Removing a director from office is often a challenging decision, but sometimes a very necessary action. Here’s how to handle the situation.
All the answers to your unique business lifestage questions
Broadly speaking there are two ways to remove a director:
- By a Resolution of Shareholders or
- By a Resolution of Directors.
Most companies opt for the first due to the belief that reasons need not be provided to the director in question and therefore the process is much “easier”. However, the Pretorius case may have changed the status quo in the Western Cape.
The Pretorius - case
In the decision of the Western Cape High Court in Johannes Jacobs Pretorius & 1 Other v Steven Edward Timcke & 3 Others, the directors of a company were removed by its shareholders in terms of Section 71 of the Companies Act (hereafter referred to as “the Act”).
Related: Comair Limited CEO Erik Venter’s 5 key lessons in leadership innovation and remaining competitive
In summary, the shareholders gave notice to the directors of their intention to remove them by way of a resolution, and their removal followed. However, the directors challenged the procedure that the shareholders followed. They did receive the notice, but it did not state the grounds on which the shareholders proposed to remove them.
The Court held that the notice was indeed defective and therefore it naturally follows that the Resolution for the Removal of the Directors was invalid. It did not comply with Section 71(2) of the Act.
The practical implication of this is that the court affirmed the distinction drawn by the legislature between the Removal of Directors by the Shareholders of a company and instances where the Board seeks to remove a director (which is less onerous). However, the Court held that the directors have a right to a “reasonable opportunity to make a presentation” at the meeting and therefor require the reason(s) to enable them to prepare their representations at the meeting.
The judgement has received some criticism, but for now remains binding in the Western Cape.
The way forward?
The Pretorius judgment was not taken on appeal. It is therefore, binding in the Western Cape, unless a Full Bench or Higher Court rules to the contrary in another similar matter. As matters stand, shareholders are thus required to provide reasons to Directors prior to a meeting proposing their removal.
 Case number 15479/2014 (unreported)
 Act 71 of 2008 as amended