The Business Judgement Rule stems from the US common law and relates to the directors duty of care and skill. Currently, the Business Judgment Rule is in operation in many countries all over the world. It is a judicial device used to limit the scope of personal liability for directors and officers. The rule consists of a rebuttable presumption that a director or officer, when making a business decision, has acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company. It should thus form a safe harbour for rational and informed managerial actions. Courts applied the Business Judgment Rule in numerous courts decisions and established certain standards of a proper decision making process. From the experiences of the massive corruption scandals of ENRON and Worldcom and in the light of the experiences of the global financial crisis, there is a rising public interest in good corporate governance and diligent and reasonable management. Therefore, the rule has been codified in numerous countries all over the world. Among these countries are South Africa and Germany. In South Africa, the rule has been incorporated with the Companies Act, 71 of 2008. Germany has adopted the Business Judgment Rule specifically in the German Stock Corporation Act 1965 (Aktiengesetz). These codifications in modern company law are problematic and the scope of their respective application and the meaning of their prerequisites are somewhat unclear. Therefore, opinions about the rule, its application and its concrete effect diverge and the idea of a codified rule in modern corporation acts in contrast to the historical application by courts has been massively criticized. Despite all differences it is generally acknowledged that the rule and its application are intricate and a deep insight in its complex application is required to avoid a misunderstanding and a misapplication of the rule by the competent courts. The author intended to identify potential problems pertaining to the application of the rule and its prerequisites. By comparing the German and the South African approach, several similarities and differences were found. Based on these findings, five potential problems for the application of the rule in South Africa and its interpretation by the competent courts were presented in more detail. These problems relate to the scope of application in general, the blurred lines between the terms of rationality and reasonableness, the determination of the concrete judicial review, the avoidance of hindsight biases and the unjustified extension of judicial review by over interpreting the term proper purpose. Although it is hardly possible to present practical solutions for all these problems in a minor thesis, reviewing the rule, its prerequisites, and its rationale by considering additional experiences from other countries enhances the awareness of potential problems and risks. The primary guideline for the application of the rule has to be - in any case - the avoidance of the hindsight bias.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:uct/oai:localhost:11427/25021 |
| Date | January 2017 |
| Creators | Eisele, Stefan |
| Contributors | Yeats, Jacqueline |
| Publisher | University of Cape Town, Faculty of Law, Department of Commercial Law |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Master Thesis, Masters, LLM |
| Format | application/pdf |
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