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COMPANIES TRIBUNAL OF SOUTH AFRICA

 

 

Case Number: CT00482ADJ2020

In the matter between:

 

SIKHUMBUSO GOODMAN MTSHALI                              Applicant

 

and

 

TSHEPO LEFUTSO                                                           Respondent

 

in respect of removal of the respondent as director of Bohloa Services (Pty) Ltd

 

 

Presiding Member:                                       Khashane La M. Manamela (Mr.)

Date of Decision:                                          17 December 2020

 

Summary: Application for the removal of the respondent as director of a company in terms of section 71(8) of the Companies Act 71 of 2008 – application simply stating that the applicant is unable to get hold of the respondent and thus the respondent’s conduct is hindering the conduct of the business of the company – such application ought to establish (on the basis of specific acts or omissions in the respondent’s conduct relating to the business or affairs of the company) that the impugned director has neglected or has been in derelict of his or her functions as a director, as envisaged by section 71(3)(b) of the Companies Act, for example, by the director’s non-performance or defective performance of tasks or functions allocated or expected from him or her – held that mere allegations of physical absence from the company of the impugned director or inaccessibility of the one director by the other director, without more, does not suffice – held that the application be dismissed.

 

 

DECISION (Reasons and an Order)

 

 

Khashane La M. Manamela

 

Introduction

 

[1]          Messrs Sikhumbuso Goodman Mtshali (Mtshali or the applicant) and Tshepo Lefutso (Lefutso or the respondent) are the only directors of the private company Bohloa Services (Bohloa or the company). Bohloa was incorporated or registered as a company with the Companies and Intellectual Property Commission (the CIPC), just over two years ago, on 25 June 2018. Mtshali seeks – in terms of this application - the removal of Lefutso as a director of Bohloa. This application is contemplated by the provisions of section 71(8)[1] of the Companies Act 71 of 2008 (the Companies Act) which provides for an application to this Tribunal by a director or shareholder in a company with fewer than three directors for the removal of a director of the company.

 

[2]          The application is not opposed by Lefutso. The documents in the application were served on Lefutso by Mtshali on 19 October 2020 by way of electronic mail. Delivery of documents or process of this Tribunal through the method of electronic mail or email is permissible.[2] Mtshali submitted proof of delivery of the application to Lefutso on the date mentioned above. I am satisfied that the application was adequately served upon Lefutso, as envisaged by regulation 153[3] of the Companies Regulations, 2011 (the Regulations) for the application to serve before me as an application for a default order.

 

Grounds for the removal of Lefutso, as director of Bohloa

 

[3]          The statements made by Mtshali in the affidavit in support of the relief sought in terms of this application are, to say the least, a paltry two sentences as follows: “[I] request to remove Tshepo Lefutso as director as I am unable to get hold of him” and “I [have] last seen him on the 16 March 2020 [after] I tried looking for him to no avail”.[4] The statements or submissions are slightly expanded in the application for a request order to the effect that Mtshali’s inability to get hold of Lefutso is hindering Mtshali or the company to conduct its business. For these reasons or grounds, Mtshali submits that Lefutso ought to be removed as director of the company, Bohloa.

 

[4]          But I hasten to lament the lack of clarity in these grounds. What is stated raises more questions than answers. It is unclear how, when and how many times Mtshali attempted to get hold of Lefutso? For (on the how question) it is important to know what method of communication Mtshali used when trying to get hold of Lefutso? Did he use the very same email address he used when delivering or serving this application? Does Lefutso have a telephone or mobile phone number and, if so, did Mtshali try to reach Lefutso on that? On the company’s registration certificate issued by the CIPC (included as part of the papers in the application) a physical or street address is reflected as the postal and residential address of Lefutso. Did Mtshali try this address? And (on the when question) when did Mtshali try to get hold of Lefutso? How many times did Mtshali try to reach Lefutso before he decided it was enough to bring this application? These may appear as if they are matters or issues of form rather than substance, but they are actually significant issues for purposes of the determination to be made in this matter. I will discuss these further, below.

 

[5]          There are also questions definitely regarding the merits or substantial issues in this matter arising from the statements in Mtshali’s affidavit(s). For example, what is meant by the inability to get hold of Lefutso? For what purpose was Mtshali looking for Lefutso? Did he want to have a meeting with him or for him to attend to a particular task relating to the business or the affairs of the company? For the unavailability of Lefutso, as alleged by Mtshali, ought to be for a purpose relating to the conducting of the business or affairs of the company. At least there is some clarity in this regard derived from the statement in the application for a default order that Lefutso is hindering the business of the company. But these questions and those appearing above (or the answers thereto, if any) have a direct bearing on the relief sought, as determined from the applicable legal principles, discussed next.

 

Applicable legal principles and the grounds for removal (a discussion)

 

[6]          As stated above an application to this Tribunal for the removal of a director of a company is provided for under section 71(8) of the Companies Act. This provision only applies to the removal of a director of a company with a maximum of two directors. And the substantial issues for purposes of the determination of an application for the removal of a director appear in the other provisions of section 71.[5] Consequently, section 71 represents the primary legal principle applicable to the relief sought in terms of this application.

 

[7]          An application based on section 71(8) is to be brought under the circumstances contemplated in section 71(3) of the Companies Act.[6] The circumstances under section 71(3), generally speaking, relate to: firstly, ineligibility or disqualification (of a person from occupying the position of director) in terms of section 69;[7] secondly, incapacitation of a director with no potential for recovery within a reasonable time,[8] and, thirdly, where a director is said to have neglected or have been in derelict in the performance of director’s functions.[9]

 

[8]          In this matter Mtshali complains that his inability to get hold of Lefutso, which can liberally be understood to mean the unavailability of Lefutso, is hindering Mtshali to conduct the business of the company. When this is evaluated from the circumstances under section 71(3), referred to above, it appears that the circumstance under section 71(3)(b) is the one applicable to this matter. For the inability by Mtshali to get hold of Lefutso points to Lefutso neglecting or being derelict in the performance of his functions as a director of Bohloa. I am not suggesting for a moment that a case has been made out in this regard. That determination is busy unfolding.

 

[9]          But section 71, in particular, or the Companies Act, in general, does not define or explain what constitutes neglecting or being in derelict in the performance of director’s functions.[10] That is a task falling on the proverbial shoulders of this Tribunal and is to be performed from the specific circumstances of the particular matter in hand. But guidance in this regard may be obtained from previous decisions of this Tribunal. I have had the privilege of being part of a panel of this Tribunal which decided the matter of Spineco Medical International (Pty) Ltd & Another v Webb,[11] wherein the circumstances under section 71(3)(b) were discussed extensively.[12] This Tribunal, on the basis of various authorities, endeavoured in Spineco to ascribe some meaning to the words or concepts “neglected” and being “derelict” appearing in section 71(3)(b). This Tribunal ultimately held in Spineco that the word “derelict” referred to desertion or abandonment and, consequently, the involved conduct has a connotation of being deliberate, purposeful or even intentional about it. And that, dereliction or being in derelict would “require something more than negligence, at least as recklessness or even intent”.[13] Further “neglect” or “neglected” - as a form of conduct - was held in Spineco to imply omission rather than an act.[14] Also, the use of the word “negligent” in section 71(3)(b) appears to suggest the existence of an additional ground for removal as a director of a company in the sense that “neglect” and “negligence” do not really mean the same thing.[15]

 

[10]      The decision of Spineco or some of the dicta therein appear(s) relevant and persuasive for the issues to be determined in this matter, including the following from the decision:

“…[in] the context of section 71(3)(b) a director would be neglecting to perform his or her functions as a director of a company if he or she had given insufficient attention to his or her actions. Therefore when regard is had to the standards of directors duties and fiduciary duties of directors, the particular director would have failed to adhere to the standards legally required of him, when a reasonable person under the same circumstances would have acted to the contrary.”[16]

 

[11]      The determination whether or not to remove Lefutso as director of Bohloa requires consideration of Lefutso’s conduct from the standards of directors’ duties and fiduciary duties of directors. These are set out in section 76 of the Companies Act. But it is not necessary to traverse the provisions of section 76, for current purposes. I consider this matter to turn on a different aspect altogether.

 

[12]      To recap: what is to be determined in this matter is whether the inability by Mtshali to get hold of Lefutso points to Lefutso neglecting or being derelict in the performance of his functions as a director, as provided by section 71(3)(b)? The unanswered questions ensuing from the lack of clarity in Mtshali’s statements, stated above,[17] become more pronounced now when considering this ultimate question.

 

[13]      To be removed as a director of a company on the basis that one is neglecting or been in derelict of one’s functions as a director may not, in my view, relate to one’s physical absence away from the company in which one is a director, but the non- performance of one’s functions or fulfilment of a role of a director. This includes the defective performance of such functions or the inadequate fulfilment of such a role. Obviously, one has to be available to the company or to fellow director(s) in the company to reasonably perform the impugned functions. But mere inaccessibility of a fellow director does not implicate the non-accessible director of the conduct contemplated in section 71(3)(b). The neglect or dereliction of functions or duties ought to be confirmed by evidence of tasks or functions not performed by the impugned director. Put differently, the complaining director or shareholder has to establish that there is an agreement or arrangement in place in terms of which the non-accessible director is to perform particular tasks, such as acting as being a financial or marketing director of the company, but that the impugned director has neglected or is in derelict of performing his functions in that role or position. It may also concern a very specific task or issue regarding the impugned director’s failure to attend a properly convened meeting of directors. Therefore, it does not suffice to merely state that the one director is looking for the other. The neglect or derelict in the performance of the functions of a director has to be established from specific lapses in the conduct of a director, as envisaged from the provisions of section 71(3)(b). Otherwise, even a purported value judgment call or sweeping statement by the one director that the other director is hindering the conduct of the business of the company would not suffice.

 

Conclusion

 

[14]      Therefore, on the basis of what appears above, this application would fail. I will make an order reflecting this outcome. The applicant will not be precluded from re- launching the application against guidance offered above. But, that does not mean that the relaunched application will be successful as my views and findings are not binding on my fellow members of this Tribunal.

 

[15]      One might ask why the shortcomings in the application were not brought to the attention of the applicant to remedy, for example, by way of a supplementary affidavit. I mention this due to the fact that this Tribunal is allowed – in terms of regulation 154(3) - to condone technical irregularities arising from its proceedings.[18] But there is a fine line between matters of form and those relating to substance. In this matter the application lacks substance and any attempt at wallpapering the gaps in the case would possibly result in injustice to the respondent. The respondent would be expected to be obedient to an order which is not borne by the case he received notice of, albeit that he is in default of non-appearance. The availability to the respondent of the mechanism of the rescission of the order made does not sway me to change direction.

 

Order

 

[16]      I therefore make an order as follows:

 

a)        that, the application is dismissed, and

 

b)        that, the registrar or recording officer of the Companies Tribunal is reminded of his obligations under regulation 153(3) of the Companies Regulations, 2011 to serve this decision (i.e. order and reasons for the order) on the respondent, Mr Tshepo Lefutso, by sending it to him by registered post or courier using the street address [....] S[....] Street, Chiawelo Ext 3, Chiawelo, Gauteng 1818 and also by electronic mail using the address [....], as well as on the applicant, by not later than 15 January 2021.

 

 

Khashane La M. Manamela (Mr.)

Member, Companies Tribunal

 

17 December 2020

[16] Spineco at par [57].

[17] See pars [4]- [5].

[18] Regulation 154(3) reads: “The Tribunal may condone any technical irregularities arising in any of its proceedings.”

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