Musings on business value, sale preparation, sale negotiations, sale structure.

Posts Tagged ‘Pay back the money’

Secret profits

There are few elements of South African labour law which work for business owners. The protection afforded in respect of secret profits being made, is one which does.

Imagine for a minute the devastation to your business if one of your fellow directors were to take the marketing information you had paid so much for in money, time, blood, sweat and tears; and started a similar enterprise in his own time, perhaps on the internet.

Now that would be devastating. As most of us know, a director has a fiduciary duty to his (or her) company to not do such things. However, this fiduciary duty of care extends beyond the board room to agents who act for the business, such as attorneys, accountants and brokers.

But even further beyond the obvious, a fiduciary is anyone who is able to act in a position of trust to his employer or any other person.

  • So if a salesman who has been authorised to give a particularly large discount in order to accelerate cash flow at month end does a secret kickback deal with the customer’s representative, so that somehow he gets a kick back from the customer who is allowed a bigger discount than he would otherwise have insisted upon, then that salesman has made a secret profit.
  • On the other side of the product movement, buyers may be induced to authorise supplies at prices higher than that which the supplies could otherwise be purchased, care of a secret arrangement.

There cannot be any argument in mitigation that the principal had been willing to forego this money anyway, as the contracts were entered into within budget guidelines. The fiduciary has a duty of care to work for the best benefit of the employer; to work towards maximising the profits.

There are elements of this in a relationship of tenders being awarded to suppliers at inflated prices, over the head of less avaricious suppliers, while the heads of departments are able to live beyond their means.

The secret profits made by somebody in this manner can be claimed in their entirety by the legal or natural person to whom the fiduciary duty was owed. It gets even better for the principal, in that it is not necessary for him to have suffered any loss by the fiduciary’s actions. The naughty person is able to claim from the principal, the costs of acquiring the profits, but will have to bear a heavy burden of proving the costs involved.

So if your vindictive juices have been stirred in any way, perhaps it’s time to speak to your attorney about getting some people to pay back the money?