LML – 4806
Question 1 – answer 4
To advise Mashudu regarding the removal of Peter as a director of Star Engineering (Pty) Ltd,
we need to consider the relevant provisions of the Companies Act (assuming this is in a
jurisdiction like South Africa, which has a Companies Act) and the company's own
Memorandum of Incorporation (MOI).
### Grounds for Removal of a Director
1. **Failure to Perform Duties**: The failure of Peter to ensure the timely preparation and
submission of the company’s annual financial statements may potentially be grounds for
removal. Directors have a duty to act in the best interests of the company and ensure
compliance with statutory obligations, including those related to financial reporting. If
Peter is neglecting these responsibilities and it is impacting the company, this can be seen
as a breach of his duties.
2. **Breach of Trust**: Peter’s omission to sign the annual financial statements signifies a
failure to fulfill his responsibilities as an authorized director. Depending on the terms of his
appointment and any relevant company policies, this might be interpreted as a serious
breach of trust.
3. **Companies Act Provisions**: - Most jurisdictions will have specific provisions in the
Companies Act that allow for the removal of a director. In South Africa, for example,
Section 71 of the Companies Act, 2008 allows a company to remove a director by ordinary
resolution at a general meeting. - The director in question typically must be given a chance
to be heard (the "right to be heard") regarding the proposed removal.
4. **Contractual Obligations**: You mentioned Peter is under a five-year contract. If the
contract does not specify the processes for removal or if it allows for early termination
under certain conditions (such as misconduct or failure to perform duties), that could be
pivotal in deciding the course of action. A contract breach may also expose the company to
potential claims for wrongful dismissal if not handled appropriately.
### Recommended Steps for Mashudu
1. **Review Company Policies/Articles/MOI**: Mashudu should first review the MOI and
any applicable company policies regarding the removal of directors to ensure compliance
with procedures outlined therein.
2. **Gather Evidence**: Compile evidence of Peter's failures, including documentation of
financial statements not being submitted on time and any communication regarding his
conduct.
3. **Hold a Meeting**: Schedule a board meeting (if permitted by the MOI) to discuss these
issues with Peter present. This meeting should allow Peter to explain his actions or any
mitigating circumstances.
4. **Call a General Meeting**: If Mashudu still wishes to pursue removal after the meeting
with Peter, he should convene a general meeting of the shareholders (if he is also a
shareholder) to discuss the matter formally and put forward a resolution for Peter's
removal.
5. **Legal Proceedings**: If Peter resists removal and claims wrongful dismissal or breach
of contract, it may be necessary to consult with a legal professional to manage any
potential disputes that arise from a removal attempt.
### Conclusion Given the issues at hand regarding Peter’s performance and the statutory
duties of a director, Mashudu appears to have a valid basis for pursuing his removal.
However, it is crucial to adhere to the correct legal processes to avoid potential legal
challenges. Legal advice from a qualified attorney may be prudent for specific guidance
related to the situation and jurisdiction involved.
