By Pieter Strydom – Associate
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A question that has loomed in the commercial-legal sphere and caused a great deal of uncertainty is whether the shareholders of a private company are required to provide reasons for the proposed removal of a director.
Legislation
Section 71(1) and (2) of the Companies Act of 2008 (the “Act”) regulates the removal of directors by the shareholders and the procedural requirements therefore, namely:
- a director may be removed by an ordinary resolution adopted at a shareholder meeting by the persons entitled to exercise voting rights;
- the director concerned must be given notice of the meeting and the resolution, at least equivalent to that which a shareholder is entitled to receive, irrespective of whether or not the director is a shareholder of the company; and
- the director must 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.
Caselaw
The confusion relating to the removal of a director by the shareholders stems from the previous conflicting views held by the Western Cape Division of the High Court and the Gauteng Division of the High Court.
Previous positions:
The Western Cape Division held in Pretorius and Another v Timcke and Others [2015] (“Pretorius”) that reasons need to be provided by the shareholders for the removal of a director. The court further held that without the reasons being provided, the director is not afforded his fundamental right to be heard and that the shareholders would be acting in bad faith.
In the second matter, the Gauteng Division in Miller v Natmed Defence (“Miller”) concluded that reasons need not be provided for the proposed removal of a director by the shareholders. The Court in Miller further held that shareholders cannot be obliged to give reasons as this was not the intention of the legislature and that the Western Cape Division resorted to the remedy of reading in, in circumstances where the Act is clear and the reading in is not warranted. The Gauteng Division further stated that directors serve at the behest of shareholders who elected them. The shareholders can remove them at will without having to provide reasons.
Recent Caselaw:
The question of the removal of a director by the shareholders without providing reasons for the removal was yet again placed before the Western Cape Division of the High Court for determination. During March of 2025 judgement was handed down in the matter of Weir v Wiehahn Formwork Solutions (Pty) Ltd and others [2025] (“Weir”).
The Honourable Holderness J stated that “I align myself with the findings in Miller, particularly that in light of the express provision in s 71(4)(a) that a statement of reasons must be given before a director is removed by other directors, it is clear that the legislature deliberately preserved the right of the majority shareholders to remove a director who they no longer support.”
The Weir case confirms the position that it is not required of shareholders to provide reasons for the proposed removal of a director.
Conclusion
The latest decision in the Weir case is welcomed in that it aligns with the legislative intention of the Act. It further enhances corporate governance and ensures that directors remain accountable to the shareholders who elected them and that the shareholders can exercise their ultimate control in protecting their investments.