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TL;DR: Directors and officers (D&O) insurance pays defence costs and covers personal liability when a director or senior manager is accused of a wrongful act in running a company. Under the Companies Act 71 of 2008, directors can be held personally liable for losses caused by breaching their duties, and section 78(7) allows a company to buy insurance to protect them. The Act also sets limits: a company cannot indemnify or insure directors for wilful misconduct, wilful breach of trust, certain knowing breaches under section 77(3), or most fines. Cover is written on a claims-made basis, so continuity of cover matters.
Being a director of a South African company comes with personal exposure that many people only think about when a claim arrives. A shareholder alleges a bad decision cost the company money, a liquidator looks at how the business traded before it failed, or SARS looks at who managed the finances when tax went unpaid. In each case, the claim can be made against the individual, not only the company.
This guide explains when directors can be held personally liable under South African law, what D&O insurance pays for, what the Companies Act says it cannot cover, and how to approach buying it. It is general information, not legal advice. The wording of your policy, your company’s Memorandum of Incorporation and the facts of a claim will decide the outcome.
In this article
What is D&O insurance?
D&O insurance is liability insurance for the people who run a company. It responds when a director or officer is accused of a “wrongful act” in their management role, such as a breach of duty, a negligent decision, a misleading statement or a failure to act. It typically pays legal defence costs and, where the director is found liable or a settlement is agreed, the damages, subject to the policy terms.
The policy is bought by the company, but its main purpose is to protect individuals. In the Companies Act, “director” for these purposes includes former and alternate directors, prescribed officers, and members of board committees and the audit committee, even if they are not on the board.
When can directors be personally liable in South Africa?
The Companies Act 71 of 2008 sets out the standards directors must meet and the consequences of falling short.
Standards of conduct (section 76). Directors must act in good faith and for a proper purpose, in the best interests of the company, and with the degree of care, skill and diligence reasonably expected of a person in their position with their knowledge and experience.
Liability for breach (section 77(2)). A director may be held liable for loss suffered by the company because of a breach of fiduciary duty, or, under the law of delict, for a breach of the duty of care, skill and diligence, of other provisions of the Act, or of the company’s Memorandum of Incorporation.
Liability for knowing conduct (section 77(3)). A director is liable for loss caused by, among other things, acting without authority while knowing it, acquiescing in the company trading recklessly or with gross negligence while knowing it, being party to fraud, or signing off financial statements they know are false or misleading.
Liability to other people (section 218(2)). Any person who contravenes a provision of the Act is liable to any other person for loss suffered as a result.
Two features soften this. Under the business judgment rule in section 76(4), a director who took reasonably diligent steps to become informed, had no undeclared personal financial interest, and had a rational basis for believing a decision was in the company’s best interests is treated as having met the duties of care and of acting in the company’s best interests. And under section 77(9), a court may relieve a director wholly or partly from liability, other than for wilful misconduct or wilful breach of trust, if the director acted honestly and reasonably or it would be fair to excuse them.
Timing matters too. Proceedings under section 77 generally may not be started more than three years after the act or omission, but since the Companies Second Amendment Act 17 of 2024 took effect on 27 December 2024, a court can extend that period on good cause shown. In practice, that means a decision taken today could still be challenged years later.
Liability does not only come from company law. Under section 180 of the Tax Administration Act 28 of 2011, a person who controls or is regularly involved in managing a taxpayer’s financial affairs can be held personally liable for an outstanding tax debt to the extent their negligence or fraud caused the failure to pay it.
Who brings claims against directors?
Claims can come from several directions:
The company itself, often after a change of control, when new owners or a new board look back at earlier decisions.
Shareholders, including minority shareholders and investors who believe they were misled.
Creditors, liquidators and business rescue practitioners, particularly where a company traded while in financial difficulty.
Employees, for example over employment practices or retrenchment decisions, depending on the cover.
Regulators and authorities, through investigations and enforcement action, where the policy covers investigation costs.
Even a claim that eventually fails can be expensive to defend. For many directors, it is the defence costs, rather than the final award, that make D&O cover worthwhile.
What D&O insurance pays for
Policies differ, but D&O cover is commonly built from a few parts:
Cover for individual directors where the company cannot or does not indemnify them, for example because it is insolvent.
Company reimbursement, which repays the company when it has lawfully indemnified a director or advanced their defence costs.
Entity cover for certain claims against the company itself, which varies widely between policies.
Within those parts, policies typically pay defence costs, damages and settlements, and often the cost of responding to formal investigations. Section 78(4) of the Companies Act allows a company, unless its Memorandum of Incorporation says otherwise, to advance a director’s expenses to defend litigation arising from their service to the company, and the reimbursement section of a D&O policy is designed to fund that.
What the Companies Act says it cannot cover
Section 78 sets the legal boundaries for indemnity and insurance, and they are worth knowing before a claim, not after:
Directors cannot contract out of their duties. Under section 78(2), any agreement, Memorandum of Incorporation provision or resolution is void to the extent that it tries to relieve a director of their duties under sections 75 or 76, or their liability under section 77, subject to the indemnity and insurance provisions.
Some liabilities cannot be indemnified. Under section 78(6), a company may not indemnify a director for liability under section 77(3)(a), (b) or (c), for wilful misconduct or wilful breach of trust, or for fines covered by section 78(3).
Insurance follows the same line. Section 78(7) allows a company to buy insurance to protect a director against liability or expenses for which it is permitted to indemnify them, and to protect the company itself against related expenses and liabilities.
Fines are generally excluded. Under section 78(3), a company may not pay a fine imposed on a director after a conviction unless the conviction was based on strict liability, with a narrow exception for some owner-managed private companies.
In practical terms, D&O insurance is for honest directors facing allegations of poor judgment, negligence or technical breaches. It is not designed to protect deliberate wrongdoing. Policies also carry their own exclusions, which commonly include dishonesty and fraud once proven, claims already known before the policy started, bodily injury and property damage, and professional services provided to clients, which belong under other covers.
Who needs D&O cover?
D&O insurance is often seen as something only listed companies buy. In practice, private companies and non-profit organisations face many of the same exposures. It is particularly worth considering if:
Your company has outside shareholders, investors or lenders who could challenge board decisions.
You are raising capital, selling the business or bringing in a new partner, when past decisions get closer scrutiny.
The company is under financial pressure, which increases the risk of claims about reckless trading.
You sit on the board of a non-profit company or association, where volunteer directors carry real legal duties.
You want to attract experienced non-executive directors, who will often ask whether D&O cover is in place before accepting an appointment.
D&O policies are normally written on a claims-made basis. The policy that responds is the one in force when the claim is first made against the director, not the one in force when the decision was taken. Three consequences follow:
Continuity matters. Letting cover lapse, even briefly, can leave past decisions uninsured.
Retroactive dates matter. Some policies only cover wrongful acts after a set date. Moving insurer without preserving that date can create a gap.
Run-off cover matters when a company is sold, merged or wound up, or a director retires. Because claims can surface years later, and the 2024 amendment allows courts to extend the time limit for section 77 claims, run-off cover for former directors is worth discussing.
The same principles apply to professional indemnity cover, which our guide to professional indemnity insurance explains in more detail.
How D&O differs from PI, cyber and other covers
Professional indemnity covers claims from clients who suffer financial loss because of errors in professional services or advice. D&O covers claims about how the company is managed. Many professional firms need both; see our pages on professional indemnity in Johannesburg, Pretoria and Cape Town.
Trade credit insurance protects the company if its customers do not pay, which can reduce the financial strain that leads to claims against directors. See trade credit insurance.
What drives the cost
The insurer sets the premium after underwriting. The main factors usually include:
The company’s size, financial strength and recent results.
Its sector and regulatory environment.
The shareholder structure, including outside investors and any listing.
Any planned transactions, such as acquisitions, disposals or capital raising.
Previous claims or known circumstances.
The limit of indemnity and retention chosen.
Exposure to other jurisdictions, especially where claims culture is more litigious.
How to arrange cover
To get a meaningful quote, insurers usually ask for recent annual financial statements, details of directors and shareholders, the nature of the business, any acquisitions or capital raising planned, and any claims or circumstances that could give rise to a claim. It also helps to check what your Memorandum of Incorporation says about indemnifying directors, because section 78 lets it restrict the company’s powers to indemnify and insure.
You can start with the directors and officers application form on Berkley Risk’s online forms page. Berkley Risk is an authorised financial services provider (FSP 54407) and specialist insurance broker. Contact Berkley Risk to review your directors’ exposure and current cover.
Frequently asked questions
What is D&O insurance in South Africa?
It is liability insurance that protects directors and officers against claims alleging wrongful acts in managing a company, such as breach of duty or negligent decisions. It typically pays defence costs and damages or settlements, subject to the policy terms and the limits in the Companies Act.
Can a director be held personally liable in South Africa?
Yes. Under section 77 of the Companies Act 71 of 2008, a director can be held liable for losses caused by breaching fiduciary duties or the duty of care, skill and diligence, and for certain knowing conduct such as acquiescing in reckless trading or approving false financial statements. Directors can also face personal liability under other laws, such as section 180 of the Tax Administration Act.
Can a company pay for its directors’ D&O insurance?
Yes. Section 78(7) of the Companies Act allows a company to buy insurance to protect directors against liability and expenses for which it is permitted to indemnify them, unless its Memorandum of Incorporation provides otherwise.
Does D&O insurance cover fraud?
No. The Companies Act does not allow a company to indemnify or insure a director for wilful misconduct or wilful breach of trust, and D&O policies exclude dishonest and fraudulent acts once proven. Defence costs may be advanced until the allegation is decided, depending on the policy.
Do private companies need D&O insurance?
Many do. Directors of private companies owe the same statutory duties as directors of public companies, and claims often come from shareholders, investors, creditors or liquidators. It is especially relevant where there are outside shareholders, financial pressure or planned transactions.
What is the difference between D&O and professional indemnity insurance?
Professional indemnity covers claims from clients for financial loss caused by errors in professional services. D&O covers claims about how directors and officers managed the company. They protect against different risks and many businesses need both.
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