In the recent case between the Organisation Undoing Tax Abuse (OUTA) and another  (the “Plaintiffs”) and Duduzile Cynthia Myeni and others, the core issue was to keep the Board accountable and in so doing declaring a director (Ms Myeni) delinquent.

In this matter, the Plaintiffs sought an order declaring Ms Myeni, who was the former

non-executive chairperson of SAA to be declared a delinquent director in terms of section 162(5) of the Companies Act 71 of 2008 as amended (the “Act”).

It is common cause that Ms Myeni was appointed as a non-executive director of the South African Airways (“SAA”) Board (the “Board”) on or about 28 September 2009. She became the acting chairperson of the Board on or about 7 December 2012. On or about January 2015 Ms Myeni was appointed chairperson, and on 2 September 2016, she was re-appointed as chairperson. She served as such until 2017. It is also common cause that she was a member of the accounting authority of SAA as contemplated in the Public Finance Management Act 1 of 1999 as amended (the “PFMA”).

The meaning of “Delinquency”

In terms of Section 162 of the Act, a company, a shareholder, a director, company secretary or prescribed officer of the company, a registered trade union that represents employees of the company, or any other representative of the employees of the company, may apply to Court or an order declaring a person (i.e. a director) delinquent or under probation if:

a) the person is a director of that company, or within 24 months immediately preceding the application, was a director of that company; and

b) such director has:

(i) consented to serve as a director whilst ineligible or disqualified under the Act or whilst under a probation order in terms of the Act or the Close Corporations Act and acted in a manner that contravened that order;

(ii) grossly abused the position of a director;

(iii) intentionally, or by gross negligence, inflicted harm upon the company or a subsidiary of the company, contrary to the provisions of the Act;

(iv) acted in any manner that amounts to gross negligence, wilful misconduct or breach of trust in relation to the performance of such director’s duties.

A declaration of delinquency under section 162(5) of the Act has the consequence that a person may not serve as a director of a company for a minimum of seven years. Or such more extended period as determined by the Court.

In Gihwala v Graney Property Ltd (“Gihwala”),the SCA stated that section 162 has a protective purpose:

" ... Its aim is to ensure that those who invest in companies, big or small, are protected against directors who engage in serious misconduct of the type described in these sections. That is conduct that breaches the bond of trust that shareholders have in the people they appoint to the Board of directors. Directors who show themselves unworthy of that trust are declared delinquent and excluded from the office of director. It protects those who deal with companies by seeking to ensure that the management of those companies is in fit hands. And it is required in the public interest that those who enjoy the benefits of incorporation and limited liability should not abuse their position."

It determined in Gihwala that a declaration of delinquency could only be made in consequence of serious misconduct. Also, the SCA noted that the four grounds for delinquency under section 162(5)(c) all share the common feature that they involve "serious misconduct on the part of a director."

Conclusion

Ms Myeni is declared a delinquent director in terms of section 162(5) of the Act for the remainder of her lifetime. A punitive cost order was made and recommendation that the National Prosecuting Authority consider the evidence in the matter for potential criminal prosecution.

The judgement has been welcomed by civil society and serves as a warning to boards and directors who are not fulfilling their duties with care, due and diligence.

Written by Nicolene Schoeman-Louw, Managing Director, Schoeman Law