At June Stacey Marks Attorneys, we understand that maintaining effective corporate governance is crucial for the success and integrity of your business. One of the most powerful tools at the disposal of shareholders is the ability to remove directors who no longer align with the company's best interests. Section 71 of the Companies Act, 2008, empowers shareholders to take decisive action, ensuring directors remain accountable and do not jeopardize the company’s future.

SHAREHOLDER-INITIATED REMOVAL: YOUR RIGHT TO ACT

Under Section 71(1), shareholders can remove a director by passing an ordinary resolution at a shareholders' meeting. The law mandates fairness through procedural requirements outlined in Section 71(2): • Notice: The director must receive notice of the meeting and the proposed resolution.
• Representation: The director must be given a reasonable opportunity to make a representation before the resolution is put to a vote.

A landmark case, Miller v Natmed Defence (Pty) Ltd (18245/2019) [2021] ZAGPJHC 352; 2022 (2) SA 554 (GJ), reaffirmed that shareholders are not required to provide reasons for removing a director. This underscores that directors serve at the shareholders' discretion and cannot hold them hostage. Shareholders have the right to act decisively to prevent directors from destroying company assets.

BOARD-INITIATED REMOVAL: ENSURING ACCOUNTABILITY

Section 71(3) allows the board to remove a director on grounds such as ineligibility, disqualification, incapacity, or neglect of duties. Unlike shareholder-initiated removals, the board must:
• Provide the director with a statement of reasons.
• Offer the director an opportunity to make representations before passing the resolution.

ENHANCING CONTROL THROUGH SHAREHOLDERS' AGREEMENTS AND MOI

To further safeguard your company’s interests, shareholders can implement specific provisions within shareholders' agreements and the memorandum of incorporation (MOI).
Shareholders' Agreements can include:
• Reserved Matters: Require shareholder approval for significant decisions, preventing directors from making unilateral changes.
• Voting Requirements: Higher thresholds for particular decisions ensure broader consensus. • Appointment and Removal Procedures: Clearly defined processes for appointing and removing directors help maintain shareholder control over board composition.

Memorandum of Incorporation (MOI) can include:
• Defining Company Objectives: Clear objectives guide directors' actions to align with shareholder expectations.
• Setting Authority Limits: Specifying decisions that directors cannot make without shareholder approval.
• Managing Conflicts of Interest: Establish rules to ensure directors act in the company's best interests.

SECTION 163: EMPOWERING SHAREHOLDERS

Section 163 of the Companies Act provides a legal avenue for shareholders to seek relief if they believe the company’s affairs are being conducted in an oppressive or unfairly prejudicial manner. Shareholders can apply to the court to:
• Prohibit certain actions by the company.
• Amend the MOI.
• Compensate the shareholder for losses.

WHY CHOOSE JUNE STACEY MARKS ATTORNEYS?

At June Stacey Marks Attorneys, we are experts in company and commercial law. Our team, led by June Marks, who holds an LLM in Company Law, provides crucial expertise to navigate these complex legal landscapes. We are committed to ensuring that your rights as shareholders are protected and that your company is governed with the highest standards of accountability and integrity. Don't let directors jeopardize your company's future. With our expert guidance, you can implement robust safeguards, act decisively when necessary, and ensure your company's continued success. Contact us today to learn how we can assist you in maintaining strong corporate governance and protecting your business interests.