SA courts are taking two different approaches to legal battles brought by directors challenging their dismissals due to negligence. Therefore, firms should consider tweaking their memoranda of incorporation (MOIs) to avoid a potentially troublesome provision of the Companies Act.

This is according to Yaniv Kleitman, a director of corporate and commercial law at Cliffe Dekker Hofmeyr (CDH), who said companies should consider including clauses that provide for a process to remove directors in a manner that would avoid a court conducting a ‘deep dive’ into the merits of the ousting.

‘It’s that word “review” which is causing some judicial migraines,’ said Kleitman, who was speaking at CDH’s Annual Company Law Developments Conference on Tuesday.

News24 reports that he was referring to section 71 of the Companies Act, which allows for both board resolutions to remove directors deemed negligent or derelict and the directors’ right to appeal to the court for review of the decision to remove them.

‘So, on that one, I’m afraid we’re pretty much split down the middle in the court cases, and there is a high-profile case or two out there which I’m sure will end up in the SCA, maybe in the Constitutional Court, and you may have followed it in the press.’

Kleitman did not give examples, but one high-profile case has been that of former Absa director and AngloGold Ashanti chair Sipho Pityana, who was dismissed from the bank’s board in 2021.

Pityana was a candidate for the Absa chair and argued that his chances were scuppered after the Prudential Authority (PA) informally notified Absa that it would not support his appointment, reportedly due to allegations of sexual harassment stemming from his time as chair of AngloGold. 

Pityana launched legal action against the PA, alleging that the informal process did not comply with the Banks Act.

News24 reports that Absa had removed him from its board, alleging that he had been derelict in his duties and had not acted in the bank’s interests. Kleitman said courts had been taking two different approaches in such matters.

In the ‘narrow case’, courts deferred to the board on what is in the best interests of the company.

In these cases, the courts have been concerned with whether a due and proper process was followed.

In other cases, courts were treating the matter as an appeal and considering the merits of dismissals.

Full News24 report