0837483629 mzo@tshaka.co.za
Ineligibility and Disqualification of Directors

Ineligibility and Disqualification of Directors

by | Sep 30, 2013 | Company

INELIGIBILITY AND DISQUALIFICATION OF DIRECTORS

There is a distinction that is drawn between someone who is ineligible to be director of a company and someone who is disqualified from being a director of a company. If a person is ineligible, that person is prohibited completely from being a director. However, a person who has been disqualified may still be permitted to be a director if the court sanctions such appointment.

The grounds of ineligibility and disqualification are set out in section 69 of the Companies Act [1] (“the Act”). It is important to note that the section does not only apply to directors but it also applies to alternate directors, prescribed officers and members of the board committees whether such persons are members of the board of directors or not [2]. A prescribed officer
can be defined as any person who exercises general executive control over and management of the whole, or a significant portion, of the business and activities of the company, or regularly participates to a material degree in the exercise of general executive control over and management of the whole, or a significant portion, of the business and activities of the company [3].

Given the wide reach of the definition of a prescribed officer, a number of persons may fall within this definition and such people may include the Chief Executive Officer, Company Secretary, and Chief Operations Officer. The title given to a person is irrelevant when determining whether a person is a prescribed officer or not [4].

Unless the company’s Memorandum of Incorporation (“MOI”) provides otherwise, there are no minimum requirements or qualifications that are prescribed in the Act [5]. This approach that was adopted by the drafters of the Act has to be commended because it would have been dangerous to prescribe such minimum requirements given the fact that companies vary in size and complexity. This is properly something that must be regulated internally by each company.

However, Section 69(7) lists certain categories of persons who are expressly ineligible to be
company directors and these are:

  • juristic persons (like companies and close corporations or a trust [6]), therefore only natural persons can be directors of a company;
  • minors who have not been granted majority status;
  • persons suffering from some legal disability, like being declared by a court incapable of managing their own affairs;
  • a person who does not satisfy such minimum requirements set out in the MOI (if the company’s MOI has such requirements); and
  • a person disqualified in terms of any other additional grounds of ineligibility as may be set out in the company’s MOI.

On the other hand, a person may be disqualified from being a director in any one of the following instances [7]:

  • where a person has been prohibited by a court or any other public regulation from becoming a director;
  • where a person has been declared delinquent by a court in terms of section 162 of the Act;
  • if a person is an unrehabilitated insolvent;
  • if a person who has been removed from an office of trust on grounds of misconduct involving dishonesty;
  • if a person has been convicted and imprisoned without an option of a fine or has been fined more than the prescribed amount [8] for theft, fraud, forgery, perjury or other offences specified in section 69(8)(b)(iv) of the Act [9].

In addition to the grounds set out in the Act, the company’s MOI may provide additional grounds and a director may also be disqualified if the conditions set out in the MOI are met.

For example, the MOI may provide that a director will be disqualified if they fail to attend a certain number of board meetings.

If a person has been disqualified or is ineligible to be a director such a person cannot be validly appointed as a director of the company and should such a person have been occupying the position already at the time that they become ineligible or disqualified, they can no longer continue to act as a director.

As stated above, with regards to disqualification on the basis of insolvency or criminal conviction, section 69(11) of the Act grants a court a discretion to exempt a person from such disqualification. If a person was disqualified on the aforesaid grounds (insolvency and criminal conviction) the disqualification will last a period of 5 years, unless the court directs otherwise.

Conclusion

It is important that, before a person is appointed to the board of directors of a company or appointed as a prescribed officer or member of a board committee, proper background checks must be done to ensure that no ineligible or disqualified persons are appointed to these positions. Even when the person is already acting as a director, should that person be disqualified or become ineligible, they can no longer act in their capacity as director of the company.

 



[1] Act 71 of 2008 (as amended)
[2] Section 69(1) of the Act
[3] Section 1 of the Act, read with Regulation 38(1) of the Act
[4] Regulation 38(2)
[5] Section 69(6)(b)
[6] Section 1 extends the definition of a ‘juristic person” to include a trust
[7] Section 69(8)
[8] Currently R1 000 in terms of Regulation 39(4)
[9] These include offences involving fraud, misrepresentation or dishonesty; offences relating to promotion, formation or management of a company; and offences under the Act, the Insolvency Act (No 24 of 1936), Close Corporations Act (No 69 of 1984), Competition Act (No 89 of 1998), Financial Intelligence Act (No 38 of 2001), Securities Services Act (No 36 of 2004) or Chapter 2 of the Prevention and Combating of Corrupt Activities Act (No 12 of 2004)

We Cannot Avoid the Debate on Transformation

We Cannot Avoid the Debate on Transformation

by | Sep 20, 2013 | Transformation

WE CANNOT AVOID THE DEBATE  ON TRANSFORMATION

In early August 2013, that great defender of the “rule of law”, Adv Paul Hoffman SC laid a complaint with the Judicial Service Commission (JSC) against the current Chief Justice, Justice Mogoeng Mogoeng.

In the supporting affidavit, Adv Hoffman sets out his credentials and states that he “was previously an attorney from 1975 to 1980, a junior advocate from 1980 to 1995 and a silk at the Cape Bar from 1995 to 2006. Between 2006 and 2008 (he) was the founding director of the Centre for Constitutional Rights, a unit of the FW de Klerk Foundation. (He has) acted as a judge in the Cape High Court (now known as the Western Cape High Court) at the invitation of Friedman JP, King JP and Hlophe JP during the period in which (he) practiced as a silk at the Cape Bar”. Without a doubt, quite an impressive résumé and one that, I have to admit, I am envious of.

Adv Hoffman laid the complaint following a speech that the Chief Justice delivered at a conference of Advocates for Transformation on the 6 July 2013, in Cape Town. In the speech, the Chief Justice addressed (to the apparent discomfort of Adv Hoffman et al) the thorny issue of transformation, particularly in the legal profession. Adv Hoffman’s complaint was that in delivering the speech, and in the manner that he did, the Chief Justice was:

  • in contempt of court and guilty of attempting to defeat the ends of justice (by seeking to influence the decision of the High Court in a pending matter where the JSC’s process of recommending judges for appointment is being challenged);
  • bringing the judiciary into disrepute (when he “descended into the arena of contestation and controversy in respect of issues which are pending in the High Court and which, in the light of their constitutional nature, are likely to require a final determination in the Constitutional Court” and he “involved himself in the politics and policy aspects of affirmative action measures in a manner unbecoming of a sitting Judge in that he adopted a position on various political questions and matters of policy in a manner which undermined the proper function, the standing and the integrity of the judiciary”.

There was also a complaint that the Chief Justice was guilty of various breaches of the Code of Judicial Conduct for Judges (by engaging in public debate about a case in a manner that undermined the standing and integrity of the judiciary). He also complained about the words allegedly uttered to him by the Chief Justice (when the two met at some conference) where the latter was alleged to have said “you can continue to challenge me but you will continue to be frustrated”. In Adv Hoffman’s view, these remarks showed bias and malice towards him; they were prejudicial to his professional career and they were a violation of his constitutional rights. In addition, Adv Hoffman argued, the Chief Justice violated his duty (as a judge) to respect, protect and fulfill Adv Hoffman’s rights.

We now know that this complaint has been rightly dismissed, summarily, by the Judicial Conduct Committee (JCC). The JCC found no merit to any of the complaints and in fact called some of them “far fetched”. The reasons set out by the JCC for dismissing the complaint and succinct and not deserving of any further analysis.

However, of concern to those of us who still aspire to one day boost of the credentials like those listed by Adv Hoffman in his affidavit is the conduct that was depicted by Adv Hoffmanthroughout this whole process. This led to the remark that was made by the JCC where they said: “it is indeed shocking to hear that an advocate could write letters to a sitting judge demanding that the judge explains his fitness for office”. I could not agree more. Lest we forget, this is not just a sitting judge, this is a sitting Chief Justice!!

In his complaint statement, Adv Hoffman even had the audacity to call his mischievous letter an “olive branch” that was proffered by him. In the letter itself (available at www.iafsa.org under the link, “Chief Justice”) Adv Hoffman says it occurred to him that it was preferable “engaging constructively with (the Chief Justice)” than “escalating the existing confrontation”. It must be on this basis that he saw his mischievous act as extending an olive branch. It is however telling that a practising senior advocate appears to be proudly considering himself to be in “confrontation” with a sitting Chief Justice.

If there is indeed any confrontation, given Adv Hoffman’s commentary about the Chief Justice ever since it emerged that Justice Mogoeng was a candidate for the then vacant Chief Justice position, it seems clear to me that Adv Hoffman is the one who has been confrontational. As far as I know, other than the alleged remarks referred to above, the Chief Justice has been at the receiving end of all the insults from the likes of Adv Hoffman.

In his letter (referred to above) Adv Hoffman goes further and says “I am hopeful that upon mature reflection, and after prayerful consideration, you will recognise that harm can be done to the impartiality and independence of any court whose officers descend into the arena of debate and contestation regarding matters of this highly politicised and contentious nature” (my emphasis). In other words, failure by the Chief Justice to give the reflection that Adv Hoffman sought will be an indication of some immaturity on the part of the Chief Justice and/or up until that state, the reflection that the Chief Justice had given to the matter (including the contents of his speech) had been immature.

We will recall that, when the Chief Justice was being interviewed for that position, he confirmed that he is a religious person, hence Adv Hoffman saw it fit to mention that the Chief Justice may even need some divine intervention in order for him to bring about the “mature reflection” that was needed in the situation. This conduct is, in my view, deplorable.

What the complaint and the letter Adv Hoffman sent to the Chief Justice reveals is an attitude of an officer of the Court who has absolutely no respect for the person occupying the highest judicial office in this country. Of course, Adv Hoffman is entitled not to like the Chief Justice, just he was also entitled not to support his appointment. However, he is not entitled to disrespect the office, and the Chief Justice as a person.

The JCC was correct, it is shocking that an advocate would essentially request a sitting Chief Justice to explain why he is fit to hold that office. This is as disrespectful as it is unbecoming of an officer of the Court.

What Adv Hoffman (and those in his corner) need to understand is that transformation, particularly the transformation of the legal profession, is long overdue and is a reality we cannot run away from. It needs to be debated and solutions need to be found by all those who have the power to improve the current situation. Perhaps the likes of Adv Hoffman would rather prefer the status quo to remain because, quite frankly, it is not detrimental to their immediate careers. The more things stay the same, the better for the likes of him.

Sadly, whilst that might be desirable to sustain their selfish interests, the fact of the matter is that most South Africans would prefer to see real transformation (which by the way is not, and should not be, synonymous with the dropping of standards). The truth of the matter is that we have a Chief Justice who has gone about his job diligently so far and the fact that the likes of Adv Hoffman can even come up with these spurious complaints is indicative of the fact that they have nothing tangible that they can use to pin down the Chief Justice.