ARTICLE 5
Conflicts of Interest
A Practical Guide for Directors of South African Companies
| “A director must act in good faith, for a proper purpose and in the best interests of the company.” — Companies Act 71 of 2008, section 76(3)(a)–(b) |
By Leon Terblanche, LL.M
International Business Law Consultant | Corporate Governance and Compliance
Key Takeaways
| What is a conflict of interest? A conflict arises when a director’s personal interests, financial interests or duties to another person compete, or may reasonably appear to compete, with the interests of the company. What does section 75 require? A director with a personal financial interest in a matter, or knowledge that a related person has such an interest, must disclose it before the board considers the matter and must follow the prescribed recusal process. Can a spouse or family member create a conflict? Yes. Section 75 expressly extends to interests of related persons. A director cannot avoid the law by placing ownership or benefits in the name of a spouse, child, parent or associated entity. What is the corporate opportunity doctrine? A director may not appropriate for personal benefit a business opportunity that properly belongs to the company. The opportunity must first be disclosed to the company and considered independently. Can a public employee tender for government work? Section 8 of the Public Administration Management Act 11 of 2014 prohibits an employee in the public administration from conducting business with the State or being a director of a company that does so. Contravention is an offence and serious misconduct. What are the consequences? Undisclosed conflicts may lead to invalid transactions, repayment of secret profits, damages, personal liability, removal, delinquency under section 162, dismissal and, where corruption or public-procurement offences are involved, criminal prosecution. What is the safest practical response? Stop, disclose, record, recuse and obtain advice where necessary. Early transparency is normally the director’s strongest protection. |
Introduction
Most directors believe they would recognise a conflict of interest immediately. In practice, many conflicts arise gradually, informally and without an obvious dishonest act.
A director may own another business. A spouse may establish a company that later supplies the director’s company. A director may learn of an attractive commercial opportunity through board service. An employee of a municipality or government department may see a lucrative tender and arrange for a family company to submit a bid. None of these situations begins with the word “corruption”, but each can place personal interests against legal duties.
The law focuses less on whether the director considered himself or herself honest and more on whether the director entered a position of divided loyalty. The fiduciary rules are preventative. They seek to remove temptation, protect independent decision-making and preserve confidence in the company’s governance before loss occurs.
This is particularly important in small and medium-sized enterprises. In an owner-managed company, the same person may be a shareholder, director, employee, creditor, landlord and supplier. Family members may be involved in the business. Decisions may be made quickly and recorded poorly. These overlapping roles do not make conflicts unlawful, but they make disciplined disclosure essential.
This article explains the common-law no-conflict, no-profit and corporate-opportunity rules; sections 75, 76, 77 and 162 of the Companies Act 71 of 2008; the additional risks applying to public employees and government procurement; and the practical steps directors should take when an actual, potential or perceived conflict arises.
The Law at a Glance
| Legal source | Why it matters |
| Companies Act, s 75 | Prescribes disclosure and recusal where a director or related person has a personal financial interest. |
| Companies Act, s 76(2) | Prohibits misuse of office or information for improper advantage and knowingly causing harm to the company or a subsidiary. |
| Companies Act, s 76(3) | Requires good faith, proper purpose, loyalty to the company and reasonable care, skill and diligence. |
| Companies Act, s 77 | Provides civil-liability consequences for specified breaches of statutory and fiduciary duties. |
| Companies Act, s 162 | Permits or requires delinquency or probation orders where serious director misconduct is proved. |
| PAMA, s 8 | Prohibits public-administration employees from doing business with the State or directing a company that does so; contravention is criminal and disciplinary. |
| King V, Principles 1 and 2 | Promotes ethical and effective leadership and governance of organisational ethics, including transparent management of conflicts. |
1. The Common-Law Duty of Undivided Loyalty
South African common law has long treated directors as fiduciaries. Their basic obligation is loyalty: powers entrusted to them must be exercised for the company and not diverted to personal purposes. The Companies Act has partially codified and developed these duties, but it has not displaced the common law. Section 76(3) must still be understood against that fiduciary foundation.
Three related rules are particularly important:
- The no-conflict rule: a director must not place personal interests or duties to another person in conflict with duties owed to the company.
- The no-profit rule: a director may not make an undisclosed profit, commission, advantage or benefit through the office of director.
- The corporate opportunity rule: a director may not personally appropriate an opportunity that properly belongs to the company.
These are strict rules. In Modise and Another v Tladi Holdings (Pty) Ltd [2020] ZASCA 112, the Supreme Court of Appeal described the duty of loyalty as “unbending and inflexible” and confirmed that the rules overlap and reinforce one another. An actual conflict is not always necessary; a real and sensible possibility of conflict may be sufficient.
2. Actual, Potential and Perceived Conflicts
Actual conflict
An actual conflict exists where the director’s personal interest directly competes with the company’s interest. Peter, a director of ABC Engineering (Pty) Ltd, secretly controls a supplier and causes ABC to buy from it at inflated prices. His financial interest is directly opposed to his duty to secure fair value for ABC.
Potential conflict
A potential conflict exists where present circumstances may develop into an actual conflict. Mary is a director of a property developer, and her husband has established an architectural firm likely to tender for the company’s work. The relationship should be disclosed before the firm submits a proposal, rather than after negotiations begin.
Perceived conflict
A perceived conflict exists where an informed outsider could reasonably question the director’s independence, even if the director believes he or she can remain impartial. The Companies Act focuses on defined personal financial interests, while King V’s ethical-leadership approach supports broader management of actual, potential and perceived conflicts. Reputation and stakeholder confidence can be damaged even where a technical statutory breach is not ultimately proved.
3. Section 75: Personal Financial Interests
Section 75 applies to directors, alternate directors, prescribed officers and members of board committees. It also captures knowledge that a “related person” has a personal financial interest. The definition of related person is therefore important: relationships and connected entities cannot simply be ignored because the benefit is not registered in the director’s own name.
Where a matter is to be considered at a board meeting and the director has the relevant interest, the director must disclose the nature and extent of that interest and any material information known to the director. The director must generally leave the meeting after making the disclosure, may not participate in consideration of the matter, may not vote, and is not counted for quorum purposes on that matter. The disclosure and departure should be clearly recorded in the minutes.
Dimension Data Facilities (Pty) Ltd v Identity Property Co (Pty) Ltd [2024] ZAGPJHC 1209 is a particularly useful modern authority. The High Court held that section 75 was intended to codify and enhance, rather than narrow, common-law conflict protections. It also warned that a director’s interest cannot be concealed through clever transactional structures: a court may trace where the beneficial interest truly lies.
Practical example
Paul’s daughter owns a civil-engineering company that submits the lowest quotation to the company on whose board Paul serves. The quotation may be excellent, but Paul must disclose the relationship and withdraw. The remaining directors should assess price, quality and capability independently. The issue is not whether Paul trusts his daughter; it is whether the company’s decision remains objectively independent.
4. Section 76: Misuse of Office, Information and Power
Section 76(2)(a) prohibits a director from using the position of director, or information obtained while acting in that capacity, to gain an advantage for the director or another person, other than the company or a wholly owned subsidiary, or knowingly to cause harm to the company or a subsidiary. Section 76(2)(b) also requires communication to the board of material information that comes to the director’s attention, subject to the statutory exceptions.
Section 76(3) then requires the director to act in good faith, for a proper purpose and in the best interests of the company, and to exercise reasonable care, skill and diligence. A conflicted director who conceals information, influences the decision or diverts an opportunity may breach both the procedural requirements of section 75 and the broader loyalty duties in section 76.
Disclosure is therefore not a ceremonial exercise. It allows the company, through disinterested decision-makers, to decide whether the transaction or opportunity should proceed and on what terms.
5. The Corporate Opportunity Doctrine
The corporate opportunity doctrine is one of the clearest applications of the fiduciary duty of loyalty. A director may not appropriate for personal benefit a business opportunity that properly belongs to the company. If the opportunity arose through the directorship, falls within the company’s existing or prospective business, was actively being pursued by the company, or is closely connected to its operations, it should ordinarily be disclosed to the board before the director acts personally.
The foundational authority remains Da Silva and Others v CH Chemicals (Pty) Ltd [2008] ZASCA 110. The Supreme Court of Appeal explained that a director who takes a corporate opportunity may be compelled to transfer it to the company, disgorge the resulting profit or pay damages. Crucially, it may be irrelevant that the company would not, or even could not, have taken up the opportunity. The director cannot make that decision unilaterally.
The doctrine was reaffirmed in Modise v Tladi Holdings. Modise, while chairman and director, pursued for himself an opportunity forming part of the company’s business strategy without disclosure and consent. The Supreme Court of Appeal held that once he knew the company was pursuing the opportunity, he was not entitled to secure it personally without board approval.
Atlas Park Holdings (Pty) Ltd v Tailifts South Africa (Pty) Ltd [2022] ZAGPJHC 109 confirmed that “conflict of interest” is an umbrella concept covering disclosure of contractual interests, secret profits, improper competition and misappropriation of corporate opportunities. The court emphasised that the common-law duty remains relevant alongside sections 75 and 76.
Governance in practice
David is a director of a logistics company. During negotiations on the company’s behalf, a customer reveals plans to outsource national warehousing. David establishes a separate company with two friends and secures the contract without informing his board. The opportunity arose from his office and falls within the company’s business. He should have disclosed it and allowed the board to decide whether the company would pursue it.
Does resignation solve the problem?
Not necessarily. Da Silva confirms that a director cannot escape accountability merely by resigning before exploiting an opportunity the company was actively pursuing, or one discovered and concealed during the directorship. However, the law does not impose a general lifetime restraint. A former director may ordinarily use personal skill, experience and relationships and compete after resignation, provided no corporate opportunity, confidential information or contractual restraint is improperly used.
May the board release the opportunity?
Yes, provided there is full disclosure and a genuinely independent decision. The board—not the interested director—must decide whether the company will decline the opportunity and whether the director may pursue it. The reasons should be minuted, and shareholder approval or independent advice may be prudent where the opportunity is material or the board lacks sufficient disinterested members.
6. Family Members, Suppliers and Related-Party Transactions
Transactions with directors and related persons are not automatically prohibited. A director may lease premises to the company, lend it money or have a family business provide services. The danger lies in concealment, non-market terms, influence over selection and inadequate independent scrutiny.
Core Logistix (Pty) Ltd v Rooks [2026] ZAGPJHC 199 provides a stark modern example. The court found multiple fiduciary breaches, including diversion of a business opportunity, secret personal enrichment and use of the director’s mother’s business without disclosure or proper procurement controls. The director was ordered to pay more than R1.1 million and was declared delinquent for seven years under section 162(5)(c).
The case demonstrates that using a relative’s company does not remove the conflict. It may strengthen the inference that the director was attempting to channel a benefit to a related person. Proper quotations, market testing and approval by disinterested directors are essential.
7. Public Employees, Municipal Officials and Government Tenders
A conflict involving a public employee is not merely a Companies Act issue. Section 8 of the Public Administration Management Act 11 of 2014 provides that an employee in the public administration may not conduct business with the State or be a director of a public or private company conducting business with the State. Contravention is an offence punishable by a fine, imprisonment for up to five years, or both, and also constitutes serious misconduct that may result in termination of employment.
The prohibition cannot safely be avoided by placing shares or directorships in the name of a spouse or sibling while the employee assists the bid, supplies confidential information or influences the procurement process. Section 9 of the same Act also requires prescribed disclosure of the employee’s financial interests and those of a spouse or life partner. Public Service Regulations and municipal employment rules may impose additional ethical, disclosure and outside-work restrictions.
Practical example
Peter is a procurement manager in a government department. Mary, his wife, owns a new technology company. Peter helps prepare its tender, explains internal evaluation criteria and remains involved in procurement discussions. Even if he is not formally a director or shareholder, the arrangement creates serious conflict, confidentiality and procurement concerns. It may also expose him to disciplinary and criminal consequences under public-administration and anti-corruption laws.
The proper response is not merely to disclose the interest at the final evaluation meeting. Peter should obtain formal ethics advice before any bid is submitted, remove himself completely from the process and consider whether the statutory prohibition means the family company cannot lawfully contract with the State at all.
8. Conflicts Within Groups of Companies
A corporate group may function as one economic enterprise, but each company remains a separate juristic person. A director serving on the boards of a holding company and a subsidiary owes duties separately to each company. An instruction from the holding company cannot automatically replace the subsidiary board’s obligation to consider the subsidiary’s interests.
Intra-group loans, guarantees, asset transfers, management fees and allocation of business opportunities should therefore be evaluated by each affected board. Directors should identify the capacity in which they act, disclose overlapping interests under section 75 and record why the transaction is considered appropriate for each company. Independent directors or external advice may be necessary when the interests of group entities diverge.
9. Consequences of Failing to Manage a Conflict
The possible consequences depend on the facts and the cause of action. They may include:
- A transaction being void under section 75 unless properly ratified by shareholders after disclosure or declared valid by a court under section 75(8).
- A common-law transaction being treated as voidable at the company’s instance.
- Repayment or disgorgement of secret profits and benefits.
- Damages or other civil liability under section 77 or the common law.
- Removal as a director and employment consequences.
- A delinquency order under section 162, particularly for gross abuse of office, taking personal advantage of information or opportunity, intentional or grossly negligent harm, wilful misconduct or breach of trust.
- Criminal or disciplinary consequences under public-administration, procurement, fraud or anti-corruption legislation where applicable.
Dimension Data illustrates that a conflicted arrangement may be declared invalid where sophisticated structures conceal beneficial interests. Core Logistix demonstrates that serious conflict and corporate-opportunity misconduct can lead to repayment and a lengthy delinquency order. The consequences are therefore not theoretical.
10. Common Mistakes
“I did not personally receive the money.” A benefit to a spouse, family member, trust, controlled entity or business associate may still create a relevant interest or fiduciary conflict.
“Everyone knew about it.” Informal awareness is not a substitute for the formal disclosure and recusal process required by section 75.
“I declared it afterwards.” The purpose of disclosure is to protect the decision before it is made. Late disclosure may not cure the breach.
“The company still made a profit.” A profitable transaction can still involve a breach. The no-profit and no-conflict rules protect loyalty and process, not only the company’s balance sheet.
“I resigned before taking the opportunity.” Resignation does not cleanse an opportunity obtained, pursued or concealed during the directorship.
“My accountant or attorney approved the structure.” Professional advice may assist, but directors retain responsibility for their own disclosure, loyalty and decision-making duties.
“The conflict is too small to mention.” Materiality can be difficult to judge from inside the relationship. When in doubt, disclose and allow the disinterested board to decide.
11. Best-Practice Governance
King V superseded King IV and applies to financial years beginning on or after 1 January 2026. Its Principles 1 and 2 emphasise ethical and effective leadership and governance of organisational ethics. For conflicts of interest, proportional application by SMEs should translate into simple, repeatable controls rather than unnecessary bureaucracy.
- Require annual written declarations of directors’ interests and prompt updates when circumstances change.
- Include declarations of interest as a standing agenda item at every board meeting.
- Maintain a register of interests, gifts, related-party transactions and recusals.
- Use independent quotations or market testing for transactions involving directors or their related persons.
- Require the conflicted director to leave the meeting and record the time of departure and return.
- Ensure board minutes record the nature of the disclosure, the independent discussion, the decision and the reasons.
- Adopt a written conflicts-of-interest and gifts policy proportionate to the company’s size.
- Obtain independent legal or governance advice for material, complex or recurring conflicts.
- Where all directors are conflicted, consider shareholder approval, an independent committee, additional directors or a court application rather than allowing conflicted decision-making.
12. Director’s Checklist
☐ Could I, a related person or another business with which I am connected benefit from this matter?
☐ Did I learn of the transaction or opportunity because of my position as director?
☐ Does the opportunity fall within the company’s existing or prospective business?
☐ Have I disclosed the nature and extent of the interest before discussion begins?
☐ Have I provided all material information known to me?
☐ Should I leave the meeting and refrain from voting?
☐ Will the remaining directors consider the matter independently and on market-related terms?
☐ Will the minutes accurately record the disclosure, recusal, discussion and decision?
☐ Does public-sector, procurement, employment or anti-corruption law impose an additional prohibition?
☐ Would I be comfortable explaining the process to shareholders, a regulator or a court?
13. Frequently Asked Questions
Can a director contract with the company?
Yes. The law does not prohibit every related-party transaction. The interest must be disclosed, the statutory process followed and the transaction independently assessed. Additional approval requirements may apply under the MOI, shareholder agreements or other legislation.
Must every conflict result in resignation?
No. Many conflicts can be managed through disclosure, recusal and independent approval. Resignation may become necessary where the conflict is permanent, pervasive or impossible to manage.
Does a conflict require proof of dishonesty?
No. Fiduciary conflict rules are preventative. Liability may arise even where the director believed the arrangement was fair or the company suffered no loss.
May a director pursue an opportunity rejected by the company?
Potentially, but only after full disclosure and a properly authorised, independent decision that the company will not pursue it and permits the director to do so.
Can a public employee tender through a family company?
This is legally dangerous. Section 8 of the Public Administration Management Act prohibits public-administration employees from conducting business with the State or directing a company that does so. A spouse-owned structure may also create disclosure, influence, confidentiality and anti-corruption issues.
Does section 75 replace the common law?
No. Recent authority, particularly Dimension Data, confirms that section 75 codifies and enhances conflict protections rather than eliminating the common-law fiduciary rules.
What should a director do when uncertain?
Disclose the circumstances before participating, seek guidance and allow disinterested decision-makers to determine the appropriate process.
Conclusion
Conflicts of interest are not technical inconveniences. They concern the loyalty and trust on which the office of director depends.
Directors are not expected to avoid every commercial relationship, family connection or outside interest. They are expected to identify divided loyalties early and deal with them transparently. The law therefore does not ask whether the director personally believed he or she could remain objective. It asks whether the company’s decision was protected by disclosure, independent consideration and faithful exercise of power.
The practical discipline is simple: stop, disclose, record, recuse and obtain advice where necessary. Corporate opportunities should be placed before the board. Related-party transactions should be independently tested. Public employees should recognise that doing business with the State may be prohibited outright, not merely manageable through disclosure.
The hallmark of good governance is not the complete absence of conflicts. It is the willingness and ability of directors to manage them openly, honestly and in the company’s best interests.
References
Legislation
- Companies Act 71 of 2008, especially sections 75, 76, 77, 162 and 218.
- Public Administration Management Act 11 of 2014, especially sections 8 and 9.
- Prevention and Combating of Corrupt Activities Act 12 of 2004, where corrupt procurement or gratification is implicated.
- Public Finance Management Act 1 of 1999 and Local Government: Municipal Finance Management Act 56 of 2003, where applicable to the relevant institution and procurement process.
- Constitution of the Republic of South Africa, 1996, section 217, governing public procurement.
Corporate Governance
- Institute of Directors in South Africa, King V Report on Corporate Governance for South Africa (2025), effective for financial years beginning on or after 1 January 2026.
- IoDSA, King V guidance on general application, SMEs, municipalities and state-owned entities, as applicable.
Cases
- Da Silva and Others v CH Chemicals (Pty) Ltd (304/2007) [2008] ZASCA 110; 2008 (6) SA 620 (SCA).
- Modise and Another v Tladi Holdings (Pty) Ltd (307/19) [2020] ZASCA 112; [2020] 4 All SA 670 (SCA).
- Atlas Park Holdings (Pty) Ltd v Tailifts South Africa (Pty) Ltd (28817/2020) [2022] ZAGPJHC 109; 2022 (5) SA 127 (GJ).
- Dimension Data Facilities (Pty) Ltd and Others v Identity Property Co (Pty) Ltd and Others (2022/040174) [2024] ZAGPJHC 1209; 2025 (2) SA 459 (GJ).
- Core Logistix (Pty) Ltd v Rooks (8239/2018) [2026] ZAGPJHC 199.
Disclaimer
This article provides general educational guidance and does not constitute legal advice. The facts, constitutional documents and regulatory context of each company may require specific professional advice.
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