The Role of the Companies Tribunal in Director Removals: A Detailed Examination
Welcome to Part 2 of our series on the Companies Tribunal. In this instalment, we take a closer look at the Tribunal’s role in director removals—a crucial issue for South African companies with small boards facing internal disputes. By utilizing the Companies Tribunal, businesses can navigate the sensitive matter of director removal without the expense and complexity of court proceedings.
The Legal Framework for Director Removal:
The Companies Act No. 71 of 2008, under Section 71, outlines the process for removing directors. This section empowers shareholders or fellow directors to act if a director breaches fiduciary duties or acts against the company’s interests. The Companies Tribunal serves as an alternative platform, offering a more efficient and cost-effective means to resolve these disputes.
The Tribunal's Powers in Director Removal Cases:
The Tribunal can adjudicate on three main types of disputes concerning directors:
1. Alleged misconduct or breach of duty
2. Failure to perform fiduciary duties
3. Conflict of interest
The Tribunal assesses these cases based on factual evidence to determine whether a director has acted inappropriately or against the company's interests.
Types of Director Removal Cases and Relevant Judgments
1. Alleged Misconduct or Breach of Duty
Directors may be removed if they engage in actions that harm the company or its stakeholders -
Relevant Case: Steyn Kilian v Stephen Ralph Wepener (Case No: CT00804ADJ2021)
In this case, Steyn Kilian applied to remove Stephen Ralph Wepener as a director of Maven Specialised Services (Pty) Ltd. The Tribunal found that Wepener had misappropriated company funds by using R4000.00, initially intended for a car rental, to repair his personal vehicle. Despite his belief that this action would benefit the company, the Tribunal determined that he failed to return the money to the company once the car rental fell through. This constituted a breach of his fiduciary duties. As a result, Wepener was removed from his position, demonstrating that the Tribunal upholds strict standards regarding directors' responsibility to act in the company’s best interests.
2. Failure to Perform Fiduciary Duties
Directors have a legal obligation to act in the company's best interests. Failing to fulfil this duty can result in removal.
Relevant Case: Warren Bishop and the Bishop Brothers (Pty) Ltd v Ryan Bishop (Case No: CT01041/ADJ/2022)
In this case, Warren Bishop sought the removal of Ryan Bishop as a director after Ryan relocated to Dubai without notifying the company. Since his departure, Ryan failed to participate in company operations, neglected his responsibilities, and remained a signatory on the company’s bank account, posing a financial risk. The Tribunal determined that Ryan Bishop had neglected his fiduciary duties, and as a result, he was removed as a director. This case illustrates that directors must actively participate in their role, and neglecting their duties can lead to removal.
3. Conflict of Interest
A director may be removed if their personal interests conflict with their duty to the company.
Relevant Case: M.A.S. v S.S. (Case No: CT00604ADJ2021)
In this case, the applicant, Mr. M.A.S., applied for the removal of Mrs. S.S. as a director of Ambanc (Pty) Ltd on the grounds of conflict of interest. Mrs. S.S. had established a competing business while still serving as a director of Ambanc and used company funds for personal gain without proper authorization. The Tribunal found that she had acted in direct conflict with her fiduciary duties and failed to act in the company's best interests. Consequently, Mrs S.S. was removed as a director, showcasing the Tribunal's firm stance against conflicts of interest.
Conclusion
The Companies Tribunal offers an effective, accessible, and cost-efficient process for resolving director removal disputes in a large variety of contextual situations. The case summaries demonstrate how the Tribunal ensures accountability and maintains high standards of corporate governance by upholding directors' fiduciary duties.
Be sure to look out for part 3 of this series where we will dive into the advantages and disadvantages of using the Companies Tribunal instead of traditional litigation. In part 4 we will provide a detailed step-by-step explanation of the application process, including but not limited to filing an Application, exchange of documents, time frames, role players, hearings and decisions.
Contact VST Attorneys today for assistance in both bringing and opposing Companies Tribunal removal applications.
Written by: AJ Truter (Partner)
Comments