Removal of a Non-Cooperative Director: A Guide for South African Entrepreneurs

As an entrepreneur in South Africa, you may encounter the challenging situation of dealing with a director who is no longer aligned with the company's vision or operational needs. Removing a director who refuses to cooperate can be complex, but understanding the legal framework and available steps can help you navigate this process effectively.

Understanding the Legal Framework

The Companies Act 71 of 2008 (the Act) governs the removal of directors in South African companies. It is crucial to familiarize yourself with the relevant sections of the Act, particularly sections 71 and 76, which outline the procedures and grounds for removing a director.

Grounds for Removal

Before initiating the removal process, ensure that you have valid grounds for removal. Common grounds include:

1. Breach of Fiduciary Duties: If the director has acted against the best interests of the company.

2. Conflict of Interest: Engaging in activities that conflict with the company’s interests.

3. Incompetence or Misconduct: Demonstrating inability to perform duties or engaging in unethical behavior.

4. Non-participation: Failure to attend board meetings or contribute to decision-making.

Steps to Remove a Non-Cooperative Director

1. Review the Company’s Memorandum of Incorporation (MOI)

The MOI may have specific provisions regarding the removal of directors. Ensure you comply with these internal rules, as they may dictate the process and required majority for removal.

2. Convene a Board Meeting

If the MOI permits, call a board meeting to discuss the removal. The board can pass a resolution to remove the director, provided the necessary majority votes in favour. However, the director in question must be given a chance to defend themselves during the meeting.

3. Shareholders’ Meeting

If the board is unable or unwilling to remove the director, the shareholders can step in. Section 71(1) of the Act allows shareholders to remove a director through an ordinary resolution at a shareholders’ meeting. 

- Notice: Issue a written notice of the meeting, specifying the intention to propose the removal of the director.

- Resolution: Shareholders can pass an ordinary resolution (a simple majority of those present and voting) to remove the director.

- Opportunity to Defend: The director must be given a reasonable opportunity to present their case before the resolution is passed.

4. Special Notice

In some instances, special notice is required. This means notifying the company at least 28 days before the meeting. The company must then notify the director concerned and the shareholders.

5. Court Intervention

If the director challenges the removal process or if there is a deadlock among shareholders, you may seek relief from the courts. Section 71(5) of the Act allows any director or shareholder to apply to the court for an order to remove a director on the grounds of neglect, incompetence, or dereliction of duty.

Practical Considerations

Documentation

Keep thorough records of all communications, notices, and meetings related to the removal process. Documentation will be crucial if the director contests the removal.

Legal Advice

Consult with a legal professional to ensure compliance with the Act and the company’s MOI. Legal advice can also help mitigate risks associated with potential disputes or claims of wrongful removal.

Communication

Handle the process with sensitivity and professionalism. Clear communication with shareholders and stakeholders is essential to maintain trust and stability within the company.

Conclusion

Removing a non-cooperative director in South Africa involves navigating a legal and procedural maze, but it is a necessary step for the health and success of your business. By understanding the legal framework and following the correct procedures, you can effectively address this challenge and ensure the continued growth and prosperity of your company. Always seek professional legal advice to guide you through this process and safeguard your business interests.

The StartUp Legal is here to help make your compliance journey seamless. Book a complimentary consultation with us using the following link: https://calendar.app.google/1U7xpawDJd2ARe1Y8