In the first significant South African company law development of 2021, the Constitutional Court has dismissed an application for leave to appeal by Hlumisa Investment Holdings (RF) Limited and Eyomhlaba Investment Holdings (RF) Limited in their action against certain former directors of African Bank Investments Limited ("ABIL") and the former auditors of ABIL, Deloitte.

The Constitutional Court’s refusal to entertain the appeal brings an end to this long-running dispute, in which Clyde & Co represented the directors successfully.  It amounts to confirmation of the decision of the Supreme Court of Appeal of 3 July 2020, which we reported on here.

This outcome preserves the important distinction between a company and its shareholders. In general, loss sustained by a shareholder in the value of his/her shares is reflective of the loss suffered by the company.  A suit to recover such losses from alleged wrongdoers, such as the company’s directors, lies in the hands of the company.

This case is ground-breaking in affirming that under the Companies Act, 2008:

• directors do not owe fiduciary duties to shareholders, but to the company itself;
• shareholders cannot claim from directors for their reflective loss suffered, save in very limited circumstances;
• section 218 of the Companies Act was not intended to alter the common law position that a shareholder cannot claim against a director for reflective loss;
• an appropriate remedy for claimants in the position of the plaintiff shareholders may be to pursue a derivative action under section 165 of the Companies Act.

Clyde & Co (Daniel Le Roux, Christopher MacRoberts and Gregg Hammond) represented the directors successfully together with Chris Loxton SC, Ian Green SC, Kate Hofmeyr and Ndumiso Nxumalo.