the corporate veil in circumstances where those proceedings should
entail the same conclusion (….)]’.
Duty to exercise independent discretion/judgment
In the discharge of his functions a director must exercise “unfettered discretion” in
the decisions which he makes. This means that a director must make decisions
independent of the influence of any other person or entity. Independent discretion is
designed to prevent company affairs to be tainted by outside machinations of the
board. The existence of board capture has serious repercussions on the economic
well-being of a company. Board decisions in an environment where there is board
capture might not be in the best interests of the company but for the personal
interests of an individual or individuals. Directors’ decisions must be for the best
interests of the company.
This duty does not seek to prohibit directors from seeking advice as long as the
ultimate decision made is made independently. Lord Goldsmith had this to say
regarding this duty:
‘…the clause does not mean that a director has to form his judgment totally
independently from anyone or anything. It does not actually mean that the
director has to be independent himself. He can have an interest in the
233
The Sherffiff and Others v Taruvinga and Others, HH 628 of 2014
matter… It is the exercise of the judgment of a director that must be
independent in the sense of it being his own judgment…The duty does not
prevent a director from relying on the advice or work of others, but the final
judgment must be his responsibility. He clearly cannot be expected to do
everything himself. Indeed, in certain circumstances directors may be in
breach of duty if they fail to take appropriate advice-for example, legal advice.
As with all advice, slavish reliance is not acceptable, and the obtaining of
outside advice does not absolve directors from exercising their judgment on
the basis of such advice.234 (….)]’
The duty to exercise independent discretion is inherent in the duties of a fiduciary.
This was captured by Lord Denning MR in Boulting v Association of Cinematograph,
Television and Allied Technicians.235 He said:
‘It seems to me that no one, who has duties of a fiduciary nature to discharge,
can be allowed to enter into an engagement by which he binds himself to
disregard those duties or to act inconsistently with them. No stipulation is
lawful by which he agrees to carry out his duties in accordance with the
instructions of another rather than on his own conscientious judgment; or by
which he agrees to subordinate the interests of those whom he must protect
to the interests of someone else. (….)]’236
Directors acting other than in person
Directors may at present make company decisions without necessarily voting at the
meeting as they can instead adopt by written consent the action so taken 237. In line
with advancement in technology board meetings can be held virtually for as long as
all can participate except if it is prohibited by the memorandum of association 238. All
directors who attend in this way are regarded as present at the meeting239.
Liability of directors and prescribed officers
Company directors may be liable for any loss or damage occasioned by a breach of
the common-law fiduciary duty240. Directors incur liability as well for breaching the
provisions of sections; 54, 55, 56, 57, and section 195 of the Act 241. Any act or
omission contrary to the provisions in the articles or memorandum of association
attracts liability for a director242. Loss, costs damages caused by a director knowingly
234
Cited in Nicholas Bourne Bourne on Company Law 6th Ed (Routledge 2013)
235
[1963] 2 QB 606
236
[1963] 2 QB 606, 626.
However consider situations where a director acts in the interests of the company, the agreement is
entered into with the company or acts in a way that is permitted by the memorandum of association or
the articles of association.
237
Companies and Other Business Entities Act [Chapter 24;31] section 196 (1)
238
239
Ibid
240
241
Ibid
242
Ibid
acting without authority create personal liability for the director as well 243.
Acquiescence in the conduct of business fraudulently, recklessly or grossly
negligently also attracts liability244. Liability for directors arises in many instances
where provisions of the Act are breached such as false statements in constitutive
documents, false statements in the prospectus, inaccurate financial statements
among other things245.
Disqualification for appointment as director
Some persons are disqualified from appointment as directors of companies 246.
Minors and other persons with mental disabilities are disqualified by virtue of the fact
that they do not have legal capacity 247. A body corporate is disqualified because it
has no body of its own or soul 248. People who are removed from any office of trust for
misconduct can only be appointed directors with the leave of the court 249. Any person
who has been convicted of any offence involving dishonesty in Zimbabwe or
anywhere and he is sentenced to imprisonment without the option of a fine or a fine
exceeding level five is disqualified250. Insolvents, bankrupts under the law in
Zimbabwe or elsewhere are excluded from the office of director unless and until they
have been rehabilitated251. Persons who contravene these provisions will be
criminally liable252.
Appointment of directors
Directors of a public company are voted for individually at an annual general
meeting253. It may be done if members have agreed prior to the resolution.
Removal of directors
Any number of directors may be removed from the office of director with or without a
stated reason at a general meeting by a majority of votes. The director/s are entitled
to the requisite notice specifying the purpose of the meeting254. Unlike the previous
Act it seems the provision permitting the director audience to defend herself before
the decision is made is no longer part of the law. Similarly, a director may resign by
giving written notice to the board of directors255. Resignation is effective from the date
it is given unless a future date is given256. Vacancies in the office of director may be
filled at the next general meeting except were the contrary is provided in the articles
243
244
Ibid
245
Ibid
246
Ibid section 200
247
Ibid
248
Ibid
249
Ibid
250
Ibid
251
252
Ibid
253
Ibid section 201
254
Ibid section 202
255
Ibid section 202
256
Ibid
of association257. In the event that the number of directors falls below twenty five per
cent (25%) the company may call an extra-ordinary general meeting to fill the
vacancies258.
Corporate governance policy for public companies

Every public company shall adopt a corporate governance policy or draft one for
itself259. The guidelines are to cover: the qualifications of directors, independence of
directors, disqualification of directors, responsibilities of directors, attendance at
meetings, diligence, how to disclose conflict of interest, director compensation
policies, succession policies260. The guidelines are to be in line with the National
Code of Conduct261. Guidelines are availed to all shareholders at the cost of the
shareholders262. The directors shall report on the compliance with the guidelines at
every annual general meeting263. Companies are to encourage diversity and gender
balance in the management structure of the company264.
REMEDIES
These will be dealt with after your preliminary review of the foregoing
D LIABILITY OF DIRECTORS/COMPANY REMEDIES
A director or member or official who allows a company to carry on business for more
than six months when it has no members is held personally liable for the debts
incurred by the company together with the company265.
E ADMINISTRATION OF CORPORATE TAX
Taxable period
The tax year-end is 31 December each year. Applications may be made for a
different year-end if good reasons are given for instance to comply with the
international group year-end). In the first year of trade, a longer or shorter period
than twelve (12) months may be accepted to tie up with a future year-end.
Tax returns
The Corporate Income Tax return is due by 30 April in the following tax year.
Tax payment
257
Ibid section 203
258
Ibid
259
260
261
Ibid
262
263
264
Companies and Other Business Entities t [Chapter 24:31] section 220 (4)
265
Corporate tax is currently being administered under a provisional tax system, where
a corporate or a trading concern is expected to estimate the profit for the year which
gives rise to the taxable income and pay tax based on that estimate. The corporate
will then pay Quarterly Payment Dates (QPDs) as the year progresses based on the
estimated taxable income for the year. The QPDs are executed as follows:
Quarter Tax due Due date
First quarter 10% 25 March
Second quarter 25% 25 June
Third quarter 30% 25 September
Fourth quarter 35% 20 December
At the end of the year, the corporate is expected to prepare the actual financial
statements and compare the provisional tax paid through QPDs with the actual tax
liability and pay any shortfall that maybe there or claim a tax refund from ZIMRA if
there is an overpayment.
All taxes are expected to have been paid by the 25th day of December. If there is an
adjustment after the year-end accounts have been finalised, a top-up payment must
be made. There is no set date for this. However, in practice, this payment should not
be more than 10% of the annual tax liability. ZIMRA often imposes a 10% per annum
interest charge on any underpayments of QPDs.
The corporate income tax (CIT) rate for companies (other than mining companies
with special mining leases, but including branches) is 25.75%. This rate includes a
base rate of 25% plus a 3% AIDS levy.
Zimbabwe presently operates on a source-based tax system. This means that
income from a source within, or deemed to be within, Zimbabwe will be subject to tax
in Zimbabwe unless a specific exemption is available. The specific circumstances of
a transaction should always be considered to determine whether the transaction
gives rise to taxation in Zimbabwe.
Income earned by foreign companies from a source within, or deemed to be within,
Zimbabwe will be subject to tax in Zimbabwe. In such a case, one should determine
whether the foreign entity is obligated to register a local entity. A company is
required to register a branch if it has established a place of business or is otherwise
considered to be trading in Zimbabwe. A local subsidiary company may be
registered as an alternative to a branch operation.
Non-residents who do not have a place of business in Zimbabwe may, however, be
subject to withholding tax (WHT).
Determination of Income
Taxes are levied on taxable income as defined in the Act 266 rather than on profits. It
is the nature and source of income that determines whether or not it is taxable
266
Income Tax Act Chapter
income rather than the identity or country of residence of the recipient. All receipts,
excluding those of a capital nature, arising from a source within or deemed to be
from a source within Zimbabwe are taxed regardless of the residential status of the
taxpayers. Income from outside is taxable if its source is ‘deemed’ by legislation to
be within Zimbabwe.
Taxable Income
Receipts from within and deemed source XXX
Less: Receipts of a Capital Nature (XX)
Gross Income (Section 8)
XXX
Less Exempt Income (Section 14) (XX)
Income
XXX
Less Allowance expenditure & Allowances (Section 15) (XX)
Taxable income
XXX
Accounting profit is determined in the same manner. This is the reason why
adjustments are made to the same to determine taxable income.
Causes of differences between Accounting Profit & Taxable income

1. Factors causing the Taxable Income to exceed accounting profit
a. Issue of donations, fines and gifts;
b. Depreciation;
c. Expenses of a capital nature written-off in the Accounts, for example, loss on a
sale of non-current assets.
2. Factors causing the accounting profit to exceed Taxable income
a. Certain investment allowances such as special initial allowances, growth point
allowances.
b. Inclusion of exempt accruals, for example, dividends from Zimbabwean
Companies.
Deemed Source
The Zimbabwe tax regime is source based and not residence based.
The true source could be elsewhere and not in Zimbabwe and because of section 12
of the Income Tax Act267, taxable income can be deemed to be from a Zimbabwean
source. The following sections apply:
 Section 12 (1) (a) Business Operations; Sale of Goods
Amounts received or accrued under any contract in this country for the sale of goods
regardless of the country of origin or of delivery, are deemed to be from a source
within Zimbabwe. As a general rule, a contract is deemed to have been concluded
where the parties become aware that they are in final agreement with each other.
 Section 12 (1) (b) provides that income from services rendered, receipts for
services rendered in the carrying on in Zimbabwe of any trade irrespective of
where or by whom payment is made are deemed to be from a source within
Zimbabwe. The provision applies to employed and self- employed persons. 268
Tredgold CJ in COT v Shein269cited Rhodesia Metals Ltd V COT 270where De
Villiers JA at 300 said:
“Source means not a legal concept but something which a practical man would
regard as a real source of income; the ascertaining of source is a practical hard
matter of fact.”
The same reasoning was applied in Essential Sterolin Products (Pty) Ltd v
Commissioner for Inland Revenue 1993(4) SA 859 (A) AT 870C to 871B where the
case Nathan v Commissioner of Taxation [1918] HCA 45 was quoted with approval
that the need to consider the “factual matrix” and the idea that the “…ascertainment
of the actual source of a given income is a practical, hard matter of facts” 271
Minority shareholder protection
267
Income Tax Act [Chapter ]
268
Note the definition of trade in section 2 of the Income Tax Act
269
1958 (3) SA 14 (FC)
270
1938 AD 282
271
See also the Zimbabwean case Arundel School & Others v ZIMRA [2017] ZWSC 61 where the definition of
gross income and all its nuances were considered

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DIRECTORS

Directors have been taken to be commercial men/women of business, managing and

An executive director acts in two capacities. Firstly he is appointed as a director and

These directors are at times referred to as ordinary directors. Though appointed by

Directors therefore have to continually improve themselves in their area of expertise

directors was established.

The duty of loyalty

However as an exception, S 57206 requires a director to disclose any conflict of

Corporate governance policy for public companies

Causes of differences between Accounting Profit & Taxable income

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