Category Archives: Companies

WHO MAY BE APPOINTED AS DIRECTOR?

A3BCertain people are not eligible to be appointed as directors of a company. In this article we look at who is disqualified from being a director as well as the effects of the actions of such persons while still acting as director.

A company must not knowingly permit an ineligible or disqualified person to serve or act as a director, according to section 69(3) of the Companies Act 71 of 2008. “Knowingly” includes the situation where the company should reasonably have known that the person is ineligible or disqualified.

Section 69(7) lists the persons on which there are an absolute prohibition, being juristic persons, minors or any persons disqualified in terms of the Memorandum of Incorporation. Section 69(8) lists the persons that are disqualified on a temporary basis, being someone who has been prohibited by the court or whom the court has declared a delinquent, unrehabilitated insolvents, persons who were removed from an office of trust on the grounds of misconduct involving dishonesty, and persons who were found guilty of a criminal offence and imprisoned without the option of a fine, or were ordered to pay a higher fine for being found guilty of any dishonesty crimes.[1]

A question that arises here is what the effect would be of appointing a prohibited director. Section 69(4) says that a person immediately ceases to be a director if they are prohibited from being a director, but section 71(3) states that if a shareholder alleges that a person is disqualified then the person must be removed by a board resolution before they cease to be a director. This means that any act done by such a person, despite his disqualification, will be valid and binding on the company unless the third party who was involved in the act was aware that the person they were dealing with was disqualified.[2]

Section 162(5) (a)-(f) sets out the grounds for an order of delinquency. A court must make an order declaring a person to be a delinquent director if the person:

  1. consented to serve as a director, or acted in the capacity of a director or prescribed officer, while ineligible or disqualified to be a director;
  2. acted as a director in a manner that contravened an order of probation;
  3. grossly abused the position of director while being a director;
  4. took personal advantage of information or an opportunity, or intentionally or by gross negligence inflicted harm upon the company or a subsidiary while being a director;
  5. acted in a manner that amounted to gross negligence, wilful misconduct or breach of trust while being a director; or as contemplated in section 77(3) (a), (b) or (c);
  6. has repeatedly been personally subject to a compliance notice or similar enforcement mechanism;
  7. has been convicted of an offence at least twice, or subjected to an administrative fine or similar penalty; or
  8. was a director of a company or a managing member of a close corporation, or controlled or participated in the control of a juristic person that was convicted of an offence, or subjected to a fine or similar penalty, within a period of five years. [3] & [4]

If a person is declared a delinquent in terms of section 162(5) (a) or (b) it is unconditional and for the lifetime of the person. If a person is declared a delinquent in terms of section 162(5) (c)-(f) this is temporary for a minimum of 7 years.[5]

It is therefore very important, when appointing a director, to make sure that he is qualified in terms of the new Companies Act. One must do proper research about a person accordingly before appointing him as a director of a company because it is possible that if you do not do so, the company in which you are a shareholder may have to bear the consequences of the actions of this disqualified person.

References:

  • Companies Act 71 of 2008
  • FHI Cassim et al Contemporary Company Law (2012)

[1] Section 69(7) – (8) of the Companies Act 71 of 2008.

[2] Section 69(4) and 71(3) of the Companies Act 71 of 2008.

[3] Section 162(5) (a)-(f) of the Companies Act.

[4] FHI Cassim et al Contemporary Company Law (2012) 435 – 437.

[5] FHI Cassim et al Contemporary Company Law (2012) 438.

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

HOW CONFIDENTIAL IS CONFIDENTIAL?

Many businesses devote considerable time and energy to the protection of that business’s trade secrets and confidential information. Many legal issues, some of them far from clear, arise in relation to confidential information. How enforceable is a restraint of trade signed by an employee, in which the employee acknowledges having access to confidential information? When can competitors be sued for misappropriating and misusing confidential information?

As a point of departure, it is necessary to consider the question – what exactly is confidential information? What distinguishes information which belongs to a company, as confidential and secret, from other information which may properly be regarded as generally known in a particular trade and industry, but which, on closer analysis, is information generally known in a particular industry and not protectable at the behest of a specific company or entity in that industry.

Firstly, it needs to be emphasised that information does not become confidential simply because the business using the information labels it as such.  In the case of Alum-Phos (Pty) Ltd v Spatz & Another (1997) 1 All SA (W), “general information about the business does not become confidential because the proprietor chooses to call it confidential”.  In a later case of Petre & Madco Ltd v Sanderson-Kasner & Others 1984 (3) SA 850 (W), “[i]t is trite law that one cannot make something secret by calling it secret”.

Information is confidential when it is not public knowledge, and of economic value to an entity carrying on business in the field to which that information pertains.  It is, however, necessary to add a rider.  A company may have spent time and money training its employees, but if the knowledge imparted during such training is nothing more than knowledge and skills generally known to those operating in that branch of industry, then the information is not confidential and the employees who receive the training cannot be prevented from utilising it, at a later stage, when joining a competitor.

Although the courts have never attempted to draw up an exhaustive list of various categories of confidential information, and have decided the matter on a case-by-case basis, the case of Metre Systems Holdings (Pty) Ltd v Venter & Another 1993 (1) SA 409 (W) is useful.  In that case the Court listed some of the categories of confidential information recognised in our case law (although emphasising that the list was not exhaustive).  The categories thus recognised included: (a) customer lists drawn up by a trader and kept confidential for purposes of his own business; (b) information received by an employee about business opportunities available to an employer, even if such information could be obtained from a source other than the employer or employee; (c) information otherwise in the public domain could become protectable if skill and labour has been expended in gathering and compiling it in a particular useful form; (d) information regarding any marketing proposals and campaigns which a company is contemplated, either in relation to its entire product range or in relation to specific products; (e) information relating to the specifications of a product, the process of manufacture followed in putting that product together, and the results obtained in the development of the product; and (f) Information relating to the prices at which a person has tendered competitively to do work for another.

In conclusion, a crucially important aspect must be emphasised.  In any court proceedings aimed at protecting confidential information or preventing competitors from making use thereof, it is necessary to spell out carefully and in detail why the information sought to be protected is confidential.  Facts must be put up showing that it is not in the public domain, it is different from whatever information trade rivals use in their parallel business activities.  Failure to properly identify the confidential information which a court is asked to protect, and to adequately spell out the facts showing that it is indeed confidential, will mean that litigation instituted to protect the confidential information is doomed to failure.

Compiled by Annerine Du Plessis

THE MEDIATION MOVEMENT

By Annerine du Plessis

Due to excessive legal costs involved in litigation and the endless frustration associated with prolonged court cases, mediation, as a form of Alternative Dispute Resolution, is becoming the obvious alternative to fighting things out in a courtroom. South Africa is slowly but surely beginning to be part of the global mediation movement.

Mediation is a voluntary process whereby both parties must first reach consensus to refer their dispute to mediation. A party may withdraw at any stage of the proceedings and later litigation is still possible.

The mediator is not a judge and does not tell the parties what the solution to their dispute is. Mediation is the parties’ process and it is entirely up to them to find a solution that meets their needs and interests.

The role of the mediator is to facilitate discussions between the parties, assist them in identifying the relevant issues and explore the areas of compromise so that a settlement can hopefully be reached. The process of mediation not only has the benefit of saving the parties time, but will also in the long run save the parties money.

For more information on this topic contact Annerine du Plessis at Schnetler’s Incorporated (021) 552 4844.

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice.

WHO MAY BE APPOINTED AS DIRECTOR?

Certain people are not eligible to be appointed as directors of a company. In this article we look at who is disqualified from being a director as well as the effects of the actions of such persons while still acting as director.

A company must not knowingly permit an ineligible or disqualified person to serve or act as a director, according to section 69(3) of the Companies Act 71 of 2008. “Knowingly” includes the situation where the company should reasonably have known that the person is ineligible or disqualified.

Section 69(7) lists the persons on which there are an absolute prohibition, being juristic persons, minors or any persons disqualified in terms of the Memorandum of Incorporation. Section 69(8) lists the persons that are disqualified on a temporary basis, being someone who has been prohibited by the court or whom the court has declared a delinquent, unrehabilitated insolvents, persons who were removed from an office of trust on the grounds of misconduct involving dishonesty, and persons who were found guilty of a criminal offence and imprisoned without the option of a fine, or were ordered to pay a higher fine for being found guilty of any dishonesty crimes.[1]

A question that arises here is what the effect would be of appointing a prohibited director. Section 69(4) says that a person immediately ceases to be a director if they are prohibited from being a director, but section 71(3) states that if a shareholder alleges that a person is disqualified then the person must be removed by a board resolution before they cease to be a director. This means that any act done by such a person, despite his disqualification, will be valid and binding on the company unless the third party who was involved in the act was aware that the person they were dealing with was disqualified.[2]

Section 162(5) (a)-(f) sets out the grounds for an order of delinquency. A court must make an order declaring a person to be a delinquent director if the person:

  1. consented to serve as a director, or acted in the capacity of a director or prescribed officer, while ineligible or disqualified to be a director;
  2. acted as a director in a manner that contravened an order of probation;
  3. grossly abused the position of director while being a director;
  4. took personal advantage of information or an opportunity, or intentionally or by gross negligence inflicted harm upon the company or a subsidiary while being a director;
  5. acted in a manner that amounted to gross negligence, wilful misconduct or breach of trust while being a director; or as contemplated in section 77(3) (a), (b) or (c);
  6. has repeatedly been personally subject to a compliance notice or similar enforcement mechanism;
  7. has been convicted of an offence at least twice, or subjected to an administrative fine or similar penalty; or
  8. was a director of a company or a managing member of a close corporation, or controlled or participated in the control of a juristic person that was convicted of an offence, or subjected to a fine or similar penalty, within a period of five years. [3] & [4]

If a person is declared a delinquent in terms of section 162(5) (a) or (b) it is unconditional and for the lifetime of the person. If a person is declared a delinquent in terms of section 162(5) (c)-(f) this is temporary for a minimum of 7 years.[5]

It is therefore very important, when appointing a director, to make sure that he is qualified in terms of the new Companies Act. One must do proper research about a person accordingly before appointing him as a director of a company because it is possible that if you do not do so, the company in which you are a shareholder may have to bear the consequences of the actions of this disqualified person.

[1] Section 69(7) – (8) of the Companies Act 71 of 2008.

[2] Section 69(4) and 71(3) of the Companies Act 71 of 2008.

[3] Section 162(5) (a)-(f) of the Companies Act.

[4] FHI Cassim et al Contemporary Company Law (2012) 435 – 437.

[5] FHI Cassim et al Contemporary Company Law (2012) 438.

References:

  • Companies Act 71 of 2008
  • FHI Cassim et al Contemporary Company Law (2012)

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice.

JURISDICTION OF COURTS IN MATTERS INVOLVING COMPANIES

Traditionally, and under the previous Companies Act, a company could have a principal place of business and a registered office.  A company could, for instance, conduct its business at one office and also have a registered office with its auditors. In terms of the 1973 Companies Act any division of the High Court where a company’s registered office or its principal place of business was located, would have jurisdiction. More than one Court could, as a consequence, have jurisdiction in proceedings where a company was involved.

The new 2008 Companies Act, which repealed to a large extent the 1973 Act, does not have a similar wording that provides for more than one address. In the matter of Sibakhulu Construction (Pty) Ltd vs Wedgewood Village Golf Country Estate (Pty) Ltd (Nedbank Intervening) 2013 (1) SA 191 the Western Cape High Court dealt with the question of which Court would have jurisdiction where a company has a registered address different from its principal place of business.

The matter revolved around business rescue proceedings and winding up proceedings. The Court remarked that Section 128 of the Act makes reference to only “…the High Court…”  This wording denotes that a single Court would have jurisdiction over a company, and not more than one Court as in the previous Act. In dealing with the matter the Court considered the interpretation of the new Act.

Section 23(3) of the new Act specifically states that a company must continually maintain at least one office and register the address of its office or of its principal office if the company has more than one office. This office will, under the new Act, be the company’s registered office.  Section 23 makes it clear that this office must be maintained by the company itself and the following Section deals with documentary records to be kept at the address. The Court remarked that the new Act retained the institution of a registered office with which the outside world could make contact.

Unfortunately the Act does not define “principal office” but the Court remarked that, from a reading of the Act, it is clear that the intention is to denote the place where the administrative business of the company is centred. It follows, the Court suggested, that this office should also be the principal place of business. The Court concluded that the principal place of business and the registered office have to be at the same address under the new Act.

Reference was further made to Section 7 of the new Act where it is stated that the purpose of the Act is to provide a “predictable and effective environment for the efficient regulation of companies”. The Court held the view that to give effect to the purpose of the Act as set out in Section 7 it would follow that, in terms of Section 23, a company can only reside at its registered office, which means that only a single court can have jurisdiction.

Companies should be aware of this judgement and make sure that they register their principal place of business as their registered address.

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice.