'Name and shame' policy for dodgy companies a legal minefield

Should businesses adopt a
‘name and shame’ policy and
notify other companies about
companies that are possibly
facing financial trouble?
This question was put to us
by FTW reader Nithia Reddy.
“I think it’s very important,”
he said, “that other companies
in the industry know about
companies that possibly face
closure. Obviously, awareness
will prevent these companies
from doing any more damage
to the industry.
“I am having an issue with
one such company – and it
just goes on with business as
if nothing is wrong and makes
arrangements left, right and
centre for payments after it has
incurred the debts.
“This to me is just not
correct.”
To most of us, such a name
and shame policy would
appear to be morally sound.
But how does it stand from a
legal point of view?
In response to the question
posed, Andrew Pike, Durban
partner of Bowman Gilfillan,
suggested that the traditional
(and safe) legal answer would
be: “It depends.”
Quintus van der Merwe,
partner and head of the
international transport,
trade & energy department
of Shepstone & Wylie,
told FTW that there
was certain legislation
where there was statutory
provision that offenders
might be named and
shamed. “But,” he added,
“this would, I imagine, be
dangerous – and there is
the risk of defamation.”
And Simon Chetwynd-
Palmer, also a partner
of Shepstone & Wylie
practising litigation, said:
“This is a very thorny
area.”
Being more specific,
Pike said: “I would not
recommend naming and
shaming unless there is clear
and objective evidence that
the company is in financial
difficulty and the comment
is both fair and made in the
greater public interest.
“The reason one cannot
name and shame in every
instance is that there is a
significant risk of defaming
a company and attracting
a damages claim if the
publication of the information
is incorrect and/or not in the
public interest.”
For instance, Pike
noted, if you were to
publish something based
on a rumour of financial
instability because the
company in question was
late in paying its creditors,
this could be very risky.
“The consequence of
such a publication could be
suppliers and customers
avoiding doing business
with the company and
its eventual closure.
Whereas the truth might
be that they had a cash
flow problem. But, at the
same time they had in
fact organised bridging
finance, or a shareholder’s
loan, and were going to
honour all of their debts.”
On the other hand, if a
company gets a judgment
against it for non-payment
of a debt, it would be fair to
publicise that as a warning to
people. “But again,” Pike added,
“it would be risky to speculate
that this means it must be
going belly up.”
His final comment was that,
if a company had gone into
business rescue, or formally
tried to make a compromise
with its creditors and so on,
then it was fair comment to
publicise the fact as a warning
to people doing business with
the company. He did, however,
warn readers that: “Once
again, if it is in business rescue
and the BRP has taken steps to
revive the business, one would
want to be very careful about
cautioning others not to do
business with the company.
“The bottom line is
that speculation is always
dangerous, but objective
facts, if made in the public
interest, are fine.”