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Lecture 7 - Directors Part 2

The document outlines the requirements and regulations regarding directors in companies, including the number of directors needed for different types of companies, the process for their appointment and removal, and the qualifications necessary to serve. It also discusses the implications of delinquency and probation for directors, as well as the establishment of board committees and the procedures for board meetings. Key points include the ability of the Memorandum of Incorporation to modify certain provisions of the Companies Act and the legal framework surrounding disqualified individuals seeking to serve as directors.

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0% found this document useful (0 votes)
7 views16 pages

Lecture 7 - Directors Part 2

The document outlines the requirements and regulations regarding directors in companies, including the number of directors needed for different types of companies, the process for their appointment and removal, and the qualifications necessary to serve. It also discusses the implications of delinquency and probation for directors, as well as the establishment of board committees and the procedures for board meetings. Key points include the ability of the Memorandum of Incorporation to modify certain provisions of the Companies Act and the legal framework surrounding disqualified individuals seeking to serve as directors.

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nthati933
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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You are on page 1/ 16

COMMERCIAL LAW 1B

WEEK 7

TOPIC: DIRECTORS PART 2


Number of directors & MOI
Numbers of directors and consent
 A private or personal liability company must have at least one
director, while public and non-profit companies must have at least 3
directors.
 You only become director if appointed/elected as such or by holding
office or title as director AND by accepting that appointment by
written consent.
Memorandum of Incorporation may vary certain provisions of 2008
Act
 Certain provisions concerning directors contained in the Companies Act,
2008 may be varied by the provisions of a company’s MOI, whereas others
may not be varied. Please refer to page 155-156 of the textbook which
contains what can be changed in a MOI. See next slide for such instances.

2
2008 ACT MOI
NO. OF DIRECTORS Pvt and Personal Liability Co’s must MOI can specify HIGHER no. Cannot
have at least 1 director. Pub & NPC at make no. LOWER.
least 3.

APPOINTMENT OF DIRECTORS MOI OF A PC MUST ALLOW SH TO MOI can provide that any person can
ELECT 50% OF DIRECTORS AND 50% have power to appoint or remove
ALTERNATE DIRECTORS directors

REMOVAL OF DIRECTORS Ordinary Resolution by SH MOI cannot say Director cannot be


removed.
REMUNERATION Co may pay remuneration but not an MOI can prohibit remuneration & fees
automatic right must be approved by SH by special
resolution

QUALIFICATIONS NO MENTION IN ACT MOI can prescribe minimum


qualifications that a director requires to
hold office
TERM OF OFFICE Elected for an indefinite or fixed term MOI may provide for the term

3
Ineligible and disqualified persons
1.Ineligible (absolutely prohibited – no exemptions):

A.Juristic person

B.An unemancipated minor or a person under a similar legal disability

C.A person who does not satisfy any requirement in a company’s MOI.

2.Disqualified ( not absolute – court has a discretion in SOME cases):


 A person who has been prohibited by a court of law

 A person who has been declared a delinquent - i.t.o s162

 An unrehabilitated insolvent (discretion by the court)

 A person who is prohibited in terms of any public regulation from being a director (discretion by the
court)
 A person who has been removed from an office of trust because of dishonesty (discretion by the
court)
 A person who has been convicted and imprisoned without the option of a fine for theft, fraud,
forgery, perjury or other offences. (discretion by the court)
 A person disqualified in terms of a company’s MOI.
4
Exemptions to director disqualifications
 The Companies Act gives a court a discretion to grant an exemption from being disqualified from
appointment as a director.
•The following persons may apply to court for such an exemption:
 An unrehabilitated insolvent

 A person who was removed from an office of trust for dishonest misconduct; or

 A person who was convicted of a crime with an element of dishonesty.

 THESE DISQUALIFIED PERSONS APPLY TO COURT TO ASK FOR PERMISSION TO ACT AS A DIRECTOR –
ex parte application
 Where an applicant was removed from an office of trust for misconduct related to dishonesty or was
convicted of a crime with an element of dishonesty, s/he must prove to the court that s/he has been
rehabilitated from their wrongful ways.

5
Application to declare a person delinquent or under probation
•In terms of section 162 of the Companies Act a court can declare a person to be a delinquent or to
be under probation.
•Delinquency = a declaration by the court i.t.o s162 that a director is a delinquent (because of a
particular wrongful act committed by that director)
•Probation = court declares probation – a person being unable to act as a director for a certain
period and can involve some form of punishment
• The following people can bring this application to court:
 A company

 A shareholder

 A director

 A company secretary or prescribed officer

 A registered trade union that represents employees of the company

 Any other representative of the employees of the company

 The Commission

 Take Over Regulation Panel.

6
Delinquency and probation
1. Grounds for delinquency include:
 Consenting to act as a director while ineligible or disqualified

 While under probation, acting as a director in a manner that contravenes the relevant order; or

 While a director, acting in a manner that amounts to gross negligence, wilful misconduct or
breach of trust.
 Director grossly abused his position of director

 Director took personal advantage of information

1. Probation:
 Acting in a manner materially inconsistent with the duties of a director;

 Being present at a meeting and failing to vote against a resolution despite the inability of
the company to satisfy the solvency and liquidity test. (basically, the director knows the
company is insolvent).

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EFFECTS OF PROBATION AND DELINQUENCY

• DELINQUENCY:
• The effect of an order of delinquency is that a person is disqualified from being a director of a company.
• The order may under certain circumstances be unconditional and subsist for the lifetime of the delinquent
director or it may be conditional and subsist for seven years or longer, as determined by the court.

• PROBATION:
• a person who has been placed under probation may not serve as a director, except to the extent permitted by
the order of probation
• The probation order may be subject to any conditions the court considers appropriate and generally subsists
for up to five years

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Suspending and setting aside orders of delinquency
•A person who has been declared a delinquent, may apply to court
to:
 Suspend the order of delinquency, and substitute an order of
probation, with or without conditions, at any time from three years
after the order of delinquency was made; or
 To set aside an order of delinquency at any time from two years
after it was suspended.

9
First directors of a company

 Every incorporator of a company is deemed to be a director


until sufficient directors have been appointed to meet the
required minimum number of directors.
 If the number of incorporators are fewer than the minimum
number of directors required for that company, the board
must call a shareholders meeting within 40 business days
after the date of incorporation for the purpose of electing
sufficient directors to fill all vacancies on the board at the
time of election.

10
Vacancies and filling of vacancies
•Vacancies on the board Pg165

1. Fixed term contract expires


2. Person resigns
3. Person dies
4. Person becomes incapacitated
5. Person becomes ineligible or disqualified
6. Person declared a delinquent
•Filling of vacancies
 If a vacancy arises on the board, it must be filled by a new appointment.
This can be
done by a new election conducted at the next Annual General Meeting (AGM) of the
company-if the company is required to hold such a meeting.
 In any other event, the vacancy must be filled within 6 months after the vacancy arose,
at a shareholders meeting called for the purpose of electing the director or by a poll of
the persons entitled to exercise voting rights.
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Removal of directors
•Directors can be removed in the following ways:
 1. Removal by shareholders-

a)The shareholder/group of shareholders should send out a notice or a


requisition requiring the company to call a meeting;
b)The notice must specify the reason for the removal;
c)A copy must be given to the director;
d)Director is entitled to attend the meeting and state his/her
response to the allegations;
e)Shareholders state their reasons as to why they want the director
removed;
f)Vote will take place and a majority vote (ordinary resolution) will
result in the director being removed.

12
REMOVAL OF DIRECTORS
•2. Removal by a board of directors-If a company has more than 2 directors and it is
alleged by a shareholder or by a director that the director of the company has become
ineligible or disqualified, a director may be removed by a resolution of the board of
directors if:
 A director has become incapacitated to the extent that the director is unable to
perform the functions of a director and is unlikely to regain that capacity within a
reasonable time; or
 The director has neglected or been derelict in the performance of the functions of a
director.

• Remedy for wrongful removal =

A. Removal and breach of contract - Removal as a director could constitute a breach of


a contract and the person who is removed in this way could have a claim against the
company arising from the breach of contract.

13
Board Committees and the audit committees
 The board of directors may appoint any number of board committees, and it may delegate any
of the authority of the board to a committee. This is to assist the board to carry out their
functions effectively.
 The main types of board committees include:

 Audit Committee – assess the proper finances of the company

 Risk Committee – risk management processes

 Remuneration Committee – remuneration packages, fees paid to non-executives

 Nomination committee – assists board in the formal and transparent procedures leading to board
appointments. Reviews boards diversity, skills and experience
 Board Committee - It is a branch of the board of directors appointed by the board of directors, to
assist the board by delegating authority to them
 There may be others like the social and ethics committee. Members of a committee do not all
have to be directors of the company, but if a member is a non-director then, that member will
not have any of the voting rights on any matter.
 It is important to note that the audit committee is not a committee of the board but are
appointed by the shareholders.
14
King IV proposals on board committees
 King IV proposes that board committees should be established
to assist directors by giving detailed attention to important
areas.
•BOARD MEETINGS
 A director authorized by the board of a company may call a meeting of
the board at any time.
 A directors meeting must be called in certain circumstances:

1. If required to do so by the number or percentage of directors specified


in a company’s MOI;
2. If required to do so by at least 25% of the directors, where the board
has at least 12 members; and
3. Where the board has fewer than 12 members, if a meeting is
requested by at least two directors. 15
BOARD MEETINGS CONTINUED…

 1. Electronic communications – video conference

 2. Notice of board meetings – all directors notified

 3. Quorum at board meetings – majority of directors present

 4. Voting at board meetings – one vote per director

 5. Minutes and resolutions of board meetings – minutes recorded

 6. Directors acting other than at a meeting – written or electronic


consent given by director

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