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Compliance with King III and the Companies Act

The new Companies Act codifies the standard for directors’ conduct and regulates the liability of directors where the standard is not met. Directors are obliged to act in good faith, in the best interest of the company and with the required level of skill and diligence. These standards will be enforced by the Companies and Intellectual Property Commission, and shareholders and other stakeholders of a company will hold the company and its directors accountable. In contrast, there is no statutory obligation on companies to comply with King III. The underlying intention of King III is not to force companies to comply with recommended practice (King II required companies to ‘comply or explain’), but rather for companies to ‘apply or explain'. Directors are accountable to shareholders, and where directors opt not to implement the recommended practices as set out in King III, they should be able to explain their reasoning and motivation to the shareholders.

As directors can be held personally liable for non-compliance with their statutory duties as set out in the Companies Act, they need to ensure that each and every decision is taken with care. Indeed,every decision counts! Most, if not all of the recommended best practice principles set out in King III relate to the legislative duties of directors to exercise powers to perform their functions in good faith and for a proper purpose in the best interest of the company.In addition, they should do it with the degree of care, skill and diligence that may reasonably be expected of a director. 

As such, King III constitutes a valuable guide to directors and other office bearers to
ensure compliance with the provisions of the Companies Act. It is recommended that directors pay close attention to the enumerated principles, and aim to apply all such principles. Ofcourse, where they choose not to apply a particular principle, they should be able to explain that decision to shareholders.

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