Newsflash: Director fiduciary duties in Botswana

The Companies Act [CAP 42:01] (the Companies Act) provides that the business and affairs of a company shall be managed by, or under the direction or supervision of the company’s board of directors. Directors are the directing mind of the company and their acts are regarded as those of the company. 

In order to protect the company and its shareholders from prejudice, both the common law and statutory law require directors to comply with standards of conduct and a degree of care, diligence and skill in the discharge of their duties- these standards are referred to as fiduciary duties. In Botswana, these fiduciary duties are detailed in section 130 of the Companies Act and include the duty:- 

• to exercise their powers honestly, in good faith and in the best interest of the company
• not to incur company obligations unless the director believes that the company will be able to perform the obligation when required to do so
• not to use or disclose company confidential information
• not to compete with the company or become a director of a competitor 
• not to use assets of the company without authorisation 
• to attend board meetings regularly and to have prepared for them
• to account to the company for any monetary gain or advantage obtained by a director in connection with the exercise of his powers

The obligation is on the director to ensure that he has familiarised himself with both the statutory and common law fiduciary duties. 

In the case of Mbonini and Another v Masunga Filling Station (Pty) Ltd and Others, Mr Mbonini was a director of Masunga Filling Station and was found to have utilised company assets and funds for his own benefit to the prejudice of the company. The Court of Appeal determined that his conduct was a clear breach of his fiduciary duties, and entitled the company to a refund of amounts claimed. The court held that the question of whether a director acted in good faith and in the interests of the company is an objective one; that is, “ whether an intelligent and honest person in the position of the director would, in the overall circumstances , have reasonably believed that he was acting in the best interests of the company rather than in his own and to the prejudice of his company.” The obligation is on the director to show that he had reasonable grounds for believing he was acting otherwise. 

In determining the appropriate sanctions in instances of breach of fiduciary duties, the court in Mbonini noted that a breach of a fiduciary duty does not necessarily involve fault – “For example if a director were to obtain separate profit, the company could claim such profit from him without alleging fraud. An action of that kind could be described as sui generis. The claim would arise merely by virtue of the fact that the director in breach of his fiduciary duty, obtained for himself a secret profit which he should have obtained for the company.” In addition, the Court held that a breach of fiduciary duties can give rise to a claim for either a repayment of profit made or a claim for damages.  

Mbonini is a timely reminder to directors to familiarise themselves with their fiduciary duties and act in accordance with them at all times. It also demonstrates that the law protects the company where directors have misappropriated funds or assets for their own benefit. The court will not hesitate to give an appropriate damages or refund remedy in cases of breach of fiduciary duties.

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The information contained in this newsflash was intended for our clients and correct to the best of the authors knowledge at the time of publication. Before making any decision or taking any action, you should consult the contacts listed here.