Corporate Governance: Removal of Director vs Voluntary Resignation of Director

In terms of the Companies Act No 71 of 2008 (“the Act”), a director may be removed either by the shareholders or by the board of directors.

Section 71 of the Act states that despite anything to the contrary in a company’s Memorandum of Incorporation or rule, or any agreement between a company and a director, or between any shareholders 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.

Before the shareholders of a company may consider a resolution contemplated above:

1. the director concerned must be given notice of the meeting and the resolution, at least equivalent to that which a shareholder is entitled to receive, irrespective of whether the director is a shareholder of the company; and;
2. 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.

The Act does not prescribe any grounds for the removal of a director by shareholders. The shareholders are not required to have any reason to remove a director – it is the right of the majority of them to do so. This is because directors serve at the pleasure of shareholders and consequently, shareholders may affect removals without cause. It is also for this reason that the substance of a decision by the majority of shareholders to remove a director from the board of directors is not subject to review by a court, except in instances where the shareholders have acted fraudulently or in bad faith.

On the other hand, when a director voluntary resigns he or she has to give a notice in writing to the company of his or her resignation in terms of section 168 or the Act.

After the company has received such a notice in writing the company must file a notice of his or her resignation with the Companies and Intellection Property Commission (“CIPC”) within 10 business days of receiving such a notice.

The notice that must be filed with the CIPC consists of the following documentation:

1. CoR 39 form that contains each director’s personal details and current status within the company. This form must be signed by an active director of the company;
2. board resolution signed by each director noting the resignation of the particular director;
3. a notice or minutes of a meeting if the decision was made at a meeting;
4. resignation letter of that particular director; and
5. certified copies of the ID’s of all the directors of the company including the resigning director.

If, after the resignation of the director, there are no remaining directors left on the board, any individual who has voting rights to vote on a matter concerning the appointment of a director can vote to appoint a new director to the board.

It is very important that a distinction is made between voluntary resignation and the removal of a director, since the requirements that have to be complied with in terms of the Act differs in each circumstance.

Should you have any queries regarding this article, you are welcome to contact Arné Bester at arne@asl.co.za.