Introduction
It is well known that the board of a company is accountable to its shareholders. However, our Courts have had differing views on the process to be followed by shareholders when proposing the removal of a director from the board.
The key issue and question that arises is whether shareholders are required to provide a director with reasons for his or her intended removal prior to the relevant shareholders’ meeting called in terms of sections 71(1) and (2) of the Companies Act 71 of 2008 (“the Act”).
This question had to be determined by the Court in the matter of Weir v Wiehahn Formwork Solutions (Pty) Ltd and Others, which was recently heard in the Western Cape Division of the High Court of South Africa, Cape Town.
Background
Mr Weir, the applicant in the matter, was appointed as an executive director of PR Wiehahn (Pty) Ltd (“the Company”). The Company’s shareholders (namely Wiehahn Formwork Solutions (Pty) Ltd and P & R Formwork CC) notified Mr Weir of the intention to hold a meeting on 02 July 2024, wherein his removal as a director was to be voted on by the shareholders.
Mr Weir had requested reasons for his removal before the meeting but was only told that the Company “had lost confidence in him”. At the meeting of shareholders, however, further reasons were provided, and Mr Weir, represented by his attorney at the time, was given an opportunity to make representations before the resolution was put to vote, which he did. Despite the representations made by Mr Weir, the shareholders of the Company passed a resolution removing Mr Weir as a director from the board.
Mr Weir thereafter approached the Court in September 2024 for an order which sought to have his removal declared invalid on the basis that he was not provided with adequate reasons for his removal in advance, which he required in order to make proper representations during the proposed meeting.
On 07 October 2024, a notice to attend a second “precautionary” shareholders’ meeting contemplating Mr Weir’s removal was circulated. Importantly, the notice of the “precautionary” meeting contained the reasons for Mr Weir’s proposed removal, namely that there had been an irretrievable breakdown of the relationship between Mr Weir and the CEO of the Company and that Mr Weir is incompatible with the management of the company.
Mr Weir declined the invitation to attend the precautionary meeting on the assertion that he had already been removed as a director and could therefore not be removed a second time. The meeting proceeded in Mr Weir’s absence, and the “precautionary” resolution, which was unanimously passed on 23 October 2024, determined that to the extent that Mr Weir was still considered to be a director of the Company, he would now be removed from office.
Key Findings of the Court
- Departure from Legal Precedent: The Court explicitly departed from the precedent that had been set in the same division of the High Court in the matter of Pretorius and Another v Timcke and Others (“Timcke”). In Timcke, the Court held that shareholders must provide directors with reasons for their intended removal prior to the shareholders’ meeting to be held where a decision was to be taken regarding the removal of the director in question. The Court in this particular matter found, however, that the Timcke decision was clearly wrong because:
- It impermissibly read additional requirements into the Act;
- It misinterpreted the Constitutional Court’s findings in Minister of Defence and Military Veterans v Motau;
- It failed to recognize the legislature’s deliberate distinction between the requirements for removal by shareholders versus the requirements for removal by fellow directors, namely that if the legislature had intended requiring prior reasons to be provided by shareholders, it would have expressly done so; and
- It contradicted the established principle that directors can be removed at will by the shareholders who elected them.
- Legal Distinction and Statutory Interpretation: Section 71 of the Act sets out the procedure for the removal of directors by shareholders or directors.
The requirements for the removal of directors by shareholders are set out in Section 71(1) and (2) and read as follows:
“(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.”
Shareholders seeking to remove a director are accordingly required to fulfil two mandatory statutory requirements, namely –
- due notice of the meeting must be given; and
- the director must be afforded a reasonable opportunity to make a presentation to the meeting before the resolution is put to a vote.
These requirements differ to those that are prescribed in respect of the removal of a director by his or her fellow directors. Most notably, Section 71(4)(a) of the Act provides that where fellow directors seek to remove a director, the director must be given:
“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…”
The Court made the following critical findings (see paras 28 to 36 of the judgment):
- That it is clear from the text and import of these subsections that the legislature intentionally imposed more stringent requirements for a removal by directors than shareholders;
- Unlike directors, shareholders as the owners of the shares of a company are not required to furnish any reasons nor to state the grounds for the intended removal.
- The reason for this distinction may be located in the nature of the duties and right to vote of shareholders and directors respectively:
- In the case of shareholders, a vote is a proprietary right of shareholding, which may be exercised by the shareholder in his or her own interests
- Whereas, a director must exercise his right to vote in accordance with the fiduciary duty which he owes to the company and he must act in good faith and in the best interests of the company;
- Shareholders who are dissatisfied with the manner in which the company is being run have the right to exercise their ultimate power of control by removing the directors from office, – this is a key form of corporate democracy and is a necessary and key provision of modern company law.
Outcome
The application brough by Mr Weir to set aside the resolution to remove him as a director, was dismissed with costs.
In summary, the Court found that:
- Shareholders are not required to provide any reasons for removing directors, but must provide notice of the meeting and afford the director an opportunity to make representations at that meeting;
- In this particular matter, even if prior reasons were required, Mr Weir had been given sufficient information during the meeting and afforded the opportunity to make representations; and
- Even if the first resolution relating to his removal was invalid, the procedure adopted in respect of the second “precautionary” shareholders’ meeting cured Mr Weir’s complaint before the Court.
Conclusion
This judgment provides some much-needed clarity on the removal of directors by shareholders, and reaffirms the different roles that are played by shareholders and directors in a company.
It is important for all directors to take note of this judgment as it serves as a gentle reminder of a director’s fiduciary responsibilities and accountability to the shareholders of a company, irrespective of the authority that may be given to the directors concerned.
Given the recent amendments to the Act, which give rise to the extended liability of directors, we anticipate seeing many more directors of companies being held accountable to and/or removed by shareholders.
You may view the judgement here: Weir v Wiehahn Formwork Solutions (Pty) Ltd and Others (19494/2024) [2025] ZAWCHC 74 (4 March 2025)
Please do not hesitate to contact Chantal Murdock (chantal@bv-inc.co.za) or Jason Hunter (jason@bv-inc.co.za) should you require any further information, advice, or assistance in relation to the contemplated removals of directors.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. For tailored guidance, please consult one of our legal professionals.