Removal Of Directors In Terms The Companies Act

The legislative framework surrounding the removal of Directors from a Company is governed by Section 71 of the Companies Act, 71 of 2008 (“the Act”). However, removing Directors can also be catered for in the Memorandum of Incorporation of the Company or its Rules. Although the Memorandum of Incorporation enjoys priority over the Act, there is a proviso that all provisions within the Memorandum of Incorporation must be in accordance with the Act.

A Director can be removed by way of an ordinary resolution adopted at a Shareholders’ meeting and may be done by those persons who have and are exercising voting rights or by the Board of Directors. The Shareholders are required to give notice of the meeting and its prospective resolution to the Director whom they wish to remove (“the Director”). This notice is required even if the Director is not Shareholder. A reasonable opportunity must then be afforded to the Director to make a presentation before the prospective resolution is put to vote.

The Act also makes stipulations for removals of Directors or Shareholders who are ineligible or disqualified, incapacitated, or who have become negligent or derelict in the performance of their functions as Directors.

The procedure laid down in the Act applies where there are more than two Directors. The board of the Company is required to determine the matter by way of resolution. Prior to the resolution being voted upon, the Director must be given notice of the meeting, which includes the proposed resolution accompanied by a statement reflecting the reasons for the proposed resolution. The reasons must be done in a such a way that the Director is enabled to prepare a suitable response. On this note, the Director must be given a reasonable opportunity to make a presentation to the Board prior to the vote.

The decision made by the Board is reviewable by a competent Court. An Application to review the decision must be made within twenty business days from the date of the resolution being signed. The election to review the decision is not reserved for the Director but is also available to –

1      A person who voted in the Director; or

2      A person who voted in favour of the removal where the final decision made was to retain the Director.

If an Application to review the decision is made and is unsuccessful, the person so applying to have the decision reviewed (“the Applicant”) is required to compensate the Company, and those parties who are affected by the Application, for the costs incurred. It is important to note that this requirement of compensation is only required in terms of Section 71 when the decision of the Board is not reversed.

If the Company has less than three Directors, any Director or Shareholder may apply to the Companies Tribunal to determine whether or not the Director was ineligible or disqualified, incapacitated, was negligent or derelict in the performance of his/her functions as Directors.

If the Director is removed from office, either by vote or in terms of the Act, Section 71(9) of the Act allows the Director to apply to Court for any damages or other compensation that he or she may have suffered following from his or her –

1      Loss of primary office; or

2      Loss of any subsidiary or consequential office held by virtue of his or her primary office held.

The Act also allows persons who are not Shareholders or Directors to make an Application, in terms of Section 162, to have a Director declared delinquent or to place him or her on probation.

ALEISHA OLIVER

PRACTISING ATTORNEY