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IN THE COMPANIES TRIBUNAL OF SOUTH AFRICA

                                                                                       Case No: CT011APR2018

In the matter between:

MICHAEL MUNIER WILLIAMS                                                                             Applicant

And

CERLEST LUCAL KARA                                                                                  Respondent

Presiding Member of the Tribunal: Kasturi Moodaliyar

Date of hearing: 27 July 2018

DECISION (Reasons and Order)

INTRODUCTION

[1] In this matter the Applicant is seeking to remove the Respondent as director of the company Khuboni Placements (Pty) Ltd in terms of section 71(8)(b)[1] and Regulation 142(1)[2] of the Companies Act (“the Act”). Khuboni Placements (Pty) Ltd is a company duly registered and incorporated in accordance with the company laws of South Africa. 

THE PARTIES

[2] The Applicant is Michael Munier Williams, a director and shareholder of Khuboni Placements.

[3] The Respondent is Cerlest Lucal Kara, a director and shareholder of Khuboni Placements (“the Company”).

BACKGROUND

[4] The Applicant and Respondent are the only two directors and shareholders of the company who hold equal shares in the Company.

[5] The Applicant submitted that the Respondent had neglected all her functions and responsibilities as a director of the Company, in that she has not visited the Company premises since September 2017.

[6] The Applicant alleges that on or about 14 September 2017 the parties entered into a verbal agreement whereby it was agreed upon by the parties that the Respondent would resign as director on receipt of payment for the Respondent’s shares in full.

[7] It was agreed that the Applicant would pay the purchase of shares in the amount of R300 000,00 (three hundred thousand Rands), in equal monthly installments.

[8] The parties also had a sale of shares agreement drafted to capture the terms and conditions of their verbal agreement.

[9] The Applicant further avers that the Respondent withdrew R20 000 from the company bank account without authorization, and that the Company continued to pay for the Respondent’s cellphone telephone bill.

[10] On or about 6 March 2018, the Applicant alleges that the final installment was made in the amount of R50 000, 00 (fifty thousand Rands) for the purchase of the shares.

[11] Following the payment, it is alleged that the Respondent made a further demand for medical aid costs of R24 000, 00 (twenty four thousand Rands) which was not part of the oral or formal sale of shares agreement.  

[12] According to the Applicant, the Respondent has now refused to resign as director of the company as per their agreement.

[13] The Applicant has thus approached the Tribunal to apply for the removal of the Respondent as director of the Company alleging that the Respondent has been neglectful or derelict in the performance of her duties as a director.

HEARING

[14] The Parties were asked if they had considered mediation. Unfortunately this was not a consideration given by the parties.  The parties stated at the hearing that they felt that the complexities of this case would not allow for mediation.    The Tribunal assured the Parties that this case was ripe for mediation but proceeded with the hearing as per the Parties wishes.

[15] The Applicant objected to the Respondent filing a supplementary affidavit after the close of pleadings in terms of Sections 142, 143 and 149 of the Act.   The Respondent mentioned that the document was to provide clarity on their arguments rather than raise new facts.  The Respondent was happy to exclude the document from the hearing.

[16] The Applicant stated that the Respondent had not been to the company premises since September 2017 to date.  He produced time sheets from the company to indicate her absence between September 2017 to 31 May 2018. 

[17] The Applicant argued that the Respondent knows that the Company is in distress and he had to take over her Human Resources responsibility within the Company and institute disciplinary proceedings against an employee because the Respondent was not present to carry out this function.

[18] The Applicant stated that the Respondent was not around to attend meetings, albeit the meetings were informal and sometimes called at short notice.  He argued that he required the Respondent to arrange financial facilities to keep the Company afloat during this time of distress, and this requires both directors who are signatory, however the Respondent refused to sign for this facility which, he argued, was not in the best interest of the company.

[19] The Respondent argued that she agreed with the Applicant that she would not come into the office and would work from home. When asked what sort of work she was doing, she said she was not working but rather looking for a job.  She also stated that she was assisting an employee who was undergoing a disciplinary hearing. The Applicant stated that this assistance lent by the Respondent was contrary to the objectives of the company, as it was the company bringing the action against the employee. The Applicant argued that the Respondent should have rather been acting in the interest of the company.

[20] There were many accusations back and forth regarding the legality of the behavior of both the Applicant and Respondent with regard to the withdrawal of company funds without permission.  The Respondent was accused of withdrawing R20 000 which she said was to make up the difference in salary that she should have been paid and the Applicant was accused of withdrawing the R300 000 from company funds used to purchase the Respondent’s shares. With regard to such accusations, criminal charges should be laid by the parties and the Tribunal will be going beyond its jurisdictional powers to deal with such matters. The Tribunal is not to weigh up whether fraud and theft was committed by the Applicant and Respondent, which are both criminal actions. The Tribunal is to weigh up whether the Respondent was ‘unable to perform the functions of a director, and is unlikely to regain that capacity within a reasonable time; or has neglected, or been derelict in the performance of, the functions of director’.

APPLICABLE LAW

[21] Section 71 Removal of directors –

(1)  Despite anything to the contrary in a company's Memorandum of Incorporation or rules, 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, subject to subsection (2).

(2) Before the shareholders of a company may consider a resolution contemplated in subsection (1)-

(a) 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 or not the director is a shareholder of the company; and

(b) 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.

(3) If a company has more than two directors, and a shareholder or director has alleged that a director of the company- (a) has become-

(i) ineligible or disqualified in terms of section 69, other than on the grounds contemplated in section 69 (8) (a); or

(ii) incapacitated to the extent that the director is unable to perform the functions of a director, and is unlikely to regain that capacity within a reasonable time; or (b) has neglected, or been derelict in the performance of, the functions of director, the board, other than the director concerned, must determine the matter by resolution, and may remove a director whom it has determined to be ineligible or disqualified, incapacitated, or negligent or derelict, as the case may be.

(4) Before the board of a company may consider a resolution contemplated in subsection (3), the director concerned must be given-

(a) notice of the meeting, including a copy of the proposed resolution and a statement setting out reasons for the resolution, with sufficient specificity to reasonably permit the director to prepare and present a response; and

(b) a reasonable opportunity to make a presentation, in person or through a representative, to the meeting before the resolution is put to a vote.

(5) If, in terms of subsection (3), the board of a company has determined that a director is ineligible or disqualified, incapacitated, or has been negligent or derelict, as the case may be, the director concerned, or a person who appointed that director as contemplated in section 66 (4) (a)

(i), if applicable, may apply within 20 business days to a court to review the determination of the board.

(6) If, in terms of subsection (3), the board of a company has determined that a director is not ineligible or disqualified, incapacitated, or has not been negligent or derelict, as the case may be-

(a) any director who voted otherwise on the resolution, or any holder of voting rights entitled to be exercised in the election of that director, may apply to a court to review the determination of the board; and

(b) the court, on application in terms of paragraph (a), may-

(i) confirm the determination of the board; or

(ii) remove the director from office, if the court is satisfied that the director is ineligible or disqualified, incapacitated, or has been negligent or derelict.

(7) An applicant in terms of subsection (6) must compensate the company, and any other party, for costs incurred in relation to the application, unless the court reverses the decision of the board.

(8) If a company has fewer than three directors-

(a) subsection (3) does not apply to the company;

(b) in any circumstances contemplated in subsection (3), any director or shareholder of the company may apply to the Companies Tribunal, to make a determination contemplated in that subsection; and

(c) subsections (4), (5) a nd (6), each read with the changes required by the context, apply to the determination of the matter by the Companies Tribunal.

(9) Nothing in this section deprives a person removed from office as a director in terms of this section of any right that person may have at common law or otherwise to apply to a court for damages or other compensation for-

(a) loss of office as a director; or

(b) loss of any other office as a consequence of being removed as a director.

(10) This section is in addition to the right of a person, in terms of section 162, to apply to a court for an order declaring a director delinquent, or placing a director on probation.

EVALUATION

[22] In terms of subsection 71(8), the provision empowers this Tribunal to make a determination which would otherwise have been made by the board of directors of a company if Company did not have fewer than 3 directors.

[23] It is clear that where a company has fewer than three directors, the Tribunal enjoys jurisdiction to determine the removal of a director upon the application of either a director or shareholder.[3]

[24] The process for the removal of a director requires reasonableness and sufficiency in the allegations made by a director, and affords the impugned director the right to be heard before a determination is made.[4]

[25] Should this Tribunal be satisfied that indeed the Respondent has either neglected or been negligent or derelict in the performance of her functions as a director, it will have to order her removal as director of Company.

[26] Neethling-Potgieter’s “Law of Delict” stated the following on negligence “In the case of negligence, a person is blamed for an attitude or conduct of carelessness, thoughtlessness or imprudence because, by giving insufficient attention to his actions, he failed to adhere to the standard of care legally required of him. The criterion adopted by our law to establish whether a person has acted carelessly and thus negligently is the objective standard of the reasonable person, the bonus paterfamilias”.

[27] Section 76 provides for the standards of directors conduct and the relevant subsections are ss76(3) and (4) and read as follows:

“(3) Subject to subsections (4) and (5), a director of a company, when acting in that capacity, must exercise the powers and perform the functions of director-

(a) in good faith and for a proper purpose;

(b) in the best interests of the company; and

(c) with the degree of care, skill and diligence that may reasonably be expected of a person-

(i) carrying out the same functions in relation to the company as those carried out by that director; and

(ii) having the general knowledge, skill and experience of that director.

(4) In respect of any particular matter arising in the exercise of the powers or the performance of the functions of director, a particular director of a company-

(a) will have satisfied the obligations of subsection (3)(b) and (c) if-

(i) the director has taken reasonably diligent steps to become informed about the matter;

(ii) either- (aa) the director had no material personal financial interest in the subject matter of the decision, and had no reasonable basis to know that any related person had a personal financial interest in the matter; or (bb) the director complied with the requirements of section 75 with respect to any interest contemplated in subparagraph (aa); and

(iii) the director made a decision, or supported the decision of a committee or the board, with regard to that matter, and the director had a rational basis for believing, and did believe, that the decision was in the best interests of the company...”

[28] Section 76(3) deals with what is expected of the director and section 76(4) deals with what the director has to satisfy in order to show that she acted in accordance with her duties.

[29] Each director has duties, i.e. the fiduciary duties and the duties of care and skill, the duty of “bona fides” is a separate overarching duty – in addition to “objective duties”.[5]

[30] This is explained in “New Entrepreneurial Law” as follows4 : “6.2.2.1 ‘Bona fides’ (good faith) This is a subjective overarching duty applying to the exercise of any and all of the powers in the company. In essence it requires that the director must act honestly.[6] Apart from the duty of (subjective) honesty, there are also objective standards, which are not subservient to the duty of honesty. Therefore, the objective duties apply, and noncompliance will not be excluded if the director avers that he acted honestly (bona fide).

[31] The objective standards are –

(a) ‘Interests of the company’ : The duty must be exercised in the interests of the company.[7]  The question will then be who the company is, as there is a multiplicity of ‘stakeholders’ inside the company, (for example, the shareholder/s) as well as ‘outside’ the company (such as, to name a few, the creditors, employees, the state and the community). The basic principle is that the company must be used for profit maximisation in favour of the shareholders, and the shareholders as body will therefore be the ‘company’ in this sense. This viewpoint has been questioned by two opposing alternatives: the one is that the directors can, under certain circumstances, ignore the interests of the shareholders in favour of the interests of the other stakeholders (‘pluralist approach’) and the other one is that the interests of another stakeholder must also be taken into account if it promotes the interests of the shareholders (‘enlightened shareholders approach’) with the latter being the most accepted”.[8]

(b) ‘Do not exceed powers’: This entails that the directors must not exceed the limits of their powers (that is, perform acts outside the capacity of the company or their agency or the restrictions in the Act), irrespective of whether the act will be valid/binding in respect of third parties.[9]

(c) ‘Use powers for a proper purpose’: The test is firstly what the power was conferred for, and secondly whether it was exercised for that purpose,[10] such as that the power to issue shares must be used to obtain capital, not to entrench or change control.[11]  This duty actually also serves as a test, and therefore is not a separate duty in that sense, to determine if the act was for the benefit of the company. ”[12]

[32] The Tribunal was presented with evidence that the Respondent failed to present herself at the company premises since September 2017, refused to sign pertinent company documents which have allowed the company to borrow money to stay afloat, according to the Applicant, did not perform any of her director duties whilst she was away from the office, and according to the Respondent’s own evidence, helped an employee who was facing disciplinary proceedings by the company, which was not in the best interest of the company.

[33] The Tribunal finds that the Respondent has failed to exercise her duties as director in good faith and in the best interest of the company.

[34] The Tribunal is satisfied that the Respondent has neglected her duties as a director as contemplated in the Act.

[35] In addition, the evidence presented before the Tribunal was an email from the Respondent’s attorney accepting that the R300 000 the Applicant paid the Respondent in lieu of the Respondent’s shares.[13]    It was agreed between the parties that once the financial obligation had been met, the Respondent would tender her resignation.[14]  When the Applicant paid over the last installment the Respondent refused to resign.[15] There was no further correspondence to say that the amount paid was inadequate.

[36] In the premises, the Tribunal is satisfied that Applicant has shown good cause as to why he should be entitled to the relief sought.

ORDER

[37] The Respondent be removed as a Director of Khuboni Placements (Pty) Ltd in terms of Section 71(8) of the Companies Act 2008;

[38] The Companies and Intellectual Property Commission is to assist the Applicant in the removal of the Respondent from the board of the Khuboni Placements(Pty) Ltd.

[39] There is no order as to costs.

 

DATED on THIS THE 31 DAY of AUGUST 2018.

 

________________

KASTURI MOODALIYAR

COMPANIES TRIBUNAL: MEMBER

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