Fraud in companies by directors and CEO's
1/02/2012
The Supreme Court of Appeal (SCA) recently had to decide under which circumstances non-disclosure by two joint chief executive officers of a company of certain financial interests which they had, resulting in substantial profits being secured from such interests, should be disclosed to the board of the company on which they served.
The SCA held that the crime of fraud consists of an unlawful misrepresentation made – with the intention of defrauding the misrepresentee, ultimately resulting in actual or possible potential prejudice.
The Court found that the non-disclosure of the two executives was a misrepresentation on their part, as the onus was on them to disclose any personal interest in any financial transaction affecting the company.
The Court reasoned that non-disclosure would be regarded as a misrepresentation where there was a duty on the persons in question to disclose their interest in a particular transaction, and such persons wilfully breached the duty to disclose their interests, thereby creating the impression that the interest did not exist.
In the matter at hand the potential prejudice, which the board of the company suffered was due to the fact that it was not properly informed and was denied the opportunity to decide on the particular transaction, without the influence of the self-interested directors in question.
Clients who act as directors on the board of companies should ensure that any financial or other interests in transactions involving the company in which they are involved as directorship declared. This is to avoid civil and possibly even criminal action from being instituted.
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The firm practises directly in several Southern African countries and through long-established associates in others.
