South Africa: Directors Held Personally Liable For The Non-Payment Of Pension Fund Contributions And The Application Of Prescription To Complaints In Terms Of The Pension Funds Act.

It is vital for directors to understand that under section 13A(2) and (3) of the Pension Funds Act 24, 1956 (the “Act”), regardless of a registered fund's internal rules, an employer is obligated to transfer all deducted member's contributions into the member's pension fund's account within seven days after each month-end. Failure to do so may result in the directors being held personally liable for the contributions and put their assets at risk.

Section 13A(8) of the Act stipulates that when the employer fails to pay the contributions, the directors or the members of a close corporation who are directly involved in managing the entity's financial affairs shall be held personally liable for payment of the contributions.

Enforcing these laws is not theoretical, as the Pension Fund Adjudicator recently demonstrated in the South African Road Passenger Bargaining Council Retirement Fund v Moollas Transport Service CC and others. The Adjudicator ordered that the company's directors pay the contributions in arrears, underscoring the real-world implications of non-compliance. It is essential to grasp the concept of 'prescription of complaints ', which means there is a time limit for filing a complaint under the Act. This time limit is crucial as it can affect a case's outcome, as seen below.

In this case, a provident fund filed a complaint against an employer, contending that the employer had contravened section 13A(2) and (3) of the Pension Fund Act by failing to submit contribution schedules and pay the provident fund the contributions due to its employees. The employer argued that the claim had been prescribed because more than three years had lapsed since the amount was due; therefore, the Adjudicator has no jurisdiction to deal with the matter in terms of section 30I of the Act.

Section 30I provides that the Adjudicator shall not investigate a complaint if the act or omission to which it relates occurred more than three years before the date on which the complaint is received by him or her in writing. The provisions of the Prescription Act 68 of 1969 (“Prescription Act”) relating to a debt shall apply when calculating the three years.

The Adjudicator determined that the prescription period starts when the debt becomes payable. Section 12(3) of the Prescription Act stipulates that a debt is not considered payable until the creditor acknowledges the debtor's identity and the circumstances that give rise to the debt.

Each month's contribution is separate, and each debt's prescription runs independently. Therefore, the three-year period in which contributions are payable and when contribution schedules are due has its own expiration date.

The parties in the matter had engaged each other through their attorneys throughout the period since contributions became payable. The exchanged correspondence reveals that the employer disputed the total amount of contributions due. However, during their communication, the employer agreed to pay a monthly amount towards the outstanding contributions and proceeded to make the payments as promised. Thus, the employer acknowledged that it was liable for contributions in terms of the fund's rules.

Regarding directors being held liable, the Adjudicator affirmed that the fund's rules provided that employers pay monthly contributions as set out in its schedules. Additionally, section 13A(8) of the Act was introduced to enable a fund to identify and hold persons involved in managing the employer's financial affairs accountable and personally liable for non-compliance with section 13A of the Act.

Section 13A(9)(a) and (b) of the Act provides that a fund that wishes to invoke section 13A(8) of the Act must request in writing that the employer identify such persons that are to be held personally liable. Should the employer fail to identify such persons, all directors or members regularly involved in the management of the company or close corporation or all the persons comprising the employer's governing body shall be held liable in terms of section 13A(8) of the Act.

It, therefore, follows that for a person to be held personally liable in terms of section 13A(8) of the Act, the fund must first request the employer in writing to notify it of the identity of any such person. The complainant followed this step; however, the employer failed to provide the name of the person responsible. Therefore, section 13A(9)(b) of the Act is applicable, and the directors will be held jointly and severally liable in section 13A(9)(b) of the Act and the employer for payment of outstanding contributions.

Therefore, the employer and the directors were ordered to pay the fund the amount of arrear contributions plus interest.

In conclusion, a director can be held liable for failing to pay contributions under the Pension Funds Act, and employers should ensure that pension fund contributions are paid timeously and in full to avoid personal liability.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.