Naturally, a director may be requested to resign under amicable circumstances. However, where a director refuses to resign (and may perhaps have the backing of other shareholders), the question becomes what remedies the aggrieved shareholders still have? It is possible to have these matters regulated in terms of the company’s Memorandum of Incorporation specifically to dictate under which circumstances a director may be removed from the board of a company. It could also be agreed with the director initially by way of a clause in the appointment contract.
Irrespective of whether the Memorandum of Incorporation or an appointment contract addresses the matter specifically, a director may always be removed by way of a majority vote at an ordinary shareholders’ meeting (section 77(1)). Before the shareholders of a company may consider such a resolution though, the director concerned must be given notice of the meeting and the resolution, and 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 (section 77(2)). In terms of procedures not entirely different from that as applied to shareholders, the directors may among themselves resolve to remove a director from the board of a company (sections 77(3) & (4)).
It is important for directors to realise that they serve at the pleasure of shareholders. It is likewise necessary for shareholders to know that they have remedies against directors who do not deliver on their mandate, and that keeping directors in check amounts to good corporate governance.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)