Page 78 - Q&A 2019/2020

How to get rid of a delinquent director in your
business

June 2019

“My brother, sister and I are the directors of our family company. My brother
has never been one to live frugally and is continually spending the company’s
funds and using company property for his personal benefit. It’s gotten so bad
lately that we may lose the company if my sister and I don’t put a stop to it.
We’ve discussed it with him, but all he says is that he is also a director and
entitled to do what he is doing. What can we do to stop him?”

The Companies Act 71 of 2008 (“Companies Act”) contains a mechanism
whereby directors can take action to protect the interests of the company in
situations such as you have described. Section 162 of the Companies Act allows
for a director to be declared delinquent by an application to court. Following
an application to court, if there is sufficient evidence of one of the following
circumstances, the court will declare the director to be delinquent:

• If the director consented to serve as a director while he or she was
ineligible to do so. For example, if the director was an unrehabilitated
insolvent or if he or she has been convicted of certain crimes such as
theft or fraud;
• If a director has grossly abused the position of a director;
• If a director took personal advantage of inside information or
opportunities;
• If a director intentionally or by way of gross negligence inflicted harm Labour
upon the company;
• if a director committed any act which amounts to gross negligence,
wilful misconduct or breach of trust in relation to the director’s functions
or duties.

Case law has also provided guidelines as to what would constitute directorial
delinquency. In the matter of Kukama v Lobelo and Others, it was held that a
failure to refund SARS is sufficient to render a director delinquent. In Gihwala
and Others v Grancy Property Ltd and Others the court held that the misuse
of the company to reap personal financial benefits, a breached investment
agreement or incomplete and inaccurate audited financial statements are
further grounds for such delinquency. In Lewis Group Limited v Woollam and
Others, the court held though that ordinary, poor decision making by a director
is not enough to warrant delinquency. In Hacker v Hartmann and Others, the
court accepted that gross misconduct on the part of a director who is in a
fiduciary position to the company constitutes delinquency.
Should the court find grounds for delinquency the court can declare a director
delinquent, which order, depending on the grounds for delinquency, could
subsist for the lifetime of the delinquent director. The delinquent director will also

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