The Companies and Intellectual Property Commission (“CIPC”) has for the first time succeeded in having a court declare a director delinquent under the Companies Act.
The Act (section 162) providers companies, shareholders, directors and other interested persons with a remedy to approach the courts to have a director of a company declared delinquent. There are a number of listed grounds upon which a court can grant such an order, including, but not limited to:
- where a person acted as a director while being ineligible or disqualified to do so:
- where a person acted as a director in contravention of an order of probation;
- where a person acting as a director grossly abused the position of director;
- where a person acting as a director intentionally or by gross negligence inflicted harm upon the company;
- where a person acting as a director acted in a manner that amounted to gross negligence, wilful misconduct or breach of trust in relation to the performance of the directors’ functions and duties.
Dependant on the ground relied upon by the court, a declaration of delinquency may either be unconditional and subsist for the lifetime of the person concerned, alternatively be conditional and subsist for 7 (seven) years from the date of order or such longer period as determined by the court.
In the case at hand, Owen Wienand, a director of Skyport Corporation Limited, was found to have allowed the company to continue operating whilst in an insolvent condition. The director had further allowed cash to be extracted from the company’s bank account to pay directors’ fees and had continued with the business despite knowing that there was no business case for the company and while failing to maintain proper accounting systems.
Judge Dennis Davis declared the director to be delinquent for 7 (seven) years on the grounds of gross negligence and violation of his duties as a director.
This judgment serves as a harsh reminder to all directors of their duties towards a company which are not to be taken lightly. It further provides reassurance to those who seek relief and remedy from delinquent directors.
Contact Sandy Scholtz in our Corporate and Commercial Law Department on (041) 501 9806 / email@example.com .