Removing directors by minority shareholders

Pie chart of Real Valladolid shareholders.

Image via Wikipedia

In the case of a removal by a shareholders’ resolution (an ordinary majority), the director is entitled to receive notice “at least equivalent to that which a shareholder is entitled to receive”. The notice period is at least 15 business days for a public company or non-profit company that has voting members, and at least 10 business days for private and other companies. These notice periods are, however, alterable in that companies may, in their memoranda of incorporation, provide for longer or shorter notice periods.

Shareholders need not have a reason to remove a director using this method. This largely replicates the position under section 220 of the old Act. It must be noted that section 71(1) refers to removal of directors by persons entitled to exercise voting rights in an election of that director, and this may mean that a director who is directly appointed by a shareholder rather than elected by a majority, may not be subject to the removal mechanisms in section 71(1). Section 71(1) provides that “despite anything to the contrary in a company’s MOI 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 shareholders’ resolution. It was held in Amoils v Fuel Transport (Pty) Ltd and Others 1978 (4) SA 343 (W), that shareholders are bound to vote in a manner agreed in a shareholders’ agreement. The new Act still presents the possibility of a shareholders’ agreement validly binding shareholders not to vote in favour of the removal of certain directors.

Boards and shareholders are cautioned that the removal of a director may give rise to a claim for compensation should the consequence of the director’s removal give rise to loss of not only his office of director, but also of any other office.

via Removing directors: even minority shareholders now have a foot in the door – Lexology.

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