New CIPC requirement for the removal of a director by shareholders

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The Companies and Intellectual Property Commission (CIPC) recently issued a notice regarding the requirements for the lodging of an application for the removal of a director of a company by the shareholders.

The relevant sections of the Companies Act of 2008 (“the Act”) do not specifically set out the grounds for the removal of a director by the shareholders, leading some to conclude that the shareholders have a right to remove a director and need not provide any reason for doing so.  The procedure for such a removal entails the passing of a resolution by the shareholders at a shareholders meeting. However, in terms of the Act, the director concerned must be given notice of the meeting and the resolution and afforded a reasonable opportunity to make a presentation to the meeting before the resolution is put to a vote.

A recent Western Cape High Court decision confirmed a director’s right to be afforded “a reasonable opportunity to make presentation”, and found that shareholders are required to provide the affected director with reasons for the resolution in advance. The absence of these reasons would render any notice of the meeting and resolution invalid.

The implication of the above decision is that anyone wishing to lodge an application with CIPC for the removal of a director of a company (COR39 application), must ensure that their notice lists the reasons for removal.

Should you require further information on commercial matters and CIPC applications, please contact us.

For more information contact:

 

Henning Pieterse | Partner

E: h.pieterse@bissets.com

Areas of Expertise: Corporate & Commercial Law