Lecture 7 - Directors Part 2
Lecture 7 - Directors Part 2
WEEK 7
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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
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Ineligible and disqualified persons
1.Ineligible (absolutely prohibited – no exemptions):
A.Juristic person
C.A person who does not satisfy any requirement in a company’s MOI.
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.
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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
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.
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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
The Commission
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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
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.
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First directors of a company
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Vacancies and filling of vacancies
•Vacancies on the board Pg165
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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.
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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:
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.
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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:
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