LET'S TALK Has one of your directors gone rogue?
Updated: Oct 14, 2019
Perhaps the provisions of Section 162 of the Companies Act, 2008 will help you resolve your problem. The relevant section allows a broad range of interested and related persons the opportunity of applying to court for an order declaring a director of a company delinquent or placing him under an order of probation. The remedy is available in various instances including where a director has (1) grossly abused his/her position, (2) used his/her position and/or information to gain an improper advantage, (3) intentionally, or by gross negligence, inflicted harm upon the company, or (4) acted in a manner that amounted to gross negligence, wilful misconduct or breach of trust in relation to the performance of his/her functions within, and duties to, the company.
The Supreme Court of Appeal recently had cause to consider Section 162 of the Act. In doing so, it found that the section is not a penal provision but is rather designed to protect the investing public and those who deal with companies against the misconduct of delinquent directors. In considering the protective purpose of the section the Court concluded:
“Its aim is to ensure that those who invest in companies, big or small, are protected against directors who engage in serious misconduct of the type described in these sections. That is conduct that breaches the bond of trust that shareholders have in the people they appoint to the board of directors. Directors who show themselves unworthy of the trust are declared delinquent and excluded from the office of director. It protects those who deal with companies by seeking to ensure that the management of those companies is in fit hands. And it is required in the public interest that those who enjoy the benefits of incorporation and limited liability should not abuse their position”.
The Court is obliged to make an order declaring a person to be a delinquent director where that director has acted in any one or more of the ways described above.
The effect of an order of delinquency is serious. Essentially, the errant director is disqualified from being a director of any company. The order may, under certain circumstances, be unconditional and continue for the lifetime of a delinquent director or it may be conditional and continue for a specified period of time (normally 7 years or more).
Directors would do well to take heed of the provisions of Section 162. They should ensure that they observe the highest standard in respect of their ordinary fiduciary duties.
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