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Company Law A > Chapter 10 Governance and the Board of Directors > Flashcards

Chapter 10 Governance and the Board of Directors Flashcards

1
Q

Which section requires the appointment of a board of directors?

A

Section 66(1).

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2
Q

What does section 66(1) of the Companies Act hold?

A

The business and affairs of a company must be managed by or under the direction of its board of directors, which has the authority to exercise all the powers and perform any of the functions of the company, except to the extent that the Act or the company’s MOI provides otherwise.

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3
Q

What is an ex officio director?

A

A person who is a director of a company as a consequence of holding some other office, title, designation or similar status and who has all the powers and functions of any other director of the company, except to the extent that these are restricted by the MOI.

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4
Q

Which kinds of directors does section 66 recognise?

A
  1. Directors appointed ito the MOI
  2. Ex officio director
  3. Alternate director
  4. A director elected by the shareholders
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5
Q

What are the other types of recognised directors?

A
  1. De jure director
  2. Temporary director
  3. Nominee director
  4. Puppet director
  5. De facto director
  6. Shadow director
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6
Q

What is a de jure director?

A

A person validly and formally appointed to the position of a company director who has freely consented to that appointment.

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7
Q

What is a temporary director?

A

A person who satisfies the requirements for election as a director to fill a vacancy and serve as a director on a temporary basis until such time as the vacancy has been filled by a director who has been elected by the shareholders.

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8
Q

What is a nominee director?

A

A de jure director who owes their nomination as a director to a shareholder or other 3rd party such as a bank or financier;

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9
Q

What is a puppet director?

A

A person who has been placed on the board of directors with the intention that they should blindly follow the instruction of their controller.

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10
Q

What is a de facto director?

A

A person who claims to act and purports to act as a director, without having been so appointed either validly or at all.

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11
Q

What are the two types of de facto directors?

A
  1. A person who has been appointed director but invalidly
  2. A person who has never been appointed a director at all.
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12
Q

What is a shadow director?

A

A person in accordance with whose directions or instructions the directors of the company are accustomed to act.

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13
Q

What is the relationship between the director and the company?

A

Sui generis, must be determined by reference to the facts of each case.

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14
Q

What is a prescribed officer?

A

A person who, within a company, performs any function that has been designated by the Minister ito section 66(10).

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15
Q

What does section 66(10) hold?

A

The Minister may make regulations designating any specific function or functions within a company to constitute a prescribed office for the purposes of the Act.

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16
Q

What applies to prescribed officers?

A

The same strict duties and accountability as directors.

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17
Q

Who are the office bearers of the company?

A
  1. Manager
  2. Managing Director
  3. Chairperson of the board of directors
  4. Company secretary
  5. Auditor
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18
Q

What is the minimum number of directors?

A

Ito section 66(2)(a), a private company and a personal liability company must appoint at least one director to the board of directors, while a public company and a non-profit company must appoint at least three directors; this is in addition to the minimum number of directors that the company must have to satisfy any requirement whether ito the Act or its MOI TO appoint an audit committee and/or a social and ethics committee contemplated ito section 72(4) of the Act.

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19
Q

What is the implication of section 66(2)?

A

Companies that are required to have an audit committee and/or a social and ethics committee will require at least three directors in addition to the minimum required number of directors.

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20
Q

What is the effect of the failure to have the required number of directors?

A

It does not limit or negate the board’s authority or invalidate anything done by the board or the company.

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21
Q

What is the process after failing to meet the minimum requirement for the amount of shareholders?

A

Board of directors must call a shareholders’ meeting within 40 business days after the company has been incorporated, for the purpose of electing sufficient directors to fill all the vacancies on the board.

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22
Q

How are subsequent directors appointed?

A
  1. By a person named in the MOI
  2. Election by the shareholders
  3. Appointments by the board of directors or other stakeholders or outsiders
  4. Other appointments (ex officio, alternate, temporary and nominee directors etc)
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23
Q

What is required to become a director?

A
  1. Appointment
  2. Consent
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24
Q

What is the requirement of consent to become a director?

A
  1. The appointed person must deliver a written consent to the company to serve as its director (does not apply to de facto and shadow directors)
  2. Within 10 business days after a person becomes a director or ceases to be one, the company is required to file a notice with the CIPC.
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25
Q

What are the terms of appointment of a director?

A
  1. Determined in the MOI or;
  2. In a service contracts that exists outside of, and is unconnected to the MOI.
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26
Q

What happens if a company breaches a director’s contract of service?

A

Director can ito section 71(9) claim damages for breach of contract. (section 15(6) states MOI constitutes a contract between the company and the director).

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27
Q

Can directors make, amend or repeal any necessary or incidental rules relating to the governance of the company iro of matters that are not addressed in the Ac tor the MOI?

A

Yes, such rules must be consistent with the Act and the MOI, failing which they will be void to the extent of the inconsistency.

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28
Q

To whom does section 69 apply?

A

Directors, prescribed officers and persons who are members of the company’s board committees or audit committee.

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29
Q

What is the difference between disqualification and ineligibility?

A

Disqualfiication is not absolute, where as ineligibility is absoltely prohibited.

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30
Q

What are the grounds of ineligibility?

A
  1. Juristic persons
  2. Unemancipated minors or persons under a similar legal disability
  3. Persons who do not satisfy any minimum qualification set out in the MOI ito section 69(6)(b)
  4. Persons disqualified ito any additional grounds of ineligibility or disqualification set out in the MOI ito section 69(6)(a).
31
Q

When can a juristic person or a partnership be appointed to hold office in the company?

A

Under section 87(1) a juristic person or a partnership may be appointed to hold the office of company secretary.

32
Q

What are the grounds for disqualification from being a director of a company?

A
  1. A person prohibited by a court of law from becoming a director;
  2. A person declared to be delinquent by a court of law;
  3. An unrehabilitated insolvent;
  4. A person prohibited ito any public regulation to be a director of a company;
  5. A person removed from an office of trust on the grounds of misconduct involving dishonesty;
  6. A person convicted and imprisoned without the option of a fine or fined more than the prescribed amount for theft, fraud, forgery, perjury or other offences specified in section 69(8)(b)(iv).
33
Q

What are the offences specified in section 69(8)(b)(iv)?

A
  1. An offence involving fraud, misrepresentation or dishonesty;
  2. An offence in connection with the promotion, formation or management of a company;
  3. An offence under the Companies, Insolvency, Competition Acts etc.
34
Q

What happens if a fine or conviction under section 69(8)(b)(iv) is suspended?

A

The person will nevertheless be disqualified to be a director of a company, when considering a conviction ito the provision, it makes no difference for the purposes of the Act whether all or part of the sentence was conditionally suspended or not.

35
Q

What are the consequences for ineligibility or disqualification?

A

The person will cease to be entitled to act as a director with immediate effect subject to section 70(2) of the Act.

36
Q

When can a director be exempted from disqualification?

A

A court has unfettered discretion to exempt a person from the application of disqualification on the grounds of: unrehabilitated insolvent, prohibition ito a public regulation, removal from an office of trust on the grounds of misconduct involving dishonesty; and a person convicted and imprisoned without the option of a fine or fined more than the prescribed amount.

37
Q

What must a court take into account when exercising its discretion?

A

The fact that the object of the grounds of disqualification is not to punish the director in question, but to protect the interests of shareholders and the public and ensure that these interests are not endangered in any way.

38
Q

How does an unrehabilitated insolvent who wants to be a director seek an exemption?

A

Apply and place before the court a full statement and explanation of the circumstances giving rise to their sequestration and other business failures.

39
Q

What will the court consider in exercising its discretion in the case of an unrehabilitated insolvent?

A

Whether, in the circumstances, there are exceptional circumstances that make the applicant a fit and proper person to be appointed a director despite the fact that they are an unrehabilitated insolvent.

40
Q

What are the factors to be taken into account by a court where a person is disqualified by reason of having committed an offence under ground (iv)?

A

Each case depends on its own facts, some factors are:
1. The applicant’s general character
2. Their conduct since the offence
3. Whether they have shown any reform
4. Nature of the offence
5. Circumstances under which it was committed
6. Length of time between the conviction and the application
7. Attitude of the shareholders and whether they support the application
8. Interests of shareholders, creditors and employees

41
Q

What is the fundamental question in all exemption cases?

A

Whether, in all the circumstances, the applicant has satisfied the court that the defect of character no longer exists, and that they have rehabilitated themselves and measure up to the high standards required of directors.

42
Q

What is the duration of disqualification under grounds (v) and (vi)?

A

Five years after the date of removal from office or the completion of any sentence imposed for the relevant offence. or at the end of any extension of the disqualification as determined by court. CIPC may approach court for extension.

43
Q

What is a delinquent director?

A

A directo who has been declared delinquent because they were found guilty of serious misconduct, gross abuse of position, gross negligence, wilful misconduct or a breach of trust.

44
Q

Which section deals with declaring directors delinquent or under probation?

A

Section 162.

45
Q

What is the purpose of section 162?

A

Introduces a new civil remedy for those harmed by the conduct of delinquent directors.

46
Q

Who has locus standi to apply for a court order declaring a director delinquent or placing them under probation?

A

Company, shareholder, director, secretary, prescribed officer, a registered trade union, other employee representatives, CIPC, and the Takeover Regulation Panel.

47
Q

Against whom may an application for delinquency or probation be brought?

A

A present director and against a former director who had been director within the 24 months immediately preceding the application.

48
Q

What are the grounds of probation?

A
  1. If the director, was present at a meeting and failed to vote against a resolution despite the inability of the company to satisfy the solvency and liquidity test, contrary to the Act
  2. If the director, acted in a manner materially inconsistent with the duties of a director
  3. If the director, acted in or supported a decision of the company to act in a manner that was oppressive or unfairly prejudicial ito section 163.
49
Q

What is the effect of an order of delinquency?

A

That person is disqualified from holding office as a director of a company.

50
Q

When may a director who is declared delinquent apply for a suspension or setting aside of the order of delinquency or probation?

A

After 3 years for delinquency, after two years for probation

51
Q

What is the process of filling a vacancy?

A

Within 10 business days after a person ceases to be a director of the company, the company is required to file a notice with the CIPC to this effect.

52
Q

How may directors be removed?

A

Ito section 71, a director may be removed from office by the shareholders or the board of directors at any time.

53
Q

Who may remove a director?

A
  1. Board of directors
  2. Shareholders
  3. Companies Tribunal
  4. Business rescue practitioner during business rescue proceedings
  5. Anyone named in the MOI.
54
Q

What is the requirement of notice for a director’s removal?

A

Before the resolution is put to the vote by the shareholders or board of directors, the director in question must be given notice of the meeting and a copy of the proposed resolution to remove them from office, notice must be equivalent to that which a shareholder is entitled to receive when a shareholder’s meeting is convened [Section 71(2)(a) and (b)].

55
Q

What is the process for removal?

A
  1. Removal by board
  2. Removal by shareholders
  3. Notice
  4. Presentation
  5. Ordinary resolution or board resolution
  6. Loaded voting rights
  7. Application to court to review the board’s determination
  8. Removal by the Companies Tribunal
56
Q

What is the requirement for resolution?

A

Resolution must be accompanied by a statement setting out the reasons for the resolution with sufficient specificity to reasonably permit the director in question to prepare and present a response.

57
Q

What is the requirement for presentation?

A

The director in question must be given a reasonable opportunity to make a presentation to the shareholders’ meeting or to the board of directors, as the case may be, before the resolution is put to the vote.

58
Q

What is the object of the requirement of presentation?

A

To prevent a director from being removed on an impulsive vote and without having had a proper opportunity to state their case.

59
Q

What will happen if it is found that directors exercise their power to remove a director for an improper purpose or for ulterior reasons?

A

Held to be in breach of fiduciary duties.

60
Q

How sort of resolution is required for the removal of a director?

A
  1. Ordinary resolution of a company in a shareholders’ meeting
  2. Board resolution.
61
Q

Why can ordinary resolution only be passed for removal in shareholders’ meetings?

A

Section 65(8) which provides that the MOI may specify a higher percentage of voting rights to approve an ordinary resolution, prohibits this option in respect of an ordinary resolution for the removal of a director under section 71 of the Act.

62
Q

What are loaded voting rights?

A

Voting rights that are disproportionate to shareholdings.

63
Q

When must an aggrieved director apply to court to review the board’s decision to remove them?

A

Within 20 business days of the board’s decision.

64
Q

Who else can bring an application to court to review the court’s decision?

A

Ito section 71(5), by the person who appointed that director ito the MOI.

65
Q

When can the Companies Tribunal remove a director?

A
  1. Where a company has fewer than three directors.
  2. To determine the director’s removal from office on the grounds provided in section 71(3).
66
Q

What are the common law remedies for removal?

A

Breach of contract and damages.

67
Q

When can remuneration be paid to directors for their service?

A

Ito section 66(9) only in accordance with a special resolution approved by the shareholders within the previous two years.

68
Q

What does section 72(3) provide irt the appointment of a board committee?

A

That the creation of a board committee, delegation of any power to a committee or action taken by a committee or action taken by a committee does not alone satisfy or constitute compliance by a director with their required duty to the company, as set out in section 76 of the Act.

69
Q

Which are the compulsory committees?

A
  1. Audit committee
  2. Social and ethics committee
70
Q

Which provision requires a public company and a state-owned company to appoint an audit committee?

A

Section 84(4)(c).

71
Q

What is the social and ethics committee?

A

A key committee that ensures that companies attain higher standards of ethics and underpins the purposes of the Act in section 7(d) of reaffirming the concept of a company as a means of achieving both economic and social benefits.

72
Q

What is the quorum for board meetings?

A

A majority of directors.

73
Q

What is a round-robin resolution?

A

When instead of holding a formal meeting, directors consent in writing to decisions that could be voted on at a board meeting, such decisions have the same effect as if they had been approved by voting at a meeting.

Company Law A (8 decks)

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