removal of directors

Question 1

what are the 3 ways in which a director can be removed

Answer 1

1. Shareholders take a resolution
2. Board of directors through a board meeting
3. Tribunal

Question 2

What does S71 say

Answer 2

directors can be removed by s/hs or board at any time

Question 3

what is S71 an additional right to

Answer 3

The right to declare a director a delinquent in S162

Question 4

what are 2 other ways a director can be removed besides the main ways

Answer 4

1. removal by a business rescue proceeding

2. MOI makes provision for appointment or removal

Question 5

What does the act say about removal of a director by shareholders

Answer 5

S71 says that a director may be removed by the s/hs at a shareholders meetings. it does not specify grounds upon which a director can be removed.

Question 6

Can S71 override a company’s MOI when it comes to s/hs removing a director

Answer 6

yes it can

Question 7

Why is S71 ito shareholders removing the director different to the old act

Answer 7

The old act did allowed a director to entrench their position in terms of a MOI or entering into agreements with s/hs not to remove them

Question 8

What does S65 (8) say about the vote for removal of a director

Answer 8

It must be done in terms of an ordinary resolution which is 50% + one , it cannot be made higher

Question 9

Can there be a provision in the MOI that gives a director the right to veto a s/h resolution to remove them

Answer 9

No as this would be inconsistent with the act

Question 10

What are the two interpretations of “ persons entitled to exercise their voting rights”

Answer 10

1. s/hs cannot remove a director appointed by a designated person in the MOI because they could not exercise their voting rights to elect them
2. The director can be removed by s/hs who have voting rights that can be exercised in a general election of a director

Question 11

What is Cassim’s preferred interpretation of “persons entitled to exercise their voting rights” and why

Answer 11

Interpretation 2 - had the legislature intended interpretation 1 , it would have been expressly stated in S71 (1), the words “despite anything” in S71 (1) cast serious doubt on interpretation 1 .

Question 12

when can the board remove a director

Answer 12

1. company has 2 or more directors
2. alleged ineligible/disqualified
3. alleged incapacity
4. alleged derelict/ negligent

Question 13

how is removal by the board different to shareholder removal of a director

Answer 13

when a director is removed by the board there are specific grounds that he can be removed on

Question 14

what does S71 (3) say about the process for removing director

Answer 14

If any of the grounds alleged by the s/h or director is applicable, the board must make a resolution to remove the director or not.. The allegation does not have to be in writing , it can be made verbally.

Question 15

what does S69 (4) say about the entitlement of a director who is ineligible or disqualified

Answer 15

The person ceases to be entitled to act as a director immediately

Question 16

what does S71 (4) say about the director disputing the allegation against them on a ground for removal

Answer 16

The director will be given a reasonable opportunity at the meeting to make a presentation to dispute the allegation against them for their removal before the resolution is taken to remove them

Question 17

How many days does a director have to apply to court to review the decision for his removal

Answer 17

20 days

Question 18

when will a vacancy arise on the board after the removal of a director

Answer 18

after the 20 days for review or the court has made an order

Question 19

On what basis is it decided that a director is incapacitated and therefore be removed

Answer 19

this is a question of fact

Question 20

On what basis is it decided that a director is neglecting their duties

Answer 20

This is assessed with regard to duties and functions required by the directors i.e common law duties and duties set out in S76

Question 21

Can a director vote in a resolution to remove him

Answer 21

NO but if the director is also a s/h he can vote in the resolution for his removal in his capacity as a s/h

Question 22

when does removal by a tribunal occur

Answer 22

when a company has less than 3 directors

Question 23

what types of companies does the tribunal usually deal with

Answer 23

smaller companies

Question 24

what grounds does removal of a director by the tribunal take place on

Answer 24

essentially the same grounds as removal of a director by the board

Question 25

what are the procedural requirements for removal of a director

Answer 25

1. notice ( no set time period)
2. Statement of reasons (for board removal)
3. director makes presentation
4. resolution taken
5. director can apply for review if removed by board

Question 26

can a director apply to the court to review a s/h decision taken to remove them

Answer 26

No

Question 27

What did Kaimovitz say about the roles a director plays in a company

Answer 27

a director plays two roles 1. a director 2. an employee

Question 28

what did SA post office say about the protection of directors

Answer 28

Directors fall within the ambit of the LRA and can still be unfairly dismissed. Parties to the contract cannot contract out of the protection afforded by the LRA for unfair dismissal. Automatic termination provisions are not permissible.

Question 29

what section deals with ineligibility

Answer 29

S69

Question 30

Does the act prescribe minimum qualifications for a director

Answer 30

No , this is internal company policy, provisions for this can be made in a company’s MOI

Question 31

what are the grounds for disqualification

Answer 31

1. juristic person
2. minors / people with no legal capacity
3. People who do not meet MOI requirements

Question 32

where are the grounds for disqualification listed

Answer 32

S 69 (8)

Question 33

can the MOI add additional grounds for disqualification

Answer 33

yes

Question 34

what are the consequences of disqualification or ineligibility

Answer 34

• person cannot become a director
• cease to be a director immediately
• company cannot knowingly appoint an ineligible or disqualified person

Question 35

what does it mean to be dishonest for the purpose of disqualification

Answer 35

to deceive, defraud or to steal , involve some element of fraud

Question 36

what is the duration for disqualification

Answer 36

5 years but can be extended by the court

Question 37

what did the court find in ex parte Tayob

Answer 37

Bribery and corruption posed a serious threat to an open and honest community. Too little time had lapsed between date of conviction and date of application to prove director had been rehabilitated.

Question 38

what will the court consider in exemption for disqualification

Answer 38

the defect of character no longer exists and the person has been rehabilitated

Question 39

what is the main idea behind disqualification

Answer 39

not to punish but to protect the interests of shareholders and the public and to ensure that these interests are not endangered i.e to ensure that public funds are protected from unscrupulous persons

Question 40

why is delinquency more onerous than disqualification or ineligibility

Answer 40

a court application has to be made in order to declare a person a delinquent and place them on probation

Question 41

who has locus standi ito of s162 (2) to apply for a director to be declared a delinquent

Answer 41

• company, shareholder, director etc
• trade union rep employees
• any other rep of employees

Question 42

who has locus standi ito of S162 (3) to apply for a director to be declared a delinquent

Answer 42

• CIPC

- takeover regulation panel

Question 43

what are the grounds for delinquency that the Myeni case is based on

Answer 43

gross abuse, personal advantage, gross negligence, wilful misconduct or breach of trust