The Companies Act 71 of 2008 (“the Act”) sets out the duties and responsibilities of directors of companies incorporated in South Africa. This legal opinion will provide an overview of the law relating to delinquent directors under South African corporate law.
Definition of Delinquent Director
A delinquent director is a director who has been found to have breached their fiduciary duties, acted in a manner inconsistent with their duties as a director, or acted in a manner that is contrary to the best interests of the company. The Act provides for a process through which a director may be declared delinquent.
Section 162 of the Act provides for the procedure for the initiation of delinquency proceedings against a director. The section provides that an interested person may apply to a court for an order declaring a director delinquent.
The term “interested person” is not defined in the Act, but it is generally interpreted to mean any person who has a direct or indirect interest in the company. This may include shareholders, directors, creditors, and other stakeholders.
The grounds on which an interested person may apply for a delinquency order are set out in section 162(5) of the Act. These include the following:
- Where the director has grossly abused the position of director;
- Where the director has taken personal advantage of information or an opportunity that came to the director as a result of their position as director;
- Where the director has intentionally or negligently inflicted harm upon the company or a subsidiary of the company; or
- Where the director has acted in a manner that amounts to gross negligence, wilful misconduct, or breach of trust in relation to the performance of the director’s duties.
The court may also declare a director delinquent if the director has been convicted of an offence involving dishonesty or if the director has been found by a court to have breached any provision of the Act.
Effect of a Delinquency Order
If a director is declared delinquent, the court may make any of the following orders:
- The director may be removed from office and disqualified from serving as a director for a specified period;
- The director may be ordered to pay a fine;
- The director may be ordered to pay damages to the company or any other person who has suffered loss as a result of the director’s actions.
In addition to the above, the court may also make any other order it considers just and equitable in the circumstances.
In conclusion, the Act provides for a process through which a director may be declared delinquent if they have breached their fiduciary duties, acted in a manner inconsistent with their duties as a director, or acted in a manner that is contrary to the best interests of the company. The court may make a range of orders against a delinquent director, including removal from office, disqualification from serving as a director, payment of fines, and payment of damages. It is important for directors to be aware of their duties and responsibilities under the Act to avoid the risk of being declared delinquent.
Reynhard is a founding member of CK, and established the firm during 2005.
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