The business judgement rule in terms of section 54 of the companies and other business entities act [chapter 24:31: Its implications on director liability.

Abstract

Due to the high rate of corporate failure Zimbabwe is now characterized by low foreign direct investment, low capacity utilization and high reliance on imports which has created a huge trade deficit further driving the country into economic malaise. There have been many academic essays and thesis exploring the economic, political and social causes of the high rate of corporate failure and its harsh adverse effects on the broader community in Zimbabwe. Corporate law has undergone major transformation at the international level. This has largely been because of the major corporate collapses that unraveled world-wide. Many countries have been left with little options but to also consider whether directors of corporations were observing their requisite fiduciary duties. These duties must be observed with the standard of care and diligence that investors legitimately expect of directors in an ever-modernizing commercial world.

Amongst several initiatives to improve the investment climate and to keep pace with dynamics in the corporate world, Zimbabwe has responded to the global phenomenon and initiated a process to reform its company laws. This was partly motivated by the need to ensure high standards of corporate governance and to harmonize its laws with best practice internationally. To this end, the Companies and Other business Entities Act [Chapter 24:31] was enacted to replace the Companies Act [Chapter 24:03]. This thesis seeks to critically analyze the Business Judgement Rule (BJR) which the new Act introduced in terms of section 54 in the light of international best practices.

Expressed in its simplest form, the general thrust of the rule is that it seeks to improve standards of directors’ conduct and enhance corporate governance without unnecessarily trammeling innovation and business growth in the country. The rule has wide international recognition, but its implementation varies from one jurisdiction to the other. The variances are largely as a result of peculiar and unique characteristics of each jurisdiction.

As Zimbabwe adopts the new Act, it remains to be seen how the rule will be applied in our jurisdiction. Like any other legal principle or doctrine, it is the historical context of a particular jurisdiction that inform its jurisprudence and how it develops. From a comparative assessment done on selected jurisdictions, the principle in the rule transcends in a similar manner but each jurisdiction tends to differ in the application. The thesis seeks analyze the adoption of the business judgement rule as a core feature in the commercial law realm of Zimbabwe. What is the most likely course that is to be adopted especially based on how the rule has been applied in similar jurisdictions? This present work further seeks to shape the interpretation and application of the business judgement rule with a focus on derivative actions.