Robyn Shepherd | SchoemanLaw Inc  

Category: Commercial Law | Commercial Law 

Introduction 

Within the legal landscape, the court can be petitioned to declare a director delinquent or place them under probation. Various entities, such as companies, shareholders, directors, company secretaries, prescribed officers, registered trade unions, the Companies Commission, and the Takeover Regulation Panel, may initiate such proceedings. This article delves into the grounds for delinquency and probation, applicable to both present and former directors. 

Grounds of Delinquency 

A court 'must' make an order declaring a person a delinquent director if inter alia, the person1 – 

consented to serve as a director, or acted in the capacity of a director or prescribed officer, while ineligible or disqualified to be a director; while under an order of probation, acted as a director in a manner that contravened that order; while a director, grossly abused this position; while a director, contrary to section 76(2)(a) of the Act, took personal advantage of information or an opportunity, or intentionally or by gross negligence inflicted harm on the company or a subsidiary of the company; while a director, acted in a manner that amounted to gross negligence, wilful misconduct or breach of trust or in a manner contemplated in section 77(3)(a), (b) or (c) of the Act (unauthorised acts, reckless trading or fraud); has repeatedly been subject to a compliance notice or similar enforcement mechanism; has at least twice been personally convicted of an offence or subjected to an administrative fine or penalty in terms of any legislation; or within a period of five years, was a director of one or more companies or was a managing member of one or more close corporations, or controlled or participated in the control of a juristic person (irrespective of whether concurrently, sequentially or at unrelated times) that was convicted of an offence or subjected to an administrative fine or similar penalty in terms of any legislation. 

  

Grounds of Probation 

In terms of section 162(7) of the Act2, a court 'may' declare a person under probation if the person – 

while a director, was present at a meeting and failed to vote against a resolution despite the inability of the company to satisfy the solvency and liquidity test, contrary to the Act; while a director, acted in a manner materially inconsistent with the duties of a director; while a director, acted in or supported a decision of the company to act in a manner that was oppressive or unfairly prejudicial in terms of section 163(1) of the Act; or within ten years after the effective date (1 May 2011) was a director of more than one company or a managing member of more than one close corporation (concurrently, sequentially or at unrelated times), and during that time two or more of those companies or close corporations failed to fully pay all of their creditors or meet all their obligations (except under a business rescue plan resulting from a board resolution in terms of section 129 of the Act or a compromise with creditors in terms of section 155 of the Act). 

Terms of the Order and Conditions 

An order of delinquency results in a person's disqualification from being a director. This order may be unconditional, lasting a lifetime, or conditional, subsisting for a determined period, as decided by the court. 

A person under probation may only serve as a director within the limits specified by the probation order, subject to conditions set by the court, generally not exceeding five years. 

The court may impose additional conditions, such as participation in remedial education or community service. Compensation to adversely affected parties may also be mandated. 

Conclusion 

In conclusion, directors, companies, and stakeholders must fulfill their duties diligently to avoid legal consequences. Understanding and addressing potential remedies becomes paramount for businesses facing challenges in the dynamic legal landscape surrounding delinquent directors and those under probation. 

Robyn Shepherd | SchoemanLaw Inc  

Attorney
https://schoemanlaw.co.za/our-services/commercial-law/