Over the past few years, we have heard more and more often about applications being brought before the court to have directors declared delinquent.
What is the purpose of such an application? The aim of the delinquency remedy, as provided for in section 162 of the Companies Act 71 of 2008, is “to protect shareholders, stakeholders and the public from directors who are dishonest and incompetent, and directors who fail to properly manage the company’s business or have neglected their duties and/or obligations.”
Section 162(2) of the Act sets out who may institute an application to declare a director delinquent. These are:
- The Company Secretary;
- The Prescribed Officer of the company;
- A Registered trade union that represents employees of the company;
- Other representatives of employees of the company.
Other organisations that may also apply to court for an order of delinquency include:
- The Companies & Intellectual Property Commission (CIPC);
- The Minister of Trade and Industry through the Takeover Regulation Panel;
- Other Organs of State.
The above may apply to court for an order of delinquency against a director of the company or if the person was a director of the company within 24 months immediately preceding the application being brought to court.
A delinquency order prohibits a person from acting as a director for at least 7 years, or the ban can be for life in more serious cases.
When considering a delinquency application, the court uses both objective and subjective assessments to determine whether the director has breached any one or more grounds of delinquency. The grounds for declaring a director delinquent as set out in section 162(5) of the Act include:
- serving as a director (or acting director or prescribed officer) whilst ineligible or disqualified from doing so in terms of section 69 of the Act;
- serving as a director whilst under probation in terms of section 47 of the Act;
- grossly abusing the position of director;
- taking personal advantage of information or an opportunity that should have been given to the company;
- acting in a manner which amounted to gross negligence, wilful misconduct or breach of trust whilst performing the functions and duties of a director of the company.
It is clear from the above, and the attached article, that whilst the position of director comes with a level of prestige and privilege, so do high levels of accountability and responsibility. In the case of misconduct there can be heavy consequences.
© D’AMICO INCORPORATED ATTORNEYS
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This article has been compiled for information purposes only and does not constitute legal advice. Legal advice needs to be tailored to the specific needs and circumstances of the case on hand. It follows that D’Amico Incorporated cannot accept liability for any loss or damage caused to any individual or entity that has acted or omitted to act on the basis of this information.