Section 71 of the Companies Act, 2008 (herein the “Act“) allows for shareholders to vote on the removal of a director. Despite anything to the contrary in a company’s Memorandum of Incorporation or rules, or any agreement between a company and a director, or between any shareholder and a director, a director may be removed by an ordinary resolution adopted at a shareholders’ meeting by the persons entitled to exercise voting rights in an election of that director.
According to section 71(2) of the Act, the director concerned, and proposed to be removed:
- must be given notice of the meeting and the resolution, at least equivalent to that which a shareholder is entitled to receive; and
- the director must be afforded a reasonable opportunity to make a presentation, in person or through a representative, to the meeting, before the resolution is put to a vote.
In the recent case of Miller v Natmed Defence (Pty) Ltd (18245/2019)  ZAGPJHC, the applicant, being the director removed, contented that his removal was not in line with the provisions of section 71(2) of the Act as no reasons were given regarding why his removal as a director was proposed and accordingly he was not enabled to make representations.
Section 71 of the Act draws a clear distinction between the removal of a director by the company’s shareholders (per section 71(2) of the Act) and instances where the board of directors seek to remove a director (per section 71(3) of the Act). Further, the requirement for shareholders or directors to furnish a director (to be removed) with reasons, in advance to the proposed resolution being adopted, is only provided for in section 71(3) of the Act. In the event where shareholders seek the removal of a director, per section 71(2) of the Act, it does not require shareholders to provide the director concerned with a statement setting out the reasons for the proposed resolution.
In Miller v Natmed Defence (Pty) Ltd. the court asked the question on whether the requirement per section 71(2) of the Act, that the director be afforded “reasonable opportunity to make a presentation” can be read to require that reasons for the proposed removal be given to the director prior to the decision being taken. The court concluded that directors serve at the behest of the shareholders whom elected them. Accordingly, shareholders can remove directors at will without having to provide reasons. Section 71(2) of the Act does not require shareholders to provide or even have a reason for wanting to remove a director and therefore, shareholders cannot be obliged to give reasons in advance.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)