Imposing personal liability on accounting authorities for soes financial losses under South African law.

Abstract

The primary aim of this study was to explore the legal feasibility to hold board members (accounting authorities or directors) of State-Owned Enterprises personally liable in delict to the State-Owned Enterprises for financial losses occasioned by breach of their fiduciary and constitutional duties. Various shareholder ministers have been collusive in the losses sustained at State-Owned Enterprises. The culture of impunity that dominated the State-Owned Enterprises , especially during the second decade in South Africa, orchestrated to ensure non-enforcement of accountability measures. A culture of impunity and lack of accountability within the sector of SOEs, both civilly and criminally, has led to the near collapse of State-Owned Enterprises in South Africa and also entrenched a patronage network which the law giver will have to pay attention to in the future. As part of exploring the desirability and legal feasibility to hold accounting authorities personally liable using the common law delictual remedy, the researcher revisited various legal instruments available for oversight over State-Owned Enterprises and other jurisdictions. This study concluded that the law in South Africa and in other jurisdictions, like Canada, the UK, the US and Chinaprovides for civil liability for damages arising from a breach of a director’s fiduciary duties. According to the findings of this study, the common law remedy under the Lex Aquilia is the most appropriate tool for achieving the accountability of top officials in SOEs. The research also argued for the activation of the enforcement institutions to uphold the constitutional principle of accountable public administration. In this regard, this study recommended the creation of a new SOEs Unit will be an agent of the National Treasury responsible for all the affairs of the country’s strategic SOEs and their subsidiaries, including litigating on their behalf. In a nutshell, the study recommends that the Department of Public Enterprises (DPE) should be dissolved and replaced by an SOEs Unit to be situated in the National Treasury. This research has found that there is fragmentation among South African institutions and instruments of oversight of the organs of the state, from parliamentary committees to Chapter nine institutions, such as the Public Protector and the Auditor General. Other institutions, such as the SIU and its Special Tribunal, operate parallel to these other institutions. The fragmentation is also seen among various legislations meant to fight acts of corruption and the like, such as PCCAA and the POCA, as well as the SIU and Special Tribunals Act 74 of 1996. This study has argued for the integration of the Auditor General and the SIU, including its Special Tribunals. The argument was to reconfigure the SIU (and the Special Tribunals) into a chapter nine institution as units of the Auditor General. The incorporation of the Special Investigating Unit and its Special Tribunal(s) into the Auditor-General of South Africa as its Unit responsible for civil recoveries on behalf of state organs to improve the oversight mechanisms and ensure efficient recovery of losses of State-Owned Enterprises. In this regard, the proposal was that the SIU and the Special Tribunals should operate in the same manner as the Competition Commission, as well as its Competition Tribunal and the Competition Appeal Court. It was argued that moving the SIU and the Special Tribunal into the office of the Auditor General would yield positive advantages, such as the saving on costs. Integrating the SIU and the Special Tribunal into the office of the Auditor General would yield positive advantages, such as the saving on costs and efficiency in oversight and recovery of losses, as the Auditor General does annual auditing. The Auditor General would also be able to use the provisions of the SIU and Special Tribunals Act to recover damages on behalf of State-Owned Enterprises. Most importantly, integrating the SIU and Special Tribunals into the office of the Auditor General would ensure their independence, taking them away from the control of the State President and executive. Regarding the Public Protector, this study argued that despite the advantages offered by the powerful sword in the hands of the Public Protector in the form of its remedial action, the Public Protector process is hamstrung by a lack of adequate financial resources to carry out its investigations. Also, the research has also argued that the remedial action that the Auditor General may take, in terms of the Public Audit Act 25 of 2004, in contrast with the remedial action of the Public Protector, which is wide enough to make any appropriate order, is inadequate. In particular, the Auditor General remedial action does not hold accounting authorities personally liable to compensate State-Owned Enterprises for financial losses stemming from a breach of directors’ fiduciary and constitutional duties. The study has also bemoaned the fact that the SIU process is only open to the State President who has the constitutional prerogative to authorise the SIU recovery process and not open to the public. Hence, this study has proposed that the SIU process should operate in the same manner as in the case of the Public Protector, in which the process allows members of the public to participate by lodging complaints, especially against public office-bearers of SOEs. Additionally, the law should also permit members of the public to litigate on behalf of the State-Owned Enterprises , which suffers financial loss, against accounting authorities and third parties, with or without the SIU, in the Special Tribunal. As it was argued, all this process should take place in the SIU and Special Tribunals, reconfigured under the directorate of the Auditor General. Ultimately, this study recommended that the Department of Public Enterprises (DPE) should be dissolved and replaced by an SOEs Unit to be based in the National Treasury. In a nutshell, the study recommends creation of a new SOEs Unit will be an agent of the National Treasury responsible for all the affairs of the country’s strategic SOEs and their subsidiaries, including litigating on their behalf.