Abstract
The Companies Act 71 of 2008 provides for the removal of directors from the boards of companies in two ways. Namely by resolution of the governance structures of the company and by defined judicial process.
The shareholders of a company are empowered to remove only those directors who they had elected to office by way of an ordinary resolution at a shareholders meeting convened for that purpose. The shareholders’ power to remove a director is unilateral and cannot be limited in a company’s constitutive or governance documents or by an agreement between a company and a director or between any shareholder and a director.
The board of directors is empowered to remove a director from the board of a company by majority resolution at a board meeting convened for that purpose. The power is limited to boards comprising at least three directors and is constrained to instances where a shareholder or a director alleges that subsequent to the director’s appointment to office, he has become ineligible or disqualified as a director, has become incapacitated to the extent that he cannot perform the functions of a director or he has been negligent or derelict in his duties as a director. The board’s power is articulated in the act to require that the board first vote on the merit of the allegation and then on the removal. Directors exercising the power to remove fellow directors from the board must do so in fulfilment of the fiduciary duties they owe to the company.
The act prescribes the procedure that must be followed before either the shareholders or the board of directors convene meetings to exercise their respective powers to remove a director.
Judicial processes exist in the act by which a director’s removal can be achieved and comprise an application to review a decision of the board that an allegation made against a director is meritless and a special procedure available to those boards which comprise less than three directors in the form of an application to the Companies Tribunal. The act also allows for the indirect removal of a director from office in the form of an application to declare a director delinquent or under an order of probation. Finally, a business rescue practitioner may seek the removal of a director in defined circumstances during ongoing business rescue proceedings.