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209 Determination of number of directors and appointment of first

directors
Subject to the provisions of the articles of any company, the number of directors of the company may be
determined and the first directors may be appointed in writing by a majority of the subscribers to its
memorandum.
OS, 2002 ch8-p237
Notes
Number
The power conferred by s 209 on the majority of the subscribers to the memorandum to
determine the number of directors of the company, is subject to the statutory minimum
(see s 208(1)) and to any provisions in the company's articles.
The articles of companies usually provide for a minimum number of directors, which
number may not, of course, be less than the statutory minimum.1648 When a company
has fewer directors than the minimum prescribed for in its articles, the directors in office
cannot act at all, 1649 unless permitted to do so by the articles.1650 Articles 78 of Table
A and art 77 of Table provide that the continuing directors may act notwithstanding any
vacancy on their body, but, if and so long as their number is reduced below the number
fixed by or pursuant to the articles as the necessary quorum of directors, the continuing
directors may act only for the purpose of increasing the number of directors to that
number, or of convening a general meeting of the company.
Where the articles of a company provide that 'until otherwise determined by the
company in general meeting' the number of directors shall not be less than a specified
minimum number and not more than a certain specified maximum number, the general
meeting can raise the maximum number by ordinary resolution (art 71 of Table A and
art 69 of Table B provide inter alia that the members in general meeting may from time
to time determine the number of directors). Such a resolution does not alter the article,
but rather fixes the number of directors by implementing the machinery contained in the
article.1651 Where the members in general meeting have not formally decided how many
directors they will appoint, this is done impliedly by electing a particular number within
the limits laid down by the articles.1652
Articles usually confer upon the company in general meeting the power to 'increase or
reduce the number of directors'.1653 Such articles are interpreted to mean that the
general meeting may authorise any extra appointments of persons to act as directors at
any time within the minimum and (if any) the maximum limits prescribed by the
articles.1654 Where the articles so provide, the members have the power not only to
increase the number of directors but also to make appropriate appointments.1655 A
resolution of the general meeting increasing the number of directors is necessary, and
therefore the directors
OS, 2002 ch8-p238
cannot simply convene a general meeting to elect additional directors and so usurp the
members' power to decide whether or not additional directors shall be elected.1656 But
where the general meeting has the power to increase the number of directors, it can, in
the absence of a provision to the contrary, exercise that power by appointing directors to
the extent to which it intends to increase their number.1657 Hence the directors can
convene a general meeting to elect additional named directors, if the members choose to
do so; and the members can then increase the number of directors by electing those
directors.1658 Where the articles of a company empowered the members in general
meeting to set a maximum and minimum number of directors and to increase or reduce
the maximum or minimum number, it was held, applying the doctrine of unanimous
asset, 1659 that a person who was the company's only shareholder had, by his actions,
clearly reflected a determination by the company that the number of directors be
reduced from two to one.1660
Appointment of first directors
The first directors may be named in the articles.1661 Directors so appointed may be
appointed to serve until the first annual general meeting or for a fixed period, or even
indefinitely.
If they are not appointed in the articles, they may be appointed by the majority of the
subscribers to the memorandum (s 209), who are deemed for all purposes to be the
directors of the company until directors are appointed (s 208(1)).
The articles of companies usually provide that the names of the first directors may be
'determined' in writing by a majority of the subscribers. Article art 53 of Table A and art
54 of Table B provide that the names of the first directors may be 'determined' in writing
by a majority of the subscribers of memorandum and that every subscriber of the
memorandum is deemed for all purposes to be a director of the company until directors
are 'appointed', and this 'whether or not the directors have been named' by a majority of
the subscribers. It would seem, therefore, that these articles merely empower the
subscribers to 'name' the first directors. The legal effect of so 'naming' directors is
unclear. Presumably, a named director is appointed when he accepts the office.
OS, 2002 ch8-p239
Although s 208(2) deems the subscribers to be the directors of the company until its
first directors are appointed, if they choose not to act as directors, but appoint others,
they act not as directors but as subscribers.1662 Thus a provision in the company's
articles requiring that a valid directors' resolution be signed by all the directors and
passed at a meeting of the directors does not apply to the subscribers when appointing
the first directors.1663 Nor do the regulations of general meetings apply to them, and
this despite the fact that s 103(1) provides that the subscribers to the memorandum are
deemed to have agreed to become members of the company upon its incorporation and
must forthwith be entered as members in its register of members. One consequences of
this is that it is not necessary for them to be given the same notice of a meeting as it
laid down for general meetings.1664 Finally, it was early concluded that where the
subscribers act as such it is not necessary for them to meet together. As Sir Page-Wood
V-C said inHallow v Fernie : 1665 'If any one of the subscribers to the contract raises the
question, he may be entitled to say, "I will not have this decided without a meeting of us
all"; but if they all concur . . . it seems to me hypercritical to say that the appointment
[of the directors] was irregular.' It is sufficient if a majority of them make the
appointment in writing.1666


1648 Art 53 of Table A provides that the number of directors may not be less than two and art 54 of Table B
provides that the number of directors may not be less than one.
1649 Re Alma Spinning Co (Bottomley's Case) (1880) 16 ChD 681; Re Scottish Petroleum Co (1883) 23 ChD
413 (CA); Re Sly, Spink & Co (Hertslet's Case) [1911] 2 ChD 430.
1650 Re Scottish Petroleum Co (1883) 23 ChD 413 (CA); Re Sly, Spink & Co (Hertslet's Case) [1911] 2 ChD
430.
1651 Worcester Corsetry Ltd v Witting [1936] Ch 640 (CA); Grant v John Grant & Sons Pty Ltd (1950) 82 CLR
1 (HC of A); Partnership in Mining Bpk v Federale Mynbou Bpk 1983 (2) SA 222 (W); 1984 (1) SA 175 (T) 178.
In the absence of words entitling the company in general meeting to increase the number of directors beyond
the maximum specified, that number can be increased only by alerting the articles by a special
resolution: Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1 (HC of A); Partnership in Mining Bpk v Federale
Mynbou Bpk 1983 (2) SA 222 (W); 1984 (1) SA 175 (T) 178.
1652 Aitchison v Dench 1964 (2) SA 515 (T).
1653 See art 71 of Table A and art 69 of Table B.
1654 Worcester Corsetry Ltd v Witting [1936] Ch 640 (CA); Grant v John Grant & Sons Pty Ltd (1950) 82 CLR
1 (HC of A); Woodroofe Ltd v McLeod (1986) 10 ACLR 129 SC(SA). And see Partnership in Mining Bpk v
Federale Mynbou Bpk 1983 (2) SA 222 (W); 1984 (1) SA 175 (T) 178.
1655 Worcester Corsetry Ltd v Witting [1936] Ch 640 (CA); Grant v John Grant & Sons Pty Ltd (1950) 82 CLR
1 (HC of A).
1656 In Woodroofe Ltd v McLeod (1986) 10 ACLR 129 SC(SA) the company's articles provided that until
otherwise determined by the company in general meeting the number of directors was to be not more than
seven or not less than three. The company had five directors, two of whom were to retire pursuant to the
articles at the next annual general meeting of the company. The notices sent out to shareholders stated that
four directors were to be elected, which would result in there being seven directors. It was not proposed to
seek a resolution from the shareholders approving the increase of the number of directors to seven, the
company being of the view that the articles necessitated a shareholders' resolution only where it was proposed
to reduce the number of directors below three or increase it above seven. It was held that the directors could
not resolve to increase the number of directors; and, on application by a shareholder, the court granted an
injunction preventing the company from conducting an election at the meeting. It held that on the proper
construction of the articles a shareholders' resolution was required each time it was sought to alter the number
of directors. As there has been no such resolution since incorporation, the correct number of directors was five,
and any increase to seven required a resolution by the shareholders in general meeting.
1657 Worcester Corsetry Ltd v Witting [1936] Ch 640 649-650 (CA). And see Grant v John Grant & Sons Pty
Ltd (1950) 82 CLR 1 (HC of A).
1658 Worcester Corsetry Ltd v Witting [1936] Ch 640 649-650 (CA).
1659 As to which, see notes on s 199.
1660 Southerland v Robert Bosch (Aust) Pty Ltd (2000) 33 ACSR 680 SC(NSW).
1661 See eg Re Sly, Spink & Co (Hertslet's Case) [1911] 2 ChD 430; Flegg v McCarthy & Flegg 1942 CPD
109.
1662 Re Great Northern Salt & Chemical Works (1890) 44 ChD 472 480; Ex parte Umtentweni Motels (Pty)
Ltd 1968 (1) SA 144 (D) 147-148.
1663 Ex parte Umtentweni Motels (Pty) Ltd 1968 (1) SA 144 (D) 147-148.
1664 John Morley Building Co v Barras [1891] 2 Ch 386 394.
1665 (1867) LR 3 Eq 520 537.
1666 Ex parte Umtentweni Motels (Pty) Ltd 1968 (1) SA 144 (D) 148. Cf Re Great Northern Salt & Chemical
Works (1890) 44 ChD 472 480, where it was said that 'if all of them do in any way show their determination on
the subject, that determination ought to be treated as valid'.


209 Determination of number of directors and appointment of first
directors
Subject to the provisions of the articles of any company, the number of directors of the company may be
determined and the first directors may be appointed in writing by a majority of the subscribers to its
memorandum.
OS, 2002 ch8-p237
Notes
Number
The power conferred by s 209 on the majority of the subscribers to the memorandum to
determine the number of directors of the company, is subject to the statutory minimum
(see s 208(1)) and to any provisions in the company's articles.
The articles of companies usually provide for a minimum number of directors, which
number may not, of course, be less than the statutory minimum.1648 When a company
has fewer directors than the minimum prescribed for in its articles, the directors in office
cannot act at all, 1649 unless permitted to do so by the articles.1650 Articles 78 of Table
A and art 77 of Table provide that the continuing directors may act notwithstanding any
vacancy on their body, but, if and so long as their number is reduced below the number
fixed by or pursuant to the articles as the necessary quorum of directors, the continuing
directors may act only for the purpose of increasing the number of directors to that
number, or of convening a general meeting of the company.
Where the articles of a company provide that 'until otherwise determined by the
company in general meeting' the number of directors shall not be less than a specified
minimum number and not more than a certain specified maximum number, the general
meeting can raise the maximum number by ordinary resolution (art 71 of Table A and
art 69 of Table B provide inter alia that the members in general meeting may from time
to time determine the number of directors). Such a resolution does not alter the article,
but rather fixes the number of directors by implementing the machinery contained in the
article.1651 Where the members in general meeting have not formally decided how many
directors they will appoint, this is done impliedly by electing a particular number within
the limits laid down by the articles.1652
Articles usually confer upon the company in general meeting the power to 'increase or
reduce the number of directors'.1653 Such articles are interpreted to mean that the
general meeting may authorise any extra appointments of persons to act as directors at
any time within the minimum and (if any) the maximum limits prescribed by the
articles.1654 Where the articles so provide, the members have the power not only to
increase the number of directors but also to make appropriate appointments.1655 A
resolution of the general meeting increasing the number of directors is necessary, and
therefore the directors
OS, 2002 ch8-p238
cannot simply convene a general meeting to elect additional directors and so usurp the
members' power to decide whether or not additional directors shall be elected.1656 But
where the general meeting has the power to increase the number of directors, it can, in
the absence of a provision to the contrary, exercise that power by appointing directors to
the extent to which it intends to increase their number.1657 Hence the directors can
convene a general meeting to elect additional named directors, if the members choose to
do so; and the members can then increase the number of directors by electing those
directors.1658 Where the articles of a company empowered the members in general
meeting to set a maximum and minimum number of directors and to increase or reduce
the maximum or minimum number, it was held, applying the doctrine of unanimous
asset, 1659 that a person who was the company's only shareholder had, by his actions,
clearly reflected a determination by the company that the number of directors be
reduced from two to one.1660
Appointment of first directors
The first directors may be named in the articles.1661 Directors so appointed may be
appointed to serve until the first annual general meeting or for a fixed period, or even
indefinitely.
If they are not appointed in the articles, they may be appointed by the majority of the
subscribers to the memorandum (s 209), who are deemed for all purposes to be the
directors of the company until directors are appointed (s 208(1)).
The articles of companies usually provide that the names of the first directors may be
'determined' in writing by a majority of the subscribers. Article art 53 of Table A and art
54 of Table B provide that the names of the first directors may be 'determined' in writing
by a majority of the subscribers of memorandum and that every subscriber of the
memorandum is deemed for all purposes to be a director of the company until directors
are 'appointed', and this 'whether or not the directors have been named' by a majority of
the subscribers. It would seem, therefore, that these articles merely empower the
subscribers to 'name' the first directors. The legal effect of so 'naming' directors is
unclear. Presumably, a named director is appointed when he accepts the office.
OS, 2002 ch8-p239
Although s 208(2) deems the subscribers to be the directors of the company until its
first directors are appointed, if they choose not to act as directors, but appoint others,
they act not as directors but as subscribers.1662 Thus a provision in the company's
articles requiring that a valid directors' resolution be signed by all the directors and
passed at a meeting of the directors does not apply to the subscribers when appointing
the first directors.1663 Nor do the regulations of general meetings apply to them, and
this despite the fact that s 103(1) provides that the subscribers to the memorandum are
deemed to have agreed to become members of the company upon its incorporation and
must forthwith be entered as members in its register of members. One consequences of
this is that it is not necessary for them to be given the same notice of a meeting as it
laid down for general meetings.1664 Finally, it was early concluded that where the
subscribers act as such it is not necessary for them to meet together. As Sir Page-Wood
V-C said inHallow v Fernie : 1665 'If any one of the subscribers to the contract raises the
question, he may be entitled to say, "I will not have this decided without a meeting of us
all"; but if they all concur . . . it seems to me hypercritical to say that the appointment
[of the directors] was irregular.' It is sufficient if a majority of them make the
appointment in writing.1666


1648 Art 53 of Table A provides that the number of directors may not be less than two and art 54 of Table B
provides that the number of directors may not be less than one.
1649 Re Alma Spinning Co (Bottomley's Case) (1880) 16 ChD 681; Re Scottish Petroleum Co (1883) 23 ChD
413 (CA); Re Sly, Spink & Co (Hertslet's Case) [1911] 2 ChD 430.
1650 Re Scottish Petroleum Co (1883) 23 ChD 413 (CA); Re Sly, Spink & Co (Hertslet's Case) [1911] 2 ChD
430.
1651 Worcester Corsetry Ltd v Witting [1936] Ch 640 (CA); Grant v John Grant & Sons Pty Ltd (1950) 82 CLR
1 (HC of A); Partnership in Mining Bpk v Federale Mynbou Bpk 1983 (2) SA 222 (W); 1984 (1) SA 175 (T) 178.
In the absence of words entitling the company in general meeting to increase the number of directors beyond
the maximum specified, that number can be increased only by alerting the articles by a special
resolution: Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1 (HC of A); Partnership in Mining Bpk v Federale
Mynbou Bpk 1983 (2) SA 222 (W); 1984 (1) SA 175 (T) 178.
1652 Aitchison v Dench 1964 (2) SA 515 (T).
1653 See art 71 of Table A and art 69 of Table B.
1654 Worcester Corsetry Ltd v Witting [1936] Ch 640 (CA); Grant v John Grant & Sons Pty Ltd (1950) 82 CLR
1 (HC of A); Woodroofe Ltd v McLeod (1986) 10 ACLR 129 SC(SA). And see Partnership in Mining Bpk v
Federale Mynbou Bpk 1983 (2) SA 222 (W); 1984 (1) SA 175 (T) 178.
1655 Worcester Corsetry Ltd v Witting [1936] Ch 640 (CA); Grant v John Grant & Sons Pty Ltd (1950) 82 CLR
1 (HC of A).
1656 In Woodroofe Ltd v McLeod (1986) 10 ACLR 129 SC(SA) the company's articles provided that until
otherwise determined by the company in general meeting the number of directors was to be not more than
seven or not less than three. The company had five directors, two of whom were to retire pursuant to the
articles at the next annual general meeting of the company. The notices sent out to shareholders stated that
four directors were to be elected, which would result in there being seven directors. It was not proposed to
seek a resolution from the shareholders approving the increase of the number of directors to seven, the
company being of the view that the articles necessitated a shareholders' resolution only where it was proposed
to reduce the number of directors below three or increase it above seven. It was held that the directors could
not resolve to increase the number of directors; and, on application by a shareholder, the court granted an
injunction preventing the company from conducting an election at the meeting. It held that on the proper
construction of the articles a shareholders' resolution was required each time it was sought to alter the number
of directors. As there has been no such resolution since incorporation, the correct number of directors was five,
and any increase to seven required a resolution by the shareholders in general meeting.
1657 Worcester Corsetry Ltd v Witting [1936] Ch 640 649-650 (CA). And see Grant v John Grant & Sons Pty
Ltd (1950) 82 CLR 1 (HC of A).
1658 Worcester Corsetry Ltd v Witting [1936] Ch 640 649-650 (CA).
1659 As to which, see notes on s 199.
1660 Southerland v Robert Bosch (Aust) Pty Ltd (2000) 33 ACSR 680 SC(NSW).
1661 See eg Re Sly, Spink & Co (Hertslet's Case) [1911] 2 ChD 430; Flegg v McCarthy & Flegg 1942 CPD
109.
1662 Re Great Northern Salt & Chemical Works (1890) 44 ChD 472 480; Ex parte Umtentweni Motels (Pty)
Ltd 1968 (1) SA 144 (D) 147-148.
1663 Ex parte Umtentweni Motels (Pty) Ltd 1968 (1) SA 144 (D) 147-148.
1664 John Morley Building Co v Barras [1891] 2 Ch 386 394.
1665 (1867) LR 3 Eq 520 537.
1666 Ex parte Umtentweni Motels (Pty) Ltd 1968 (1) SA 144 (D) 148. Cf Re Great Northern Salt & Chemical
Works (1890) 44 ChD 472 480, where it was said that 'if all of them do in any way show their determination on
the subject, that determination ought to be treated as valid'.


210 Appointment of directors to be voted on individually
(1) At a general meeting of a company a motion for the appointment of two or more persons as directors of
the company by a single resolution shall not be moved, unless a resolution that it shall be so moved has first
been agreed to by the meeting without any vote being given against it.
(2) Subject to the provisions of section 214, a resolution moved in contravention of this section shall be
void, whether or not its being so moved was objected to at the time, but if a resolution so moved is passed, no
provision for the automatic reappointment of a retiring director in default of another appointment shall apply.
(3) For the purposes of this section, a motion for approving a person's appointment or for nominating a
person for appointment shall be treated as a motion for his appointment.
(4) This section shall not apply to a resolution altering the company's articles.
Notes
Appointment of directors by members
The purpose of s 210 'is to stop the practice of putting a single resolution at general
meetings for the election of two or more persons as directors'.1667 In Harman v Energy
OS, 2002 ch8-p240
Research Group Australia Ltd1668 all the shareholders of the company attended the
meeting and voted unanimously on a single resolution for the appointment of all present
as the company's board of directors. It was held that, because there had been no
preliminary resolution as required by the section where a single resolution is to be
moved, the resolution was void: the policy of the section 'is quite clear and it can equally
apply to a meeting where all the members are present or only some of them, and
irrespective also of the numbers of the members which constitute the totality of them',
and 'because, in the particular facts of the case, it is unlikely that the section would have
achieved any purpose, it does not mean therefore that it has no application in that case'.
In Rentekor (Pty) Ltd v Rheeder and Berman1669 it was held that, where a resolution
of the members at an annual general meeting purporting to appoint directors is invalid
by reason of s 210, the board of directors can fill the vacancies under a power to fill
casual vacancies. It would seem to have been assumed that the vacancies were caused
by the invalid en bloc election. But, of course, the en bloc election merely failed to fill
vacancies that arose, routinely, as a result of the expiry of the directors' terms of office,
and therefore the vacancies on the board were not causal vacancieshowever widely
that term is defined.
Section 210(4) provides that the restriction does not apply to a resolution altering the
company's articles. Consequently it does not apply where the articles are altered so as to
name the company's directors therein.
Generally, a company in general meeting has an inherent power to appoint directors
unless the power is expressly and exclusively delegated to others (usually, the
board).1670 Unless contrary to the articles, this power can be exercised with the
unanimous consent of the shareholders otherwise than at a general meeting.1671
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The articles of companies usually expressly provide for the appointment of directors
by the general meeting. These provisions typically provide for the retirement of all the
directors at the first annual general meeting, for the retirement of a proportion of the
directors (usually-one third) at each subsequent annual general meeting, and for the
places of the retiring directors to be filled by such general meetings.1672 If in terms of
its articles the company in general meeting can appoint only persons recommended by
the board, that recommendation must be given by a properly constituted board meeting,
and not merely by a majority of the board who are present at the general meeting and
assent to the appointment.1673
Section 69bis of the 1926 Act provided that where motions for the appointment by
separate resolutions of more than the number of directors to be elected had been made
and not withdrawn, all the resolutions had to be voted upon separately, and thereafter
the result of the voting had to be determined in accordance with the number of votes
cast in favour of each resolution. It was held that this meant that a candidate must be
voted on as if his candidacy was a motion for his appointment and, as with ordinary
motions, votes for and against had to be called for. If he attracted a plurality of 'against'
votes, the motion for his appointment was defeated. If the opposite was the case, the
motion was carried. When, and only when, more candidates were approved of than there
were candidacies, the number of votes in favour of each candidate were to be taken into
account, and those with the highest number of favourable votes filled the available
vacancies.1674 No such provision is however contained in s 210 of the 1973 Act.
Articles usually provide also for the automatic re-election of retiring directors whose
offices have not been filled.1675 Where the articles provide that the retiring director
must offer himself for re-election before he can be deemed to be re-elected, it is enough
for
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automatic re-election if the retiring director, by his words or by his conduct at or prior to
the meeting in question, shows that he is prepared to continue in the office of
director.1676
If, after the voting for directors has taken place, a successful candidate advises that
he is withdrawing his candidacy, the candidate who received the next highest number of
votes cannot be declared elected. Because the person seeking to withdraw was duly
elected, if he does not wish to hold office he must retire and the company must then
hold another election.1677
The general rule is that members may vote in their own interests even though they
conflict with those of the company; 1678 and that the members are under no obligation
to choose the most suitable persons for the position of director.1679 Thus a majority
shareholder may appoint his friend or a person whom he might reasonably expect
usually to vote in a certain way.1680 It does not make any difference if the directors
appointed by a shareholder are employed by the shareholder and are allowed to carry
out their duties as directors while in the shareholder's employment.1681 It is in the
interests of a shareholder to see that directors are wise and that the actions of the
company are not foolish; but this concern of the shareholder stems from self-interest,
and not from duty.1682
Wherever the directors have an exclusive power to appoint directors but are unable to
exercise it, the company in general meeting has the power to make such
appointments.1683
If under the articles of a company the directors are to be appointed by the
shareholders in general meeting, the directors of the company cannot bind their
company by a contract with others entitling those others to appoint directors. Such an
agreement is invalid, because it would deprive the members of their rights under the
articles to appoint the directors.1684
RS 8, 2011 ch8-p243
Appointment by directors and outsiders
The articles of a company can provide for the appointment of directors of the company
by the directors, or by particular shareholders, or by debenture-holders, or even by
complete outsiders. 1685
Clearly, where this power is vested in the directors, it is a fiduciary power, and it must
therefore be exercised bona fide in the interests of the company and not for any
improper or collateral purpose. But it would seem that an outsider empowered by the
articles to appoint a director is not under any obligation to choose as a director the most
suitable person for the position. 1686
Wherever the directors are empowered to appoint directors for a limited period, eg
until the next general meeting, they cannot, by also exercising a power vested in them
to appoint one of their number to be managing director, appoint a person both to the
office of director and, for a longer period, to the office of managing director, so as to
give him a right to damages for breach of contract in the event of his failure to secure
re-election. 1687
Unless the articles otherwise provide, 1688 where the company has by contract validly
conferred upon outsiders the right to make such appointments, no form of co-operation
on the part of the directors is necessary for the person so nominated to become a
director of the company. 1689 If the company refuses to accept the appointment, the
court will compel it to do so. 1690 But such outsiders cannot restrain the company from
altering its articles so as to strike out the relevant provision and, if the company does so,
it can no longer be compelled to accept the persons so nominated. The outsider's only
remedy is to sue the company for damages for breach of contract. 1691
The directors are usually empowered by the articles to appoint additional directors up
to the total number of directors fixed in the articles. 1692 Where the directors are so
empowered, it is a question of construction of the articles (a) whether this power is to be
exercised by all or by the majority of the directors 1693 and (b) whether this power is
vested in them exclusively 1694 or concurrently with the general meeting. 1695 It would
seem that the members in general meeting retain the power to make such appointments
even where the directors are empowered to make them, unless the members' power to
do so is expressly
RS 8, 2011 ch8-p244
excluded. 1696 Where under the articles the directors have the power to appoint, either
to fill a casual vacancy or as an additional director, a person holding the necessary share
qualification, they do not have the power to appoint a person who is not registered as
the holder of the prescribed number of shares; and it is not sufficient that he has
acquired a right to registration, or that the articles provide for a period of grace within
which to obtain the share qualification. 1697
Defects in appointment and validity of acts
The acts of a director of a company are valid notwithstanding any defects that may
afterwards be discovered in his appointment or qualification. 1698


1667 Final Report of the Company Law Amendment Enquiry Commission 1947-1948 UG NO 69-148 para 43.
And see Aitchison v Dench 1964 (2) SA 515 (T) 516-517. In Howard v Mechtler (1999) 30 ACSR 435 443
SC(NSW) it was said that the provision exists for an important policy reason, namely, the purpose of saving
members the embarrassment of having to elect a person who they may not want when they elect another
person whom they do want.
1668 (1985) 9 ACLR 897 899 SC(WA).
1669 1988 (4) SA 469 (T) 507.
1670 See Woolf v East Nigel Gold Mining Co Ltd (1905) 21 TLR 660; Barron v Potter [1914] 1 Ch 895; Blair
Open Hearth Furnace Co Ltd v Reigart (1913) 108 LT 665; Worcester Corsetry Ltd v Witting [1936] Ch 640
(CA); Integrated Medical Technologies Ltd v Macel Nominees Pty Ltd (1988) 13 ACLR 110 SC(NSW); and
see Gohlke & Schneider v Westies Minerale (Edms) Bpk 1970 (2) SA 685 (A) 693; Link Agricultural Pty Ltd v
Shanahan (1998) 28 ACSR 498 517 CA(Vic). On the company's (ie the general meeting's) inherent power to
appoint directors, see also Re Western Mines Ltd & Shield Development Ltd (1975) 65 DLR (3d) 307 where the
doctrine was recognised but not applied. And see Harman v Energy Research Group Australia Ltd (1985) 9
ACLR 897 898 SC(WA). See also Re Rural Chemical Industries Pty Ltd (1988) 9 ACLR 176 SC(NSW), where the
court convened a general meeting to ratify the appointment of the company's directors, the articles of the
company having, in error, excluded provisions relating to the appointment of directors. In Worcester Corsetry
Ltd v Witting [1936] Ch 640 650 (CA), Lawrence LJ said: 'The company has an inherent power to nominate and
appoint its own directors unless that is in any way restricted by the contract contained in the articles of
association. Unless you can find that that inherent power has been handed over by the company to the
directors, I think they retain that power as a natural result of their having the power to increase their board of
directors.' In Re Western Mines Ltd & Shield Development Ltd supra, Worcester Corsetry Ltd v Witting
supra was distinguished on the grounds that the articles of the company (unlike those of the company in
the Worcester Corsetry Ltd v Witting case) had handed over to the board the 'inherent power' to increase the
number of directors between annual meetings; that the power of the members to elect directors had been
restricted to the annual general meeting; and that s 132(2) the British Columbia Companies Act 1973 c 18
severely limited the 'inherent powers' doctrine by providing that 'succeeding or additional directors shall be
elected or appointed in accordance with the articles of association'. Consequently the members had no inherent
power to elect directors between annual general meetings. In Integrated Medical Technologies Ltd v Macel
Nominees Pty Ltd supra the court was unable wholly to accept the approach in Re Western Mines Ltd & Shield
Development Ltd supra, and it was pointed out that that case was decided on the basis of statutory provisions
that severely limited the inherent powers doctrine.
1671 Gohlke & Schneider v Westies Minerale (Edms) Bpk 1970 (2) SA 685 (A) 693; Harman v Energy
Research Group Australia Ltd (1985) 9 ACLR 897 898 SC(WA); Morgan v 45 Flers Avenue Pty Ltd (1986) 10
ACLR 692 702 SC(NSW);Transcash SWD (Pty) Ltd v Smith 1994 (2) SA 295 (C) 302. In Gohlke & Schneider v
Westies Minerale (Edms) Bpk supra, where all the shareholders, by unanimous assent, appointed a director to
the board without first altering the articles, which did not authorise the appointment, the court held that the
appointment was effective and made no order directing the shareholders to amend the articles in line with the
order made in Flegg v McCarthy & Flegg 1942 CPD 109. See R C Beuthin 'Appointment of Directors and Legal
Effect of Articles' (1970) 87 SALJ 395; M J Oosthuizen 'Toestemming om as Direkteur Op to Tree'
[1976] TSAR 71. In Flegg v McCarthy & Flegg supra the articles of a private company consisting of two
shareholders provided that there should be two directors and appointed the two shareholders as directors.
Subsequently, a third person become a shareholder in the company and the two shareholder-directors
appointed him as a third director, and for several years reappointed him, without, however, altering the
articles. Jones J held that: 'The fact, however, that [the third person's] appointment as a director was
technically or strictly not regular under the articles of association cannot in my opinion invalidate his
appointment from time to time or render acts bona fide done by him as such in relation to the affairs of the
company invalid, particularly when it is borne in mind that the only two persons interested in the matter, viz
the two other directors, not only acquiesced in his appointment, but actually made it originally and
subsequently confirmed it and for several years thereafter reappointed him.' The court made an order directing
the two original shareholders to vote in favour of a special resolution by which the articles were to be amended
by making provision for the appointment of a third director.
1672 See arts 66-69 of Table A and art 67 of Table B.
1673 Re East Norfolk Tramways Co (Barber's Case) (1877) 5 Ch 963 (CA).
1674 Schachat v Trans-Africa Credit & Saving Bank Ltd 1963 (4) SA 523 (C); Aitchison v Dench 1964 (2) SA
515 (T).
1675 See art 70 of Table A and art 68 of Table B. In Grundt v Great Boulder Proprietary Gold Mines
Ltd [1948] Ch 145; [1948] 1 All ER 21 (CA) it was held that, if the articles provide that a director retiring by
rotation will be deemed to be re-elected if his place is not filled and it is not determined to reduce the number
of directors in office, failure to fill the vacancy will result in his automatic re-election even though it is expressly
resolved not to re-elect him or fill the vacancy. See Table A art 70 and Table B art 68, which provide that such
a director shall not be deemed to have been re-elected if the company has expressly resolved not to fill the
vacancy or if his re-election has been put to the meeting and negatived. And see Re Craig (1991) 5 ACSR 108
SC(Qld).
1676 Petsch v Kennedy [1971] 1 NSWLR 494; Re Craig (1991) 5 ACSR 106 SC(Qld). Such a provision is not
contained in either art 70 of Table A or art 68 of Table B.
1677 See Hedges v NSW Harness Racing Club Ltd (1991) 5 ACSR 291 SC(NSW).
1678 North-West Transportation Co v Beatty (1887) 12 App Cas 589 593 (PC).
1679 Re HR Harmer Ltd [1958] 3 All ER 689 709 (CA); Santos Ltd v Pettingell (1979) 4 ACLR 110 122
SC(NSW); Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1991] AC 187 220-221; [1990] 3 All ER
404 422-423 (PC); John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'Asia) Pty Ltd (1991) 6 ACSR 63 66
SC(NSW). But see Re Western Mines Ltd & Shield Development Ltd (1975) 65 DLR (3d) 307, where it was held
that the power of increasing the number of directors, or of filling vacancies on the board of directors, is for the
purpose of serving the needs of the company, namely, to have a more effective and efficient board; that the
shareholders, like the directors, must use their power to achieve the objects for which their powers are given;
and that the power to enlarge the board of directors (if it exists) must be used for legitimate purposes and not
as an indirect means of gaining control of the board of directors. And seeTheseus Exploration NL v Mining &
Associated Industries Ltd [1973] QdR 81 (injunction issued to prevent the members electing certain persons as
directors where there was sufficient evidence that those persons intended to use the company's assets solely
for the benefit of the majority shareholder).
1680 Re HR Harmer Ltd [1959] 3 All ER 689 709; Fisheries Development Corporation of SA Ltd v
Jorgensen 1980 (4) SA 156 (W) 163; John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'Asia) Pty
Ltd (1991) 6 ACSR 63 66 SC(NSW).
1681 Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1991] 1 AC 187 221; [1990] 3 All ER 404 423
(PC).
1682 Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1991] 1 AC 187 221; [1990] 3 All ER 404 423
(PC).
1683 Barron v Potter [1914] 1 Ch 895 903; Entsch v Mr Crocodile Pty Ltd (1990) 3 ACSR 720 722-723
SC(Qld).
1684 Re London & Northern Insurance Corporation (Stace and Worth's Case) (1869) 4 Ch App 682; James v
Eve (1873) LR 6 HL 335; Gohlke & Schneider v Westies Minerale (Edms) Bpk 1970 (2) SA 685 (A) 695.
1685 British Murac Syndicate Ltd v Alperton Rubber Co Ltd [1915] 2 Ch 186; [1914-15] All ER Rep
346; Gohlke & Schneider v Westies Minerale (Edms) Bpk 1970 (2) SA 685 (A). In the latter case it was
doubted whether such an outsider may be empowered to nominate an absolute majority of the board.
1686 See Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1991] 1 AC 187 220-221; [1990] 3 All
ER 404 422 (PC).
1687 Bluett v Stutchbury's Ltd (1908) 24 TLR 469 (CA).
1688 See eg Plantations Trust Ltd v Bila (Sumatra) Rubber Lands Ltd (1916) 85 LJCh 801.
1689 British Murac Syndicate Ltd v Alperton Rubber Co Ltd [1915] 2 Ch 186 192; [1914-15] All ER Rep 346
349; Gohlke & Schneider v Westies Minerale (Edms) Bpk 1970 (2) SA 685 (A) 691.
1690 British Murac Syndicate Ltd v Alperton Rubber Co Ltd [1915] 2 Ch 186; [1914-15] All ER Rep
346; Gohlke & Schneider v Westies Minerale (Edms) Bpk 1970 (2) SA 685 (A).
1691 Punt v Symons & Co Ltd [1903] 2 Ch 506. See also Cumbrian Newspapers Group Ltd v Cumberland and
Westorland Herald Newspaper and Printing Co Ltd [1987] 1 Ch 24; [1986] 2 All ER 816 831.
1692 See art 73 of Table A art 73 and art 71 of Table B. Such a director usually then holds office until the
next following general meeting and is then eligible for re-election, but is not taken into account in determining
which directors are to retire by rotation at such meeting: see art 73 of Table A and art 71 of Table B.
1693 Perrot and Perrot Ltd v Stephenson [1934] Ch 171.
1694 Blair Open Hearth Furnace Co Ltd v Reigart (1913) 108 LT 665.
1695 Worcester Corsetry Ltd v Witting [1936] Ch 640 (CA).
1696 In Worcester Corsetry Ltd v Witting [1936] Ch 640 648 (CA) it was held that the article empowering the
board to appoint additional directors was indicative of a temporary power vested in the directors which was to
be reviewed and perhaps confirmed at the general meeting; but the article itself did not give any indication
that the powers of the corporators in general meeting had been wholly taken from them and handed over to
the directors. And see Integrated Medical Technologies Ltd v Macel Nominees Pty Ltd (1988) 13 ACLR 110 114
SC(NSW) where it was held that 'the allocation of particular functions in the articles, in some cases to a annual
general meeting, in some case to a general meeting and in some cases to directors carries no implication of an
intention to make an exclusive prescription of what the general meeting can do; for that clear language or
unmistakable implication would be required'. And that '[m]erely to provide that the power to appoint additional
directors is given to the directors . . . goes no distance . . . towards . . . a prescription of exclusivity'.
1697 Spencer v Kennedy [1926] Ch 125; [1925] All ER Rep 135.
1698 s 214. A similar provision is frequently contained in the articles of companies. See notes on s 214.

211 Consent to act as director or officer
(1) Any person who, before the issue of a certificate to commence business, is appointed as a director or
officer of a company having a share capital, shall
(a) before such certificate is issued, sign and lodge with the company his written consent to act as such a director
or such an officer, on a duly completed prescribed form containing the particulars prescribed by the Minister by
regulation; and
(b) in the case of a director, either in the memorandum of the company subscribe for a number of shares not less
than the number, if any, required to be held by a director thereof as qualification shares, or sign and lodge
with the Registrar a contract in the prescribed form in writing to subscribe for or otherwise acquire such
shares.
(2) For the purposes of this section 'qualification shares' means the qualification shares required to be held
on appointment to the office of director or within a period determined by reference to the time of appointment.
(3) Any person who is appointed as a director or officer of a company at any time after it has become
entitled to commence business, shall within twenty-eight days after the date of such appointment or within
such further period as the Registrar, on good cause shown and on payment of the prescribed fee, may allow,
lodge with the company his written consent to such appointment on the prescribed form referred to in
subsection (1)(a), duly completed and signed by him: Provided that the provisions of this subsection shall not
apply to the reappointment of a retiring director.
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(4) Failure to comply with the provisions of subsection (1) or (3) shall not affect the validity of an
appointment.
(5) This section shall not apply in respect of any person deemed to be a director under section 208 (2).
(6) Any person appointed as a director or officer of a company in the circumstances referred to in
subsection (1) or (3), who fails to comply with the applicable provisions of those subsections, shall be guilty of
an offence.
(7) Any company which publishes, whether in non-electronic or electronic format, and every director or
officer of the company who knowingly is a party to the publication of, the name of any person as a director of
the company when such person is not a director or has not validly been appointed as director of the company,
shall be guilty of an offence.
[Sub-s. (7) substituted by s. 23 of Act 35 of 2001.]
[S. 211 amended by s. 17 of Act 64 of 1977 and substituted by s. 13 (1) of Act 59 of 1978.]
Notes
Consent to Act as Director or Officer
As to the meaning of 'director', see s 1(1) and notes on s 208. Section 1 provides that in
the Act, unless the context otherwise indicates, 'officer' in relation to a company includes
any managing director, manager or secretary thereof. As to officers, see notes below.
Before the definition of 'officer' in s 1(1) was amended by s 2 of the Companies
Amendment Act 37 of 1999, the definition excluded 'a secretary which is a body
corporate'. Section 268D(1) now expressly provides that a 'body corporate or
partnership may be appointed to hold the office of secretary of a public company'. And s
268E(1) provides that a 'person who accepts an appointment as secretary shall sign and
lodge with the company the form prescribed in section 211 confirming such person's
consent to act as secretary, or if a partnership or body corporate is appointed secretary,
the written consent of the partners or the directors of such partnership or body
corporate'.
Section 268E(2) provides that no person shall act as secretary and no appointment of
secretary shall have legal force for the purposes of the Act or any other law unless, inter
alia, the prescribed form of consent has been lodged with the company. This contradicts
the provisions of s 211(4), which provides that failure to comply with the provisions of
subsection (1) or (3) shall not affect the validity of an appointment.
As to the certificate to commence business, see s 172. The prescribed form for
consent to act as a director or officer, containing the particulars prescribed by the
Minister by regulation, is form CM27 of the Companies Administrative Regulations.1699
The prescribed form for the contract to subscribe for qualification shares (where a share
qualification is required) is form CM28.1700
Regulation 35A(1) provides that any person who accepts appointment as secretary of
a public company in terms of s 268B read with s 268E must lodge with the Registrar his
RS 1, 2004 ch8-p246
consent to such appointment on form CM27A.1701 The person who accepts appointment
as secretary of a public company in terms of s 268B is the first secretary. And s 268B
read with s 269, deems such person to have been appointed by the company if he has
been appointed by the majority of the subscribers to the memorandum (the subscribers
are under a duty to make this appointment) and, when the memorandum and articles of
the company are lodged with the Registrar for registration, a written consent by that
person to his appointment as secretary of the company to be formed is lodged
simultaneously with the Registrar. Section 268E, however, provides that a person who
accepts an appointment as secretary must sign and lodge with the company the
prescribed form referred to in s 211. Thus s 268B cannot be 'read with s 268E'. It would
seem that the consent in CM27A is intended to be the consent that must be given by a
secretary whenever appointed, ie the consent in terms of s 268B in the case of the
secretary first appointed (to be lodged with Registrar) and the consent in terms of s 211
(to be lodged with the company).
As to the Registrar's power to extend the 28 day period, see s 177, which
provides inter alia that when in terms of the Act anything is to be performed within a
specified period of time the Registrar may in any case, on application to him before or
after the expiry of that period, and on payment of the prescribed fee, extend the period
as he may deem fit subject to the provisions of the Act. The form prescribed for an
application to the Registrar for an extension of time is CM17 (suitably adapted, see reg
7(1) of the Administrative Regulations contained in Schedule 2).
As to a person who is, as a subscriber to the memorandum of a company, deemed to
be a director of the company, see s 208(2).
The penalty in respect of the offence in s 211(6) is a fine for every day during which
the contravention continues.1702 The court convicting may order the company to comply
with the provision.1703
Section 216(4) provides that any written consent of any director or officer to act as
such must be retained by the company, and the Registrar may from time to time by
notice in writing require a company to transmit to him within 14 days after the date of
receipt of such notice a certified copy of such consent.
Officers
Statutory definition of officer
Unless the context otherwise indicates, for the purposes of the Companies Act the term
'officer' includes any managing director, manager or secretary.1704 As to managing
directors and managers, see notes below. As to secretaries, see notes on s 268A.
To be an officer there must be an office, and an office imports a recognised position
RS 8, 2011 ch8-p247
with rights and duties annexed to it. 1705 Although the meaning of the word 'officer' may
depend on the context in which it is used, 1706 generally speaking an officer of a
company is any person in a managing position in regard to the company; any person
who in the affairs of the company exercises a supervisory control which reflects the
general policy of the company for the time being or which is related to the general
administration of the company. 1707 The judicial manager of a company is not an officer
of the company; 1708 nor is the auditor of the company. 1709
When directors may hold other offices under the company
Although a director as such is not an employee or a servant, he may, in another
capacity, be either an employee or a servant of the company. 1710 However, the articles
of companies usually provide that the office of director shall be vacated if a director
without the consent of the company in general meeting holds any other office of profit
under the company except that of managing director or manager. 1711
RS 8, 2011 ch8-p248
Managing director
(1) Office
A managing director 1712 is a director appointed to that position in terms of the articles
by the board of directors, 1713 and to whom 1714 the board, under a power to do so in
terms of the articles, delegates some or all of its powers of management. 1715
Although the managing director's powers are powers delegated to him by the board,
he holds two distinct positions, that of a director and that of a manager. 1716 And,
because the functions of a director and of a manager are not identical, he has two
functions and two capacities. 1717 The office is therefore a composite one. 1718 Not all a
managing director's actions in relation to the company's business are to be attributed to
his directional powers and nothing separately ascribed to any other position he occupies,
ie his functions as director are not supereminent in the sense that whatever he does
must be considered simply as the exercise of his powers of a director. 1719
Qua manager, a managing director is a party to a contract of employment with the
OS, 2002 ch8-p249
company.1720 But every director to whom any part of the management of the company
has been delegated and with whom the company has entered into a contract of
employment is not a managing director.1721 The term 'managing director' is applied to
such a director only if the directors have delegated to him all or a substantial part of
their powers of control of the affairs of the company.1722 Thus his relation to the
company cannot be determined by the description applied to him, but falls to be decided
in the light of the actual terms of his agreement with the company, 1723 and the
company's articles.
Although the managing director's position as a director must be distinguished from his
position as manager, and although the difference between a managing director's position
and that of a manager who is not a director 'is that the managing director is also a
director', 1724 the position of the managing director qua manager must nevertheless be
distinguished from that of a mere manager. While for the purposes of the Companies Act
both managing director and manager are officers of the company, 1725 the office of
managing director 'is of a very special kind, and an agreement appointing a managing
director cannot be treated as an ordinary service agreement as in the case of a mere
manager'.1726 He is the direct and immediate representative of the board, fully
recognised as such for legal purposes; and he cannot be appointed unless provision is
made in the articles for such appointment.1727 A managing director, acting in that
capacity, acts as the company itself, just as a board so acts; 1728 and ordinarily his
knowledge is attributed to the company.1729 Hence, he cannot properly be described as
the servant of the company.1730
(2) Appointment
Unless the articles empower the directors to appoint a managing director, it is not
competent for them to make such an appointment.1731 The articles of companies do,
however, usually empower the directors to appoint one or more of their number to the
OS, 2002 ch8-p250
office of managing director for such term and for such remuneration, as they think
fit.1732 A director may vote on the resolution of the board for his appointment as
managing director if no salary or remuneration is attached to the appointment, for such
a resolution is merely an appointment to an office followed by what is simply a
delegation by the directors of their powers.1733 If the articles give the power of
appointing a managing director to the board, the company in general meeting cannot
make the appointment 1734 unless the directors are unable or unwilling to act in the
matter.1735 The appointment of a managing director may be formal or otherwise and,
where the power to appoint is vested in the board, the appointment and mandate may
be inferred from the conduct of the directors.1736 Such an informal appointment would
have to be intended, and would require 'not merely the silent acquiescence of the
individual members of the board, but the communication by words or conduct of their
respective consents to one another', and the consent of the director concerned to his
appointment.1737
Where the articles allow for the appointment of more than one managing director, the
appointment of one person as managing director does not, as such, give rise to the
inference that the company thereby conferred upon him the right to be its sole managing
director for the period of his appointment.1738
(3) Powers, duties, rights and tenure of office
The managing director is usually entrusted with the power to transact the whole of the
affairs of the company and to do all acts and enter into all contracts necessary for that
purpose.1739 There would seem to be no reason why powers cannot be delegated to a
managing director, without a formal resolution, by the unanimous consent of the
directors, and that such a delegation may be by way of implication, so that the
managing director's actual authority can be said to be implied rather than express.1740
Where that is the case, his authority will be the authority usually delegated to managing
directors, unless the company's articles limit the directors' power of delegation to
something less than that usually conferred on such directors.1741 It has indeed been
held that the mere fact
RS 9, 2012 ch8-p251
of appointing a person to the office of managing director gives him certain
powers. 1742 And, where empowered to manage the business of the company, a
managing director has, unless the articles provide to the contrary or the directors have
expressly excluded the power, an implied power to remunerate any person for services
rendered, 1743 and to instruct an attorney to recover debts or to resist claims against the
company where the transactions concerned occurred in the daily operation of the
company's business. 1744 He will not, however, be regarded as having an implied power
to instruct an attorney to oppose a winding-up application of any substance, for it would
usually be expected that that would be a matter with which the board would be directly
and immediately concerned. 1745 But there may be circumstances in which such a power
will be implied, eg where it is established that, during the course of the transaction
giving rise to the claim founding the statutory demand, he consistently, and with the
knowledge of the board, represented the company. 1746 It has been held that a
managing director has no implied power to sign promissory notes alone on behalf of the
company 1747 or to make admissions on its behalf. 1748Because his powers are conferred
on him to be exercised in connection with the company's business, a managing director
acts beyond his authority if he purports to exercise such powers in connection with his
own affairs, eg a managing director empowered to sign guarantees on behalf of the
company has no authority to sign a guarantee on behalf of the company for the payment
of his private debts. 1749
Where the articles do not restrict the power of the directors to delegate their powers
to a managing director, anyone dealing with a managing director may assume that the
directors have conferred on him all the powers usually conferred on a managing director.
Therefore, if a managing director, acting within those ostensible powers, enters into a
contract with a stranger who believes that the managing director is duly authorised, the
contract will be binding on the company even if it turns out that the managing director
had no actual authority to enter into the contract on behalf of the company. 1750
RS 9, 2012 ch8-p252
The managing director's powers are usually delegated to him subject to the overriding
authority of the board. 1751 Where the articles do not empower the directors to delegate
their powers subject to their overriding authority (or where, although so empowered,
they do not so delegate their powers), the managing director is not subject to the
directors' overriding control, and may act notwithstanding that some or all of the
directors disagree with what he does. And his authority continues unless and until, in
accordance with the articles, or otherwise in an effective manner, his office is terminated
or, in accordance with the powers of the company or of the board, action is taken to
place restrictions upon what he may do. 1752 This is because the appointment of a
managing director is the appointment of a person to an office from which he derives his
authority; and when his office is provided for by the articles of association, he derives his
authority from the articles of association and the fact that he has been appointed to the
office created by them. 1753 Thus the concept of delegation of powers in terms of the
articles of association of a company is a concept wholly distinct from the concept of
delegation of powers under the ordinary law of agency.
Apart from the rights and duties which attach to him by virtue of his office as director,
the rights, duties and tenure of office of a managing director are determined by the Act,
the articles of the company, and the terms of his contract of appointment. 1754 As an
officer of the company for the purposes of the Companies Act, 1755 a managing director
is subject to all duties imposed on officers of the company by the Act. And as the senior
officer in charge of the affairs of the company, he is under a duty to see that the books
of the company are properly kept and that entries in them, in respect of substantial
matters, are correct.1756
It has been held that there is no implication in law that a person who acts as the
managing director of a company is entitled to any payment for the services he renders
on behalf of the company. 1757However, apart from any provision in the articles, the
shareholders are entitled to remunerate a managing director of a going concern; and
they may even do so by way of a bonus in consideration for services he has already
rendered for the company. 1758 The articles of companies usually empower the directors
to appoint the
RS 9, 2012 ch8-p253
managing director at such remuneration as they think fit. 1759 Consequently, the
managing director usually has a right to remuneration under his contract of
appointment. 1760 A managing director whose contract is void because his appointment
as director is found to have been defective, can recover on the basis of a quantum
meruit. 1761
The fact that a managing director's contract is for a fixed period does not exclude the
right of the company to decide from time to time what his powers and duties as manager
shall be; but if his duties are too drastically curtailed, or if he is told to perform no duties
at all, that may constitute a breach of contract for which an action for damages will
lie. 1762 Where, however, a managing director's contract provided that he should perform
such duties and exercise such powers in relation to the business of the company and its
subsidiaries as might from time to time be assigned or vested in him by the directors, it
was held that the directors were entitled to confine his duties to the management of one
of the company's subsidiaries. 1763
The articles of companies usually provide that the directors may appoint a managing
director for such term as they think fit. 1764 The articles of companies usually provide
that a director while holding the office of managing director is not subject to retirement
by rotation and is not to be taken into account in determining the rotation by retirement
of its directors. 1765 A managing director who is not appointed for a fixed term is not
entitled to hold office for as long as he remains a director. 1766
(4) Removal, dismissal and resignation
Where the directors, having the power to do so under the company's articles, enter into
a contract appointing a managing director for a fixed period, the fact that the company's
articles also empower them to revoke the managing director's appointment at
will 1767 does
RS 9, 2012 ch8-p254
not, as such, give them the right to do so contrary to the terms of the
contract. 1768 Although the directors' exercise of their power to revoke the managing
director's appointment will effectively remove him from office, 1769 it will, if he has
committed no breach of the contract entitling the company to dismiss
him, 1770 constitute a breach of contract and the company will be liable
accordingly. 1771 Where, however, the managing director's contract does not provide for
such a fixed period, it will be assumed, in the absence of anything in the contract to the
contrary, that it was entered into on the terms of the company's articles; and therefore
the company will not commit a breach of the contract if it exercises its power to dismiss
him. 1772
Unless the articles otherwise provide, a managing director ceases to hold office if he
ceases to hold office as director. 1773 Therefore, if the articles of a company provide that
the directors shall retire at the next general meeting and make no special provision in
regard to the managing director, its managing director will lose his office as managing
director if not reappointed as a director, even if he was appointed for a fixed
period. 1774 This will also be the case if he is removed from office as director by the
members in general meeting, 1775 or, where so empowered by the articles, by the
directors or any third
RS 9, 2012 ch8-p255
person. 1776 But, again, where the managing director's service contract provides for his
appointment for a fixed period and the company's articles at the time that the contract
was entered into empowered its directors to make such a contract, the managing
director, although effectively removed from office, will, in the absence of just cause for
his removal, have an action for damages if he suffers damage as a result of the
company's breach of the contract. 1777 This is because the company is not entitled
deliberately to put an end to the state of affairs (ie the managing director's directorship)
under which alone the contract can operate. 1778 Where the articles confer the power to
remove directors upon a third party, the company cannot escape such liability if the third
party exercises that power. 1779 Where directors wrongfully terminate the contract of a
managing director, they do not incur personal liability. 1780 The removal of an executive
director does not deprive him of his or her employment rights under the Labour
Relations Act 66 of 1995. The parties to the contract of employment may not contract
out of the protection of the Labour Relations Act against unfair dismissal. 1781
Where a managing director's contract is entered into on the terms of the articles, the
continued existence of the company is a condition of his right to continued employment,
and, therefore, he will have no right to damages for loss of office should the company be
wound up. 1782 But if in terms of his contract he is appointed for a fixed period, he will
be entitled to claim damages for breach of this agreement even if the company is wound
up voluntarily and he voted for the adoption of that course. 1783
Where the articles provide that the office of director is to be vacated if a director gives
notice that he resigns his office, a managing director who has been appointed for a fixed
period cannot, before the expiration of that period, rightfully give such notice without
just cause. If he does so, his office will be vacated; but the company will have a claim
for damages. 1784
Managers
For the purposes of the Companies Act, the term 'manager' includes, unless the context
otherwise indicates, any person who is a principal executive officer of the company for
RS 9, 2012 ch8-p256
the time being, by whatever name he may be designated and whether or not he is a
director. 1785 A manager so defined is for the purposes of the Act an 'officer' of the
company, 1786 and therefore the provisions of the Act referring to officers of the
company apply to him.
The term 'manager' in its ordinary sense connotes, among other things, control over
subordinates. 1787 A manager in this ordinary sense is a person who by virtue of his
position is vested, either alone or in association with others in the same position vis--
vis the company, with control and administration of the company's affairs and property,
whether in whole or in part. 1788
A manager is an employee of the company. 1789 His position, tenure of office, and
rights and duties are in the first place determined by the terms of his employment
contract, which contract may be of a formal nature or otherwise. 1790 Thus it is a
question of fact whether or not a person is a manager, ie whether he exercises the
requisite degree of managerial control and administration of the company's affairs or
property. 1791 A manager stands in a fiduciary relationship to the company, and is
subject to the same fiduciary duties as do the directors of the company, 1792 although
the extent of his duties will depend to some measure on the powers conferred on him.
And he is, of course, subject to the duties imposed by the Act on officers of companies.
RS 7, 2010 ch8-p257


1699 Published in GN R1948 of 1973. See also reg 35.
1700 On s 211, see M J Oosthuizen 'Toestemming om as Direkteur Op te Tree' 1976 TSAR 247.
1701 This provision was inserted into the Companies Administrative Regulations 1973 GN No R1948 of 1973
as amended, by GN R 762 of 18 June 1999.
1702 s 441(1)(q).
1703 s 441(2).
1704 s 1(1). This definition is an inclusive, not an exhaustive, one: Rennie v Holzman 1987 (4) SA 938
(C) 941-942; 1989 (3) SA 706 (A) 709.
1705 per Lindley LJ in Re Western Counties Steam Bakeries & Milling Co [1897] 1 Ch 617 627 (CA); Corporate
Affairs Commission v Drysdale (1978) 141 CLR 236 242; (1978) 3 ACLR 760 764 (HC of A). In Harris v
S (1976) 2 ACLR 51 60 SC(SA) Wells J said: 'The word "officer" is obviously derived from the word "office". The
latter denotes a specific position of authority, power, and responsibility (on whom a formal name or title has
usually been conferred) to which certain functions are annexed, in and for the exercise and discharge of which
the officer is accountable, to a greater or lesser degree, to a constituted and designated authority (or
sometimes to more than one such authority). The degree of accountability (amounting in some cases to
subservience) may vary enormously; the limits of control exercised over the officer may be prescribed by law,
or fixed by contract, or other private instrument; accordingly, the officer may, in effect, be a servant with little
independent authority and discretion; a senior officer or manager, with wide authority and discretion; or a
director or governor, with supreme executive powers.'
1706 In R v Scott (1990) 2 ACSR 470 475 CA(NSW) Gleeson CJ said: 'The word "officer" is not one of fixed or
precise denotation. Its meaning and significance vary according to the context. Views as to the appropriateness
of its application in a given case may change over time and may be influenced by changes in fashions of
speech, including the use of what might once have been thought rather grandiloquent job descriptions.' In Re A
Company [1980] 1 Ch 138 143; [1980] 1 All ER 284 286-287 (CA), Lord Denning MR, recognising that the
meaning of the word 'officer' must always depend upon the context in which it is used (see R v Boal [1992] QB
591 587; [1992] 3 All ER 177 181 (CA)) said of the word 'officer' as it appeared in s 441(1) of the Companies
Act 1948 (which empowered the court to appoint an inspector when there was a reasonable cause to believe
that a person, while an officer of the company, had committed an offence in connection with the management
of its affairs): 'The officer here referred to is a person in a managerial situation in regard to the company's
affairs. I would not restrict these words too closely. The general object of the Act is to enable the important
officers of the State to get at the books of the company when there has been a fraud or wrongdoing. It seems
to me that whenever anyone in a superior position in a company encourages, directs or acquiesces in
defrauding creditors, customers, shareholders or the like, then there is an offence committed by an officer of
the company in connection with the company's affairs.' It would seem that where a person falling within the
definition will be guilty of a criminal offence, the courts may give the word a narrower definition. A judicial
manager is not an officer of the company: Rennie v Holzman 1987 (4) SA 938 (C) 941-942; 1989 (3) SA 706
(A) 709.
1707 See Re A Company [1980] 1 Ch 138 143-144; [1980] 1 All ER 284 286-287 (CA), where it was said that
this is what was meant by 'officer' as the word was used in s 441 of the English Companies Act of 1948 (the
decision of the Court of Appeal was reversed by the House of Lords in Re Racal Communications Ltd [1981] AC
374; [1980] 2 All ER 634 (HL) on the ground that the Court of Appeal had no jurisdiction to entertain the
appeal). In Lipschitz v Wolpert and Abrahams 1977 (2) SA 732 (A) 743 the following definition of 'officer' was
accepted: 'a persons holding office and taking part in the management or direction of a society or institute
especially one holding the office of president, treasurer or secretary; an officer-bearer'.
1708 Rennie v Holzman 1987 (4) SA 938 (C) 941-942; 1989 (3) SA 706 (A) 709.
1709 Lipschitz v Wolpert and Abrahams 1977 (2) SA 732 (A). And an officer of the company is not qualified
for appointment as auditor of the company: s 275(1)(a).
1710 Moresby White v Rangeland Ltd 1952 (4) SA 285 (SR) 287, and see French Hairdressing Saloons v
National Employers Mutual General Insurance Association Ltd 1931 AD 60.
1711 See eg art 65(b) of Table A and art 66(b) of Table B.
1712 See D Marshall 'Quantum Meruit and the Managing Director' (1966) 29 LQR 608; M P Larkin 'Distinctions
and Differences: A Company Lawyer Looks at Executive Dismissals' (1986) 7 ILJ 248.
1713 See art 61 of Table A and art 62 of Table B, which empower the directors from time to time to appoint
'one or more of their body' to the office of 'managing director or manager' (the distinction here between
'managing director' and 'manager' is clearly merely one of nomenclature).
1714 In terms of arts 61-62 of Table A and arts 62-63 of Table B, the appointment of a managing director and
the delegation to him of powers are two distinct steps, and therefore, strictly speaking, the board can appoint
one of their number to the office of managing director without delegating any powers to him. Cf SA Securities v
Nicholas 1911 TPD 450 461, where it was said that the mere fact of appointing a person as managing director
gives him prima facie certain powers. Although, no doubt, it is almost invariably the case that the appointment
of a managing director carries with it at least certain implied powers, strictly speaking it does not necessarily
do so.
1715 See art 62 of Table A and art 63 of Table B.
1716 Anderson v James Sutherland (Peterhead) Ltd 1941 SC 203. It has however been said that a managing
director is only an ordinary director entrusted with some special powers: Re Newspaper Pty Syndicate Ltd,
Hopkinson v Newspaper Pty Syndicate Ltd [1900] 2 Ch 349.
1717 Anderson v James Sutherland (Peterhead) Ltd 1941 SC 203 217-218. Thus in Shirlaw v Southern
Foundries (1926) Ltd [1939] 2 KB 206 219 (CA) Greene MR said: 'A director may be an excellent manager and
therefore well qualified to be a managing director; but he may turn out to be an undesirable member of the
board in other respects. . . . The office of director is one thing; the office of managing director another.' And
in Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 712; [1940] 2 All ER 445 451 (HL) Maugham LJ,
referring to Greene MR's judgment, said that 'as the Master of the Rolls pointed out, the two positions, that of
director and that of manager, involve different qualifications, duties and responsibilities'. In Walker v Standard
Chartered Bank plc [1992] BCLC 535 (CA) a managing director was removed from office as managing director
contrary to an agreement to retain him in that office. He accepted the repudiation and sued for damages. It
was held that he no longer had any right under that agreement to remain a non-executive director.
1718 Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 721; [1940] 2 All ER 445 457 (HL).
1719 Anderson v James Sutherland (Peterhead) Ltd 1941 SC 203 217-218.
1720 Anderson v James Sutherland (Peterhead) Ltd 1941 SC 203; Southern Foundries (1926) Ltd v
Shirlaw [1940] AC 701 721, [1940] 2 All ER 445 457 (HL). It has been held that a managing director is not, as
such, a servant of the company: Re Newspaper Proprietary Syndicate Ltd, Hopkinson v Newspaper Proprietary
Syndicate Ltd [1900] 2 Ch 349 351; Moresby White v Rangeland Ltd 1952 (4) SA 285 (SR); but see Southern
Foundries (1926) Ltd v Shirlaw [1940] AC 701 722; [1940] 2 All ER 445 458 (HL) and Cooper v Garratt 1945
WLD 137 147.
1721 Moresby White v Rangeland Ltd 1952 (4) SA 285 (SR) 287.
1722 Moresby White v Rangeland Ltd 1952 (4) SA 285 (SR) 286-287.
1723 Moresby White v Rangeland Ltd 1952 (4) SA 285 (SR) 287.
1724 per Lord Norman in Anderson v James Sutherland (Peterhead) Ltd 1941 SC 203 217.
1725 s 1(1).
1726 per Greene MR in Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 218 (CA).
1727 Moresby White v Rangeland Ltd 1952 (4) SA 285 (SR) 287.
1728 Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705; [1914-15] All ER Rep 280
(HL); Moresby White v Rangeland Ltd 1952 (4) SA 285 (SR) 287; Tesco Supermarkets Ltd v Nattrass [1972]
AC 153; [1971] All ER 127 (HL); El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685 (CA); Meridian Global
Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500; [1995] 3 All ER 918 (PC). On this
doctrine, see notes on s 65.
1729 Micro Mouldings (Pty) Ltd v American International Insurance Co Ltd 1979 (4) SA 771 (C).
1730 Moresby White v Rangeland Ltd 1952 (4) SA 285 (SR) 287. In Kerr v Walter 1933 SC 458 463-464 Lord
Flemming said: 'I quite accept the view that a director is an agent and not a servant of a company, and I think
it follows that a managing director must be regarded not as a servant of the company but as an agent with
managerial functions.'
1731 Boschoek Proprietary Co Ltd v Fuke [1906] 1 Ch 148 159; Nelson v James Nelson & Sons Ltd [1914] 2
KB 770 779; [1914-1915] All ER 433 439 (CA); Moresby White v Rangeland Ltd 1952 (4) SA 285 (SR).
1732 See arts 61 and 62 of Table A and arts 62 and 63 of Table B.
1733 Foster v Foster [1916] 1 Ch 532; [1916-1917] All ER Rep 856; Trek Tyres Ltd v Beukes 1957 (3) SA
306 (W). Where remuneration of any kind is attached to the office, the director may not, because of his
interest in the matter, vote on such a resolution of the board, see note CONFLICT OF INTEREST AND DUTY in
notes on s 208.
1734 Thomas Logan Ltd v Davis (1911) 104 LT 914; (1911) 105 LT 419 (CA).
1735 Barron v Potter [1914] 1 Ch 895; Foster v Foster [1916] 1 Ch 532; [1916-1917] All ER Rep 856.
1736 See Robinson v Randfontein Estate GM Co Ltd 1921 AD 168 181; Dickson v Acrow Engineers (Pty)
Ltd 1954 (2) SA 63 (W) 69; Ex parte Bennett 1978 (2) SA 380 (W) 387.
1737 See Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 501; [1964] 1 All
ER 630 643 (CA).
1738 Cooper v Garratt 1945 WLD 137.
1739 See art 61 of Table A and art 62 of Table B. And see SA Securities v Nicholas 1911 TPD 450 461.
1740 See Robinson v Randfontein Estates Gold Mining Co Ltd 1921 AD 168; Dickson v Acrow Engineers (Pty)
Ltd 1954 (2) SA 63 (W); Nece Pty Ltd v Ritek Incorporation (1997) 24 ACSR 38 42-43 (Fed C of A). In Wolpert
v Uitzigt Properties (Pty) Ltd 1961 (2) 257 SA (W) 266 it was said that implied authority exists 'when the
official acting on behalf of the company purports to exercise an authority which that type of official usually has
even though the official is exceeding his actual authority'. This passage was quoted with approval in Tucker's
Land and Development Corporation (Pty) Ltd v Perpellief 1978 (2) SA 11 (T) 14. It is, of course, incorrect.
Implied authority is actual authority. A person who acts within the ambit of authority impliedly conferred on
him therefore does not 'exceed' his authority.
1741 'Actual authority might, of course, be either express - eg, if the second defendant were specifically
authorised to engage the plaintiffs - or it might be implied - eg, if the second defendant had been appointed to
some office which carried with it authority to make such a contract on behalf of the defendant
company', per Willmer LJ in Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 1 All ER
630 635 (CA).
1742 Acutt v Seta Prospecting and Development Co Ltd 1907 TS 799 819; SA Securities v Nicholas 1911 TPD
450 461.
1743 Acutt v Seta Prospecting & Developing Co Ltd 1907 TS 799 819.
1744 Nece Pty Ltd v Ritek Incorporation (1997) 24 ACSR 38 43 (Fed C of A).
1745 Nece Pty Ltd v Ritek Incorporation (1997) 24 ACSR 38 43 (Fed C of A).
1746 Nece Pty Ltd v Ritek Incorporation (1997) 24 ACSR 38 43 (Fed C of A).
1747 Insurance Trust & Investment (Pty) Ltd v Mudaliar 1943 NPD 45; Simons v Gilbert Hamer & Co Ltd 1963
(1) SA 897 (N) 919.
1748 Simons v Gilbert Hamer & Co Ltd 1963 (1) SA 897 (N) 919.
1749 Paddon & Brock Ltd v Nathan 1906 TS 158; Harcourt v Eastman 1953 (2) SA 424 (N); Contemporary
Refrigeration (Pty) Ltd v Leites & Sonpoll Investments (Pty) Ltd 1967 (2) SA 388 (D). Cf South African Fabrics
Ltd v Millman NO 1972 (4) SA 592 (A) 596, where the question whether such transactions are void or voidable
was left open.
1750 Biggerstaff v Rowatt's Wharf Ltd [1896] 2 Ch 93 (CA); SA Securities Ltd v Nicholas 1911 TPD 450 459-
460; SAIF Co-operative Society v Webber 1922 TPD 49; Wolpert v Uitzigt Properties (Pty) Ltd 1961 (2) SA 257
(W) 266;Contemporary Refrigeration (Pty) Ltd v Leites & Sonpoll Investments (Pty) Ltd 1967 (2) SA 388
(D) 392; Tuckers Land & Development Corporation (Pty) Ltd v Perpellief 1978 (2) SA 11 (T) 15; Big Dutchman
(South Africa) (Pty) Ltd v Barclays National Bank Ltd 1979 (3) SA 267 (W) 280. Company Unique Finance (Pty)
Ltd and Another v Johannesburg Northern Metropolitan Local Council and Another 2011 (1) SA 440 (GSJ).
1751 Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 218 (CA) per Greene MR. Management here
means the management of the company's business or part of it; there is no delegation of the remaining powers
of the board, eg the financial policy of the company, the dividends to be declared, and the issue of the new
shares: ibid .
1752 Metal Manufacturers Ltd v Lewis (1988) 13 ACLR 357 365-366 CA(NSW).
1753 Metal Manufacturers Ltd v Lewis (1988) 13 ACLR 357 365-366 CA(NSW). In this case Mahoney JA (at
366) found it unnecessary to consider whether the authority which a managing director derives from his office
'is, in principle, part of the authority committed to the board of directors as such or whether his authority to do
what a managing director may do drives, as it were, not from the board of directors but directly for the
company'. He said that whatever be the position in that regard, a managing director's authority 'derives not
from the authority or consent given by directors, but from the fact that he has been appointed to the office'.
But, of course, a managing director's powers are conferred on him by way of a delegation of their powers by
the directors, and that is something they are empowered to do only once they have appointed him to the office
of managing director: see arts 61 and 62 of Table A and arts 62 and 63 of Table B.
1754 Anderson v James Sutherland (Peterhead) Ltd 1941 SC 203; Moresby White v Rangeland Ltd 1952 (4)
SA 285 (SR); Harold Holdsworth & Co (Wakefield) Ltd v Caddies Ltd [1955] All ER 725 (HL).
1755 s 1(1).
1756 R v Milne and Erleigh (5) 1950 (4) SA 604 (W) 606.
1757 Phillips v Base Metals Exploration Syndicate Ltd 1911 TPD 403 406; and see Richmond Gate Property Co
Ltd [1964] 3 All ER 936.
1758 Goodman v Suburban Estates Ltd 1915 WLD 15.
1759 Articles 61 of Table A and 62 of Table B empower the directors to appoint a managing director at such
remuneration as they think fit and provide that such remuneration may be by way of salary or commission or
participation in profits or partly in one way or partly in another. In the case of a company limited by guarantee,
however, only a member may be given the right to participate in the divisible profits of the company: s 40(1).
As to the calculation of remuneration by way of commission and participation in profits, see Edwards v Saunton
Hotel Co Ltd [1943] 1 All ER 176. And see Re Spanish Prospecting Co Ltd [1911] 1 Ch 92; [1908-10] All ER
Rep 573 (CA); Vulcan Motor & Engineering Co (1906) Ltd v Hampson [1921] KB 597 (CA); Stewart v Sashalite
Ltd [1936] 2 All ER 1481.
1760 Such a contract may rise by implication: see eg Re Richmond Gate Property Co Ltd [1964] 3 All ER 936.
1761 See Craven-Ellis v Canons Ltd [1936] 2 KB 403; [1936] 2 All ER 1066 (CA), where a managing director,
who had entered into a contract with the company providing for his remuneration but who failed to take up his
qualification shares, was awarded remuneration on the basis of a quantum meruit. And see Guinness plc v
Saunders [1990] 2 AC 663; [1990] 1 All ER 1990 652 (HL).
1762 Cooper v Garratt 1945 WLD 137 147.
1763 Harold Holdsworth & Co (Wakefield) Ltd v Caddies Ltd [1955] All ER 725 (HL).
1764 See art 61 of Table A and art 62 of Table B.
1765 See art 61 of Table A and art 62 of Table B.
1766 Foster v Foster [1916] 1 Ch 532; [1916-1917] All ER Rep 856.
1767 Article 62 of Table A and art 62 of Table B provide that the directors may revoke the appointment of a
managing director or manager subject to the terms of any agreement entered into in any particular case. And
see Foster v Foster[1916] 1 Ch 532; [1916-1917] All ER 856.
1768 Nelson v James Nelson & Sons Ltd [1914] 2 KB 770 776; [1914-1915] All ER 433 437 (CA); Barlows
Manunfacturing Co Ltd v R N Barrie (Pty) Ltd 1990 (4) SA 608 (C) 611; and see Southern Foundries (1926) Ltd
v Shirlaw [1940] AC 701 722-723; [1940] 2 All ER 445 458-459 (HL). Where the directors are empowered by
the articles to appoint a managing director for a fixed period, the existence of a provision in the articles
conferring on the directors (ibid) or on the company (Shindler v Northern Raincoat Co Ltd [1960] 2 All ER 239)
the power to revoke the appointment of the managing director at will, does not put it beyond the powers of the
directors to appoint a manager under a contract which does not confer upon the company the right to
terminate his appointment at will. See also Byron v Cape Sundays River Settlements Ltd 1923 EDL 117 125.
And see art 61 of Table A and art 62 of Table B, which provide that the board may revoke the managing
director's appointment 'subject to the terms of any agreement entered into in any particular case'. In Jackson v
Invicta Plastics Ltd [1987] BCLC 329 it was held that in order to justify summary dismissal for incompetence of
a recently appointed chief executive, the company would have to show that his continued employment would
be quite impractical because of the harm he was likely to do the company.
1769 Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 722; [1940] 2 All ER 445 458 (HL).
1770 See Boston Deep Sea Fishing & Ice Co v Ansell (1888) 39 ChD 339; [1886-90] All ER Rep 65
(CA); Farmers' Associated Dairies Ltd v Goldstein 1924 WLD 181; Barlows Manufacturing Co Ltd v R N Barrie
(Pty) Ltd 1990 (4) SA 608 (C)612.
1771 Nelson v James Nelson & Sons [1914] 2 KB 770; [1914-1915] All ER 433 (CA); Byron v Cape Sundays
River Settlements Ltd 1923 EDL 117. As to the calculation of such damages, see Byron v Cape Sundays River
Settlements Ltd supra140; Beach v Reed Corrugated Cases Ltd [1956] 2 All ER 652; Shindler v Northern
Raincoat Co Ltd [1960] 2 All ER 239.
1772 Read v Astoria Garage (Streatham) Ltd [1952] Ch 637; [1952] 2 All ER 292 (CA); and see Ross & Co v
Coleman 1920 AD 408 418-419. Thus where the articles provide that the managing director's appointment
shall determine ipso facto if he ceases to be a director, he may be dismissed without notice: ibid. See
also Foster v Foster [1916] 1 Ch 532; [1916-17] All ER Rep 856. Where the contract of appointment is entered
into on the terms of the articles, there will be no breach of contract if the company alters the relevant articles:
cf Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656; [1900-3] All ER 746 (CA); Southern Foundries (1926)
Ltd v Shirlaw [1940] AC 701; [1940] 2 All ER 445 (HL).
1773 Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 716-717 721; [1940] 2 All ER 445 454-455 457
(HL); Walker v Standard Chartered Bank plc [1992] BCLC 535 539-540 (CA). In Southern Foundries (1926) Ltd
v Shirlaw supra (at 721; at 457) this was said to follow ex vi termini. The articles of companies nevertheless
usually specifically provide for this consequence, see art 61 of Table A and art 62 of Table B.
1774 Bluett v Stutchbury's (1908) 24 TLR 469 (CA).
1775 s 220(1) empowers the company to remove a director by ordinary resolution before the expiration of his
office, notwithstanding anything in its memorandum or articles or in any agreement between it and any
director. This power does not derogate from any other power to remove a director which may otherwise exist:
s 220(7).
1776 Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701; [1940] 2 All ER 445 (HL). It makes no
difference if the articles were altered after the director's appointment so as to include the particular power to
remove him: ibid; and seeShuttleworth v Cox Brothers and Co (Maidenhead) Ltd [1927] 2 KB 9; [1926] All ER
Rep 498 (CA). Furthermore, the managing director cannot restrain the company from so altering its
articles: Baily v British Equitable Assurance Co [1904] 1 Ch 374 (CA); Southern Foundries (1926) Ltd v
Shirlaw [1940] AC 701; 1940 2 All ER 445 (HL).
1777 s 220(7) provides that where a director is removed from office by the company under s 220(1) this does
not deprive him of compensation or damages which may be payable in respect of any appointment terminating
with his directorship; and see also Shindler v Northern Raincoat Co Ltd [1960] 2 All ER 239. As to the director's
right to claim damages where removed by the directors under a power conferred on them by the articles,
see Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701; [1940] 2 All ER 445 (HL). And see Walker v
Standard Chartered Bank plc [1992] BCLC 535 (CA).
1778 Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701; [1940] 2 All ER 445 (HL); Shindler v Northern
Raincoat Co Ltd [1960] 2 All ER 239; Walker v Standard Chartered Bank plc [1992] BCLC 535 539-540 (CA).
1779 Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 727-728 743, [1940] 2 All ER 445 461-462
470-471 (HL); cf Bluett v Stutchbury's Ltd (1908) 24 TLR 469 (CA).
1780 Phear & Quinton v Rodwell 1949 (3) SA 1183 (SR).
1781 P G Group (Pty) Ltd v Mbambo N O [2005]. BLLR 71 (LC); Chillibush v Johnston [2010] 6 BLLR 607
(LC).
1782 Re Farrer (TN) Ltd [1937] Ch 352; [1937] 2 All ER 505.
1783 Fowler v Commercial Timber Co Ltd [1930] 2 KB 1; [1930] All ER Rep 224 (CA).
1784 Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 722; [1940] 2 All ER 445 458 (HL).
1785 s 1(1).
1786 s 1(1). As an officer of the company, he is disqualified for appointment as auditor of the company: s
275(1)(a).
1787 L Suzman (Rand) Ltd v Yamoyani (2) 1972 (1) SA 109 (W) 113-114; and see also R v Schwartz 1931
TPD 142.
1788 R v Mall 1959 (4) SA 607 (N) 622-623; L Suzman (Rand) Ltd v Yamoyani (2) 1972 (1) SA 109 (W).
In Re a Company [1980] 1 Ch 138 144; [1980] 1 All ER 284 287 (CA), it was said that the expression
'manager' should not be too narrowly construed: 'It is not to be equated with a managing or other director or a
general manager. . . [A]ny person who in the affairs of the company exercises a supervisory control which
reflects the general policy of the company for the time being or which is related to the general administration
of the company is in the sphere of management. He need not be a member of the board of directors. He need
not be subject to specific instructions from the board.' Thus a manager need not necessarily be 'manager of
the company', a phrase which Jenkins LJ used in Re B Johnson & Co (Buildings) Ltd [1955] Ch 634 661; [1955]
2 All ER 775 790 (CA) ('prima facie, according to the ordinary meaning of the words, connotes a person
holding, whether de jure or de facto, a post in or with the company of a nature charging him with the duty of
managing the affairs of the company for the company's benefit'). Where the person concerned will be guilty of
a criminal offence or will suffer some incapacity if he is categorised as a manager, the courts have usually
defined the term more narrowly. Thus in Gibson v Barton (1875) LR 10 QB 329 336 ('manager' for the
purposes of s 27 of the Companies Act 1862) it was said that a manager in 'ordinary talk' is 'a person who has
the management of the whole affairs of the company . . . a person intrusted with power to transact the whole
of the affairs of the company'. Managers are those persons 'who are in a position of real authority, the
decision-makers within the company who have both the power and the responsibility to decide corporate policy
and strategy': R v Boal [1992] QB 591 876; [1992] 3 All ER 177 181 (CA) ('manager, secretary or similar
officer' for the purposes of s 23 of the Fire Precaution Act 1971). See Registrar of Restrictive Trading
Agreements v W H Smith & Son Ltd [1969] 3 All ER 1065 (CA) ('manager or officer' for the purposes of s 15(3)
of the Restrictive Trade Practices Act 1956); Ex parte Bennett 1978 (2) SA 380 (W) 388 (disqualification as
director); Woodhouse v Walsall Metropolitan Borough Council [1994] 1 BCLC 435 ('manager, secretary or
similar officer' for purposes of s 3(1) of Control of Pollution Act 1974). And see Amalgamated Union of Building
Trade Workers of SA v South African Operative Masons' Society 1957 (1) SA 440 (A) 448-449.
1789 R v Mall 1959 (4) SA 607 (N) 623. Thus a manager is disqualified both as an officer and as an employee
from appointment as auditor of the company: s 275(1)(a).
1790 R v Mall 1959 (4) SA 607 (N) 623. It may be inferred from the acquiescence of the directors in a course
of dealing of the company: Robinson v Randfontein Estates GM Co Ltd 1921 AD 168 181; Dickson v Acrow
Engineers (Pty) Ltd 1954 (2) SA 63 (W) 69; Ex parte Bennett 1978 (2) SA 380 (W) 387.
1791 L Suzman (Rand) Ltd v Yamoyani (2) 1972 (1) SA 109 (W) 115.
1792 See Canadian Aero Service Ltd v O'Malley (1974) 40 DLR 3d 371 381 (SC of Can); Sibex Construction
(SA) Ltd v Injectaseal CC 1988 (2) SA 54 (T) 66.

212 Filling of vacancy where director disqualified or removed
(1) If the articles of a company provide for the filling of casual vacancies in respect of directors, any such
vacancy created by the disqualification of any person from being a director of the company or by the removal
of a director under this Act, may, subject to the provisions of such articles, and if in the case of any such
removal, the vacancy is not filled at the meeting at which he is removed, be filled as a casual vacancy.
(2) A person appointed as a director under subsection (1) in the place of a director removed or disqualified
under this Act shall be treated, for the purpose of determining the time at which he or any other director is to
retire, as if he had become director on the day on which the person in whose place he is appointed was last
appointed a director.
Notes
As to disqualification of a person from being a director, see ss 213, 218 and 219. As to
removal from office under the Act, see s 220
A casual vacancy is a vacancy which occurs on the board of directors otherwise than
by expiry of a director's term of office. 1793 Unless the articles exclusively restrict the
power to others, a company in general meeting has an inherent power to fill such
vacancies. 1794 Where there is no such restriction and the articles empower only the
directors to fill vacancies caused, for example, by retirement or removal, the company in
general meeting retains its inherent power to fill vacancies caused by other eventualities,
for example, resignation, death, incapacity or disqualification. 1795
The articles usually provide that, unless the shareholders otherwise determine in
general meeting, any casual vacancy on the board may be filled by the directors; and
that a director so appointed is subject to retirement on the day he would have retired
had he been appointed when the director in whose stead he is appointed was last
elected. 1796 Where the articles contain these or similar provisions and the vacancy is not
filled by the
RS 7, 2010 ch8-p258
board or by the members at the general meeting at which the vacating director retired,
the board retains the power to fill it. 1797 An express power to fill casual vacancies may
be given to the directors on such terms as to exclude any such power on the part of the
members. 1798 Where the articles provided that two directors would form a quorum, it
was held that the sole surviving director had the power to fill a casual vacancy under an
article empowering the directors to fill such vacancies. 1799
Subsection (2) merely provides that a person appointed as a director under sub-s (1)
'shall be treated, for the purpose of determining the time at which he or any other
director is to retire, as if he had become director on the day on which the person in
whose place he is appointed was last appointed a director'. It does not deem him to have
been appointed as a director on the day on which the person in whose place he is
appointed was last appointed a director. 1800


1793 See Munster v Cammell Co (1882) 21 ChD 183 187. Cf Rentekor (Pty) Ltd v Rheeder and Berman 1988
(4) SA 469 (T) 507, where Kriegler J held that this is not an exhaustive definition. He preferred the definition
of a casual vacancy as 'any vacancy other than one caused by effluxion of time or a director retiring by
rotation', which he considered to be a wider definition. He said: 'The adjective "casual" ordinarily denotes
something subject to or produced by chance. . . . In the context of an article [empowering the director to
appoint any person to be a director to fill a casual vacancy] the word is used to distinguish between the type of
vacancy which predictably and routinely occurs and is filled at the annual general meeting and all those cases
where that does not come to pass.' From this, he concluded that where a resolution of the members at an
annual general meeting purporting to appoint directors is invalid because it purported to appoint a number of
directors en bloc (and which therefore transgressed the provisions of s 210), the board can fill the vacancies
under their power to fill casual vacancies. The learned judge would seem to have thought that the vacancies in
question were caused by the invalid en bloc resolution. But those resolutions merely purported to fill vacancies
caused, it would seem, by the annual retirement (in terms of the articles) of a proportion of the directors.
Therefore, they were not causal vacancies. See also CyberScene Ltd v i-Kiosk Internet and Information (Pty)
Ltd 2000 (3) SA 806 (C) 814, where a vacancy caused by reason of the fact that the person, because
disqualified, was not validly appointed a director, was treated as casual vacancy for the purposes of s 212.
1794 Munster v Cammell Co (1882) 21 ChD 183 ; Worcester Corsetry Ltd v Witting [1936] Ch 640
(CA); Gohlke & Schneider v Westies Minerale (Edms) Bpk 1970 (2) SA 685 (A) 693.
1795 Gohlke & Schneider v Westies Minerale (Edms) Bpk 1970 (2) SA 685 (A) 693; Link Agricultural Pty Ltd v
Shanahan (1998) 28 ACSR 498 517 CA(Vic); Australian Securities and Investment Commission v Hallmark
Gold NL (1999) 30 ACSR 688 693 (Fed C of A). Further as to the power of the general meeting to appoint
directors, see notes on s 210.
1796 See art 72 of Table A and art 70 of Table B.
1797 Munster v Cammel Co (1882) 21 ChD 183 187.
1798 Blair Open Hearth Furnace Co Ltd v Reigart (1913) 108 LT 665.
1799 Gorfil v Marendaz 1965 (1) SA 686 (T). And see Channel Collieries Trust Ltd v Dover, St Margaret's and
Martin Mill Light Railway Co [1914] 1 Ch 568; [1914] 2 Ch 506; [1914-15] All ER Rep 265 (CA); Macson
Development Co Ltd v Gordon (1959) 19 DLR (2d) 465; APT Group Services Pty Ltd v Craig Ferguson and
Judith Margaret Curphey (1991) 6 ACSR 231 SC(Vic).
1800 Cf CyberScene Ltd v i-Kiosk Internet and Information (Pty) Ltd 2000 (3) SA 806 (C) 814.


213 Qualification shares of directors
(1) (a) Without prejudice to the restrictions imposed by section 211, any director of a company who is by
its articles required to hold a specified number of qualification shares, and who does not hold such qualification
shares shall vacate his office if he does not obtain such qualification shares within two months, or such shorter
period as may be provided in the articles of the company, from the date of his appointment, and shall not be
capable of being reappointed until he has obtained such qualification shares.
(b) For the purposes of any provision in the articles of a company requiring a director to hold a specified
number of shares as qualification shares, the bearer of a share warrant shall not be deemed to be the holder of
the shares specified in the warrant.
(2) Any person who accepts an appointment or acts as a director of a company contrary to any provision of
subsection (1), shall be guilty of an offence.
Notes
A director is required to hold shares in the company if, but only if, he is required to do so
by the articles of the company. 1801 A provision that a person who holds at least a
certain number of shares shall be eligible as a director does not impose a duty of
obtaining a qualification upon a person appointed by the articles. 1802
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In this context, 'to hold' shares means to be the registered holder.1803 Thus a
director may hold the necessary shares as trustee, 1804 and this remains true even
where the articles require the director to hold the shares 'in his own right'.1805 The
inclusion of a person's name as one of the joint holders of a parcel of shares will not of
itself prevent those shares from being a sufficient qualification.1806
As to the date of a director's appointment, where the result of a poll is declared on a
day following the meeting, the election meeting is treated as continuing until the result
of the poll is obtained; consequently, the appointment of the director takes effect from
the date on which the result of the poll is ascertained or declared and the two months
period runs from that date.1807
The bearer of a share warrant 1808 cannot be registered as a member of the company
unless in terms of the articles he is deemed to be one; but even when so deemed, his
bearer share warrants cannot be treated as qualification shares.1809
A person who is, in terms of s 213(2), guilty of the offence of accepting an
appointment or acting as a director contrary to any of the provisions of s 213, is
punishable by a fine for every day during which the contravention continues.1810
Where articles provide that the holding of a share qualification is a condition
precedent to becoming a director, an appointment of a person not already holding such
shares is invalid, 1811 and a company cannot ratify the appointment without first altering
its
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articles.1812 The usual provision is, however, in the form 'the shareholding qualification
of a director shall be the holding' of so many shares.1813 These words do not render the
holding of such shares a condition precedent to an appointment.1814 It has been held
that unless the articles authorise a director to do so, a director may not act as such
before he has acquired his share qualifications, and that this is so even where the
articles provide for a period within which a director must obtain his qualification
shares.1815
Where the articles do not prescribe that a director must obtain his qualification shares
from the company, he may obtain them from a third party; 1816 and he is under no
obligation to take the shares from the company unless he has contracted, expressly or
impliedly, with the company to do so.1817 However, s 211(1)(b) provides that any
person who, before the issue of a certificate to commence business, is appointed as a
director of a company having a share capital, must either subscribe in the memorandum
of the company for a number of shares not less than the number, if any, required to be
held by a director thereof as qualification shares, or sign and lodge with the Registrar a
contract in the prescribed form in writing to subscribe for or otherwise acquire such
shares. Failure to do so does not affect the validity of his appointment, 1818 but it does
constitute an offence.1819
No such duty to enter into a contract with the company for his qualification shares is
imposed upon a director appointed after the issue of the certificate to commence
business. Because such a director is under no obligation to obtain his qualification shares
from the company and, because vacation of office is the prescribed consequence of
failure to obtain such shares, 1820 it would seem that a contract to obtain such shares
from the company cannot be implied from the mere fact that such a director has
consented to act, and did so act, as a director of the company.1821 A possible exception
to this is where the
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articles of the company contain a provision declaring that, if a director has not otherwise
acquired his qualification shares within the specified period, he shall be deemed to have
agreed to take them from the company, and the director has neither otherwise acquired
those shares 1822 nor resigned within the period allowed for acquiring them.1823 A
director may also be estopped from denying that he has agreed to acquire the shares
from the company where shares sufficient to qualify him are registered in his name and
he continues to act as a director without otherwise acquiring his share qualification.1824
Shares acquired from a third party after the director has become liable to take them
from the company will not relieve him of that liability.1825
A director may pay for his qualification shares in money or by any honest mode of
payment in money's worth.1826 A director may receive his qualification shares as a
gift.1827 But it is a breach of duty for a director to accept his qualification shares as a
gift from a promoter of the company.1828 Such a gift is nothing less than a bribe.1829 It
makes no difference whether the director received the shares before or after allotment,
so long as there is any matter open between the company and the donor of the shares in
regard to which the director might be called upon to act in the interests of the company.
This rule is applicable even if the contract under which the promoter obtains the shares
is one that has already been signed on behalf of the company, or is one under which the
company has no discretion whether or not to accept the property which the company
purchased from the promoters.1830 The director's liability to the company is to pay the
real market value of the shares at the time of the improper allotment, and not the
highest market value or the shares' nominal value.1831
If the number of qualification shares required to be held by a director is increased
after a director has acquired his qualification shares, the director does not vacate his
office if he fails to acquire the additional shares.1832 But if he continues to act as such,
he will be deemed to have contracted to acquire, within a reasonable time, the additional
shares from either the company or a third party.1833
OS, 2002 ch8-p262


1801 Re British Provident Life & Guarantee Association (De Ruvigne's Case) (1877) 5 ChD 306 323 326 (CA).
The articles may impose further disqualifications: s 218(3).
1802 See Re Llanharry Haematite Iron Ore Co Ltd (Stock's Case) (1864) De GJ & SM 426 434; 46 ER 983
987, applied in Re Anglo-Moravian Hungarian Junction Railways Co (Dent's Case, Forbe's Case) (1873) 8 Ch
App 768.
1803 Spencer v Kennedy [1926] Ch 125; [1925] All ER Rep 135.
1804 Pulbrook v Richmond Consolidated Mining Co (1879) 9 ChD 610; Bainbridge v Smith (1889) 41 ChD 462
(CA); Dowjee Co Ltd v Waja 1929 TPD 66; Sutton v English & Colonial Produce Co [1902] 2 Ch 502
506; Santos Ltd v Pettingell(1978) 4 ACLR 110 SC(NSW); Venture Acceptance Corporation Ltd Kirton (1984) 9
ACLR 390 402-403 SC(NSW), on appeal (1986) 10 ACLR 347 352 SC(NSW)).
1805 In Bainbridge v Smith (1889) 41 ChD 462 (CA) the articles required a director to hold shares 'in his own
right'. Lindley LJ held (at 474-475): 'The words in question have acquired . . . a conventional meaning which I
for one am not prepared at present to disturb. I think that the conventional meaning is this, that a person
"holding shares in his own right" means holding in his own right as distinguished from holding in the right of
somebody else. I do not think the test is beneficial interest, the test is being on or not being on the register as
a member, ie with power to vote, and with those rights which are incidental to full membership. It means that
a person shall hold shares in such a way that the company can safely deal with him in respect of his shares
whatever his interest may be in the shares.' In Sutton v English & Colonial Produce Co [1902] 2 Ch 502 506,
Buckley J said: 'Negatively, then, the holder in his own right need not be beneficial owner. It remains to say
what affirmatively, he must be. That, I think, is answered by Lindley LJ in Bainbridge v Smith [supra]. He must
be a person who holds shares in such a way that the company can safely deal with him in respect of his shares,
whatever his interests may be in the shares. Holding in a representative character will not do. Holding as
trustee without beneficial ownership will do, but the holder must so hold as the company can safely deal with
him as owner.'
1806 Re Glory Paper Mills Co (Dunster's Case) [1894] 3 Ch 473 (CA); Grundy v Briggs [1910] Ch 444.
1807 Holmes v Lord Keyes [1959] Ch 199; [1958] 2 All ER 129 (CA).
1808 See s 101.
1809 s 103(4).
1810 s 441(1)(p). As to obtaining relief from such liability under s 248, see Re Gilt Edge Safety Glass
Ltd [1940] Ch 495; [1940] 2 All ER 237.
1811 Re East Norfolk Tramways Co (Barber's Case) (1877) 5 ChD 963 (CA); Re Percy & Kelly Nickel, Cobalt &
Chrome Iron Mining Co (Jenner's Case) (1877) 7 ChD 132 (CA) (where the articles provided that no person
would be 'qualified to be a director' who did not hold the necessary shares); Channel Collieries Trust Ltd v
Dover St Margaret's & Martin Mill Light Railway Co [1914] 2 Ch 506; [1914-15] All ER Rep 265 (CA); Meyer v
Meyer Sons And Co Ltd 1926 CPD 109. InRe Llanharry Haematite Iron Ore Company Ltd (Stock's Case) (1864)
De G J & S 426 434, 46 ER 983 987 the articles of association provided that 'no person shall be eligible as a
director unless he shall hold in his own right 50 shares at the least'. It was held that this article did not apply
to directors who were nominated by the directors. Turner LJ said: 'I think that the word "eligible" applies to
persons to be elected and not to persons who, by the articles of association themselves, had been placed in the
position of directors.' This was followed in Re Anglo-Moravian Hungarian Junction Railways Co (Dent's Case,
Forbe's Case) (1873) 8 Ch App 768 774-775, where Lord Selbourne L C said: 'The word "eligible" must means
capable of being elected at some future election.' See also Meyer v Meyer Sons and Co Ltd 1926 CPD 109 117.
1812 Boschoek Proprietary Co Ltd v Fuke [1906] 1 Ch 148.
1813 See art 56 of Table A and art 57 of Table B.
1814 Carbonic Gas Co Ltd v Ziman 1938 TPD 102; Mockford v Gordon and Abe Gordon Pty Ltd 1949 (3) SA
1173 (W).
1815 Carbonic Gas Co Ltd v Ziman 1938 TPD 102, followed in Mockford v Gordon and Abe Gordon (Pty)
Ltd 1949 (3) SA 1173 (W); and in this regard see also Lombard v SA Vroue-Federasie Transvaal 1968 (3) SA
473. But cf Re Portuguese Consolidated Copper Mines Ltd [1891] 3 Ch 28 (CA); Re International Cable Co
Ltd (1892) 66 LT 253. Section 213(2) makes the acceptance of appointment or acting as a director an offence
if the share qualification required by the articles is not obtained within two months or such shorter period
provided by the articles. This suggests that the position is, rather, that where the articles provide for such a
period within which a director must obtain his qualification shares, a director may act as such before he has
acquired those shares, unless the articles otherwise provide.
1816 Re Metropolitan Public Carriage & Repository Co (Brown's Case) (1873) 9 Ch App 102; Re Percy & Kelly
Nickel, Cobalt & Chrome Iron Mining Co (Hamley's Case) (1887) LR 5 ChD 705.
1817 Re Wheal Buller Consols (1888) 38 ChD 42 (CA); Re Anglo-Austrian Printing & Publishing Union (Isaac's
Case) [1892] 2 Ch 158 (CA), where it was held that although the director never did apply for the allotment, his
signing of the memorandum and articles meant that he had agreed to take from the company his required
qualification. Accordingly he was liable in respect of the stated number of shares.
1818 s 211(4).
1819 s 211(6).
1820 s 213(1)(a).
1821 Before the position was regulated by statute (ie by s 213(1)(a)), there were numerous cases to the
effect that, except where the holding of shares was made a condition precedent for holding office, when a
person accepted appointment and acted as a director knowing that the holding of a certain number of shares
was a necessary qualification, he impliedly agreed with the company that he would, within a reasonable time,
obtain the requisite shares; and the company might, when the reasonable time had expired, put him on the
register in respect of this number of shares, with the result that he become a member and liable as such:
see Re Metropolitan Public Carriage & Repository Co (Brown's Case) (1873) LR 9 Ch App 102; Re Portuguese
Consolidated Copper Mines Ltd [1891] 3 Ch 28 (CA); Re R Bolton & Co (Salisbury-Jones and Dale's
Case) [1894] 3 Ch 356 (CA); Molineaux v London, Birmingham & Manchester Insurance Co Ltd [1902] 2 KB
589; [1900-3] All ER Rep 618 (CA). See Re National Safety Council of Australia Victoria Division (1992) 10
ACSR 101 116 SC(Vic).
1822 See Anglo-Austrian Printing & Publishing Union (Isaac's case) [1892] 2 Ch 158 (CA). In such a case it
would seem that it is sufficient that he accepted office even though he never acted as a director: Re Hercynia
Copper Co [1894] 2 Ch 403 (CA).
1823 Re Bolton and Co (Salisbury-Jones and Dale's Case) [1894] 3 Ch 356 (CA).
1824 Re Portuguese Consolidated Copper Mines Ltd [1891] 3 Ch 28 (CA).
1825 Re Portuguese Consolidated Copper Mines Ltd [1891] 3 Ch 28 (CA); Salton v New Beeston Cycle
Co [1899] 1 Ch 775.
1826 Re Anglo-Moravian Hungarian Junctions Railway Co (Dent's Case, Forbe's Case) (1873) 8 Ch App 768.
1827 Re Metropolitan Public Carriage & Repository Co (Brown's Case) (1873) 9 Ch App 102.
1828 Re Canadian Oil Works Corporation (Hey's Case) (1875) 10 Ch App 593; Eden v Riddesdale Railway
Lamp & Lighting Co Ltd (1889) 23 QBD 368 (CA); Balmoral Diamond Syndicate Ltd v Liddle, Smith, Leeb,
Harger and Schuller 1907 TH 89. Where directors accepted qualification shares from a person who was a
vendor to the company and with whom it would be their duty to deal as trustees, it was held that, although it
was a breach of trust so to accept shares, the directors could not be placed on the list of contributories as
holders of unpaid shares: Re Western of Canada Oil, Lands & Works Co (Carling, Hespeler and Walsh's
Case) (1875) 1 ChD 115 (CA).
1829 Balmoral Diamond Syndicate Ltd v Liddle, Smith, Leeb, Harger and Schuller 1907 TH 89 104.
1830 Balmoral Diamond Syndicate Ltd v Liddle, Smith, Leeb, Harger and Schuller 1907 TH 89 105-106.
1831 Balmoral Diamond Syndicate Ltd v Liddle, Smith, Leeb, Harger and Schuller 1907 TH 89 108-109.
1832 Molineaux v London, Birmingham & Manchester Insurance Co Ltd [1902] 2 KB 589; [1900-3] All ER Rep
618 (CA).
1833 Molineaux v London, Birmingham & Manchester Insurance Co Ltd [1902] 2 KB 589; [1900-3] All ER Rep
618 (CA). In Re La Mancha Irrigation & Land Co (Lord Claud-Hamilton's Case) (1873) 8 Ch App 548 it was held
that a resolution to the effect that the 'future qualification of a director shall be 100 shares' meant the
qualification of future directors shall be 100 shares.

214 Defect in appointment of director and validity of acts
The acts of a director of a company shall be valid notwithstanding any defect that may afterwards be
discovered in his appointment or qualification.
Notes
In addition to the protection afforded by the common law (as to which, see notes on s
36), s 214 protects persons dealing with companies in the case of certain irregularities.
Similar provisions are frequently also contained in the articles of companies.1834
Whether these articles can have the effect of validating such transactions as against
third parties would seem to be doubtful, for third parties, although fixed with notice of
the contents of the company's articles association, are not bound by them. The wording
of these articles is, usually, in certain respects different from that of the section. In
particular, they purport 1835 to validate the acts of a director or directors who 'were
disqualified', while the section validates the acts of a director whose qualification was
defective. It has, however, been held that the words 'qualification' and 'disqualification',
as they appear in the section and in such articles, are not limited to share qualification
but include also disqualification from office for any other reason.1836
The primary purpose of s 214 is the protection of innocent persons who in good faith
deal with directors believing them to be properly appointed and qualified.1837 It may,
however, be invoked by the company as against a person seeking to relying on the
invalidity of the act.1838
The section is concerned with the validity of the acts done, and not the status of the
person concerned. It provides no basis for regarding a person as a director, or for his
acts to be treated as if they were the acts of a director. In other words, the provision
cannot repair or validate the defective appointment itself; it can only repair or validate
the acts of directors not properly appointed.1839
It has been held that the section applies only where there has been an appointment in
which there is a defect; and that it therefore does not apply where there has been no
appointment at all, or where the term of office of a director has expired but he
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nevertheless continues to act as a director.1840 It has also been held to be implicit in the
section (and in such articles) that the persons who purported to make the appointment
must have had power to make it, because it is not apt to speak of a defect in the
appointment if there is no power to appoint at all. Hence a purported appointment by
persons lacking power to make such an appointment (eg a general meeting not properly
convened or at which there was no quorum) confers no protection.1841
Although the proposition that the section applies only where there has been an
appointment in which there is a defect has been accepted as correct in a number of
cases, its correctness has been questioned,1842 and the better view would seem to be
that the provision includes not only a formal appointment that turns out to be defective,
but also a de facto appointment. So construed, it includes the case where a person,
without any formal appointment, acts as a director (or after the expiry of his term of
office, continues
OS, 2002 ch8-p264
to act as a director) with the acquiescence of the other directors or the shareholders, it
being thought that he had been formally appointed (or that his term of office had not
expired).
A person relying on the section must have acted in good faith without knowledge of
the defect; 1843 and the section does not assist a person put on inquiry but who does
not inquire.1844 The words 'notwithstanding any defect that may afterwards be
discovered' do not mean merely 'notwithstanding that the facts which show the defect
were afterwards made known', but notwithstanding the defect itself - the defect arising
from the facts - was afterwards discovered.1845 Thus, if there is good faith, the mere
fact that a person had notice of the existence of the facts which led to the disability does
not prevent him from relying on the section if he was not aware of the legal conclusions
relating to those facts.1846
The acts of the director must have been completed before the defect was
discovered.1847 Thus where an action at law is bona fide commenced under the
authority of a director whose appointment is defective, the action may not be continued
to a finish under the authority of that director once the defect in his appointment has
become known.1848
The provision is not limited to dealings between the company and outsiders, but
applies also to dealings between the company and persons who are inside the
company.1849 Thus it has been applied where defectively appointed or defectively
qualified directors have elected a director, 1850 or allotted qualification shares to
themselves.1851
Section 268E(3) provides that the provisions of s 214 shall apply mutatis mutandis to
the appointment of a secretary. See notes on s 268.
RS 5, 2008 ch8-p265
Register of Directors and Officers (ss 215-217)


1834 See art 83 of Table A and art 82 of Table B.
1835 See s 65(2) and notes thereon.
1836 British Asbestos Co Ltd v Boyd [1903] 2 Ch 439 445; [1900-3] All ER Rep 323 325. And see CyberScene
Ltd v i-Kiosk Internet and Information (Pty) Ltd 2000 (3) SA 806 (C).
1837 Marrok Plase (Pty) Ltd v Advance Seed Co (Pty) Ltd 1975 (3) SA 403 (A) 412. On the question whether
a third party, who has bona fide dealt with a director whose appointments is invalid because the requirements
of s 211 have not been complied with, is protected under s 214, see M J Oosthuizen 'Toestemming om as
Direkteur Op te Tree' [1976] TSAR 247.
1838 See CyberScene Ltd v i-Kiosk Internet and Information (Pty) Ltd 2000 (3) SA 806 (C) 814.
1839 Morris v Kanssen [1946] AC 459 468; [1946] 1 All ER 586 588 (HL). In Kanssen v Rialto (West End)
Ltd [1944] Ch 346 361; [1944] 1 All ER 751 758 (CA) Greene MR said: 'The board that purported to appoint
him as a director was in law incompetent, and it is clear that, where such a board in ignorance of the defect in
its appointment or qualifications purports to appoint an additional director, the section does not operate to
make him a director, however much it may validate acts done by him in the belief that he has been validly
appointed. If it were otherwise, he could claim to be a director and to act validly as such after the discovery of
the defect, a result which cannot be extracted from the section.' And see Corporate Affairs Commission v
Drysdale (1978) 3 ACLR 760 769 (HC of A); Re Lo-Line Electric Motors Ltd [1988] Ch 477; [1988] 2 All ER
692; Re New Cedos Engineering Co Ltd [1994] 1 BCLC 797 811-812.
1840 Morris v Kanssen [1946] AC 459 471; [1946] 1 All ER 586 590 (HL), where Lord Simons held (in regard
to s 143 of the English Companies Act 1929, which was substantially the same as our s 214): 'There is, as it
appears to me, a vital distinction between (a) an appointment in which there is a defect or, in other words, a
defective appointment, and (b) no appointment at all. In the first case it is implied that some act is done which
purports to be an appointment but is by reason of some defect inadequate for the purpose; in the second case
there is not a defect, there is no act at all. The section does not say that the acts of a person acting as director
shall be valid notwithstanding that it is afterwards discovered that he was not appointed a director. Even if it
did, it might well be contended that at least a purported appointment was postulated. But it does not do so,
and it would, I think be doing violence to plain language to construe the section as covering a case in which
there has been no genuine attempt to appoint at all. These observations apply equally where the term of office
of a director has expired, but he nevertheless continues to act as a director, and where the office has been
from the outset usurped without the colour of authority.' The point, Lord Simon said (at 472; at 590), 'may be
summed up by saying that the section and the article, being designed as machinery to avoid questions being
raised as to the validity of transactions where there has been a slip in the appointment of a director, cannot be
utilized for the purpose of ignoring the substantive provisions relating to such appointment.' See Gorfil v
Marendanz 1965 (1) SA 686 (T); Advanced Seed Co (Edms) Bpk v Marrok Plase (Edms) Bpk 1974 (4) SA 127
(NC) 132; Re Lo-Line Electric Motors Ltd [1988] Ch 477; [1988] 2 All ER 692; James North (Zimbabwe) (Pvt)
Ltd v Mattinson 1990 (2) SA 228 (ZHC) 238. See also Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1 (HC
of A); Albert Gardens (Manly) Pty Ltd v Mercantile Credits Ltd (1973) 131 CLR 60 (HC of A); Corporate Affairs
Commission v Drysdale (1978) 3 ACLR 760 (HC of A); Re Northwestern Autoservices Ltd [1980] 2 NZLR 302
CA(NZ); Bay Marine Pty Ltd v Clayton Properties Pty Ltd (1984) 9 ACLR 780 SC(NSW); Morgan v 45 Flers
Avenue Pty Ltd (1986) 10 ACLR 692 702 SC(NSW); Re New Cedos Engineering Co Ltd [1994] 1 BCLC 797 812.
In James North (Zimbabwe) (Pvt) Ltd v Mattinson supra it was held that the section had no application where a
director had resigned but had attended a meeting of directors in the mistaken belief that he was serving out a
period of notice.
1841 Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1 34-35 53 (HC of A); Albert Gardens (Manly) Pty Ltd
v Mercantile Credit Ltd (1973 131 CLR 60 65 (HC of A); Re Northwestern Autoservices Ltd [1980] 2 NZLR 302
CA(NZ). See however the judgment of Cooke J in Re Northwestern Autoservices Ltd supra 308 where he said:
'If one stands back from the authorities and textbooks and looks simply at the language of the section, it
appears well capable of covering the case of an appointment made and acted on in fact and in good faith but
not having an undiscovered defect making it void in law, in that the meeting was either not properly convened
or lacked a quorum or was an unauthorised one-man meeting.'
1842 See the obiter dictum of Trollip JA in Marrok Plase (Pty) Ltd v Advance Seed Co (Pty) Ltd 1975 (3) SA
403 (A) 412: 'I entertain some doubt about whether [ Morris v Kanssen [1946] AC 459; [1946] 1 All ER 586
(HL)] does not place an unduly restrictive interpretation on the section in question. It seems to confine its
operation to cases in which a formal appointment has been made which turns out to be defective. But, as the
section was enacted primarily for the protection of innocent persons who in good faith deal with the directors
believing they have been properly appointed, I have some difficulty in understanding why "appointment" in the
section cannot be construed to include a de facto appointment too. If it is so construed, it would include the
case where a person, without any formal appointment, acts as a director or after the expiry of his term of
office, continues to act as a director, with the acquiescence of the other directors or the shareholders. And if
the lack of any formal appointment in such cases is due to bona fide inadvertence, is that not, par excellence,
one of the very kind of defects comprehended by the section? I would have thought so.'
1843 British Asbestos Co Ltd v Boyd [1903] 2 Ch 439 444; [1900-3] All ER Rep 323 325; Channel Collieries
Trust Ltd v Dover, St Margaret's & Martin Mill Light Railway Co [1914] 2 Ch 506 511; [1914-15] All ER Rep 265
267-268 (CA); Morris v Kanssen [1946] AC 459; [1946] 1 All ER 586 (HL); Re New Cedos Engineering Co
Ltd [1994] 1 BCLC 797 812.
1844 Morris v Kanssen [1946] AC 459; [1946] 1 All ER 586 (HL); Re New Cedos Engineering Co Ltd [1994] 1
BCLC 797 812.
1845 British Asbestos Co Ltd v Boyd [1903] 2 Ch 439 444; [1900-1903] All ER Rep 323 325; Channel
Collieries Trust Ltd v Dover, St Margaret's & Martin Mill Light Railway Co [1914] 2 Ch 506 511; [1914-15] All
ER Rep 267 (CA); Dey v Goldfields Building Finance & Trust Corporation Ltd 1927 WLD 180 195.
1846 Channel Collieries Trust Ltd v Dover, St Margaret's & Martin Mill Light Railway Co [1914] 2 Ch 506 511-
512; [1914-15] All ER Rep 265 267-268 (CA); Dey v Goldfields Building, Finance and Trust Corp Ltd 1927 WLD
180 196. And seeCyberScene Ltd v i-Kiosk Internet and Information (Pty) Ltd 2000 (3) SA 806 (C), where it
would seem that the director did not know that he was disqualified in terms of s 218 from holding the office of
director.
1847 Dowjee Co Ltd v Waja 1929 TPD 66 79; Carbonic Gas Company Ltd v Ziman 1938 TPD 102 106; Trek
Tyres Ltd v Beukes 1957 (3) SA 306 (W) 310.
1848 Dowjee Co Ltd v Waja 1929 TPD 66 79; Carbonic Gas Company Ltd v Ziman 1938 TPD 102 106. And
see CyberScene Ltd v i-Kiosk Internet and Information (Pty) Ltd 2000 (3) SA 806 (C).
1849 Dawson v African Consolidated Land & Trading Co [1898] 1 Ch 6; [1895-99] All ER Rep 544
(CA); Channel Collieries Trust Ltd v Dover, St Margaret's & Martin Mill Light Railway Co [1914] 2 Ch 506 511;
[1914-15] All ER Rep 265 267 (CA); Dey v Goldfields Building Finance & Trust Corporation Ltd 1927 WLD 180.
1850 British Asbestos Co Ltd v Boyd [1903] 2 Ch 439; [1900-3] All ER Rep 323.
1851 Channel Collieries Trust Ltd v Dover, St Margaret's & Martin Mill Light Railway Co [1914] 2 Ch 506;
[1914-15] All ER Rep 265 (CA).


215 Register of directors and officers
(1) Every company shall keep in one of the official languages of the Republic a register of directors and
officers of the company and secretaries thereof which are bodies corporate and cause to be entered therein
(a) in respect of every director or officer
(i) his full forenames and surname and any former forenames and surname, his identity number or, if he has no
such number, his date of birth, his nationality if not South African, his occupation, his residential, business and
postal addresses and the date of his appointment; and
(ii) the name and registration number of every other company of which such director is a director;
[Sub-para. (ii) substituted by s. 5 of Act 82 of 1992.]
[Para. (a) substituted by s. 14 (1) (a) of Act 59 of 1978.]
(b) in respect of every officer or secretary which is a body corporate, its name, its registration number, the
address of its registered office and the date of its appointment; and
(c) any changes occurring from time to time in the particulars referred to in paragraphs (a) and (b) and the dates
and nature of such changes.
[Para. (c) substituted by s. 14 (1) (c) of Act 59 of 1978.]
[Sub-s. (1) substituted by s. 7 of Act 18 of 1990.]
(2) There shall in addition be entered in the said register the name and date of appointment of the auditor
of the company and, where subsection 274(3) applies, also of the individual contemplated in that subsection,
and, in each case, the date and particulars of any change of such name and date of appointment.
[Sub-s. (2) substituted by s. 20 of Act 24 of 2006.]
(3) For the purposes of subsection (1) (a) 'former forenames and surname' does not include
(a) in the case of a person adopted as a child, any forename and surname borne by him before his adoption; or
(b) any forename or surname previously borne by any person which was changed or disused before he attained
the age of eighteen years or has been changed or disused for a period of not less than 10 years; or
(c) in the case of a married or divorced woman or a widow, any forename or surname borne by her before her
marriage.
(4) The provisions of section 110 as to the place where the register of members of a company shall be kept
and notice thereof to the Registrar and of section 113 as to the inspection of and copies of or extracts from
that register, shall applymutatis mutandis to the register to be kept under this section.
(5) Any company which fails to comply with any provisions of subsection (1), (2) or (4), shall be guilty of
an offence.
Notes
As to who is a 'director', see s 1(1) and notes on s 208. As to who is an 'officer', see s
1(1) and notes on s 211. The auditor is not an officer of the company. 1852 Section 1
RS 5, 2008 ch8-p266
provides that in the Act, unless the context otherwise indicates, "'officer" in relation to a
company includes any managing director, manager or secretary thereof'. 1853 Section
268D(1) provides that a body corporate or partnership may be appointed to hold the
office of secretary of a public company. While s 215(1)(b) provides for the information to
be given by a secretary which is a body corporate, s 215 does not provide for the
information to be given when the secretary is a partnership.
Section 268E(2) provides that no person shall act as secretary and no appointment of
secretary shall have legal force for the purposes of the Act or any other law unless, inter
alia, the company has complied with the provisions of s 215.
As to the duty of a person to furnish particulars to the company, see s 216. Section
276(3) requires the auditor to give notice on the prescribed form (CM29 of Schedule 2 of
the Administrative Regulations) to the company, within 14 days after the occurrence of
the change, of any change in his particulars which are in terms of s 215(2) to be entered
in the register referred to in s 215.
In terms of s 110 the register must be kept at the company's registered office, unless
kept at an office of the company in the Republic where the work of making it up is done,
in which case the company must notify the Registrar in the prescribed for (CM21 of
Schedule 2 of the Administrative Regulations) of the place where the register is kept and
of any change in that place. Regulation 4 of the Regulations for the Retention and
Preservation of Company Records 1854 provides that the register must be kept for 15
years (which period runs from the date of the last entry), unless it is reproduced on
microfilm and the reproduction is duly certified in terms of reg 2(2), in which case it may
be destroyed after three years from the date of the reproduction.
The penalty for the offence in s 215(5) is a fine and an additional fine for every day
during which the contravention continues. 1855


1852 Baker v McHardy 1957 (4) SA 541 (N); Cornell & Millman NNO v Wolpert & Abrahams 1976 (2) SA 563
(D); Lipschitz NO v Wolpert and Abrahams 1977 (2) SA 732 (A).
1853 Until amended by s 2 of the Companies Amendment Act 37 of 1999, s 1(1) excluded a secretary that
was a body corporate from the definition of an 'officer'. This, presumably, is why s 215 refers both to officers
and secretaries. As to the secretary, see notes on s 268A.
1854 GN R2592 of 25 November 1983.
1855 s 441(1)(n).

216 Duties of directors and others and of company in respect of register
(1) Any person in respect of whom the particulars referred to in section 215 are in terms of that section to
be entered in the register mentioned in that section, shall furnish such particulars in writing to the company
concerned
(a) in the case of a person appointed as a director or officer of the company, within twenty-eight days after the
date of his appointment; and
(b) in the case of a change in such particulars, but excluding any change contemplated in section 215 (2) and a
change by way of the vacation of his office by the person concerned, within fourteen days after the date of the
occurrence of the change,
[Para. (b) substituted by s. 15 (a) of Act 83 of 1981.]
and such particulars or any change therein shall upon receipt thereof, and if any director or officer has vacated
his office, a statement that such vacation of office has occurred shall forthwith, be entered in such register by
the company.
[Sub-s. (1) amended by s. 15(a) of Act 83 of 1981.]
OS, 2002 ch8-p267
(2) A company shall within fourteen days after receipt of any particulars referred to in section 215(1)(a)(i)
and (b) or of notice of any change in the particulars referred to in the said section 215(1)(a)(i) or (b) or after
any director or officer or a secretary which is a body corporate has vacated his office, lodge a return with the
Registrar in the prescribed form reflecting the contents of such register after such particulars or such change
therein or a statement that such vacation of office has occurred, have been entered in the register: Provided
that any entry of such a vacation of office previously advised to the Registrar, shall not be reflected in such
return.
[Sub-s. (2) amended by s. 15(b) of Act 83 of 1981 and substituted by s. 8 of Act 18 of 1990.]
(3) In respect of any of the matters referred to in section 211 (1) the return referred to in subsection (2)
shall contain a statement, signed by a director, a secretary who is a body corporate or an officer of the
company, that -
(a) the consent, referred to in section 211, of the director or officer in respect of whom particulars are reflected in
such return, has been obtained on a duly completed and signed prescribed form; and
(b) any person appointed as director or officer of the company, is not disqualified under section 218 or 219.
[Sub-s. (3) amended by s. 10 of Act 70 of 1984 and substituted by s. 23 of Act 132 of 1993.]
(4) Any written consent referred to in section 211 shall be retained by the company and the Registrar may
from time to time by notice in writing require a company to transmit to him within fourteen days after the date
of the receipt of such notice, a certified copy of the consent of any director or officer of the company to act as
such.
(5) Any person who or company or external company which fails to comply with any provision of this
section shall be guilty of an offence.
[S. 216 amended by s. 18 of Act 64 of 1977 and substituted by s. 15(1) of Act 59 of 1978.]
Notes
In the case of a person appointed as a director or officer of the company other than a
secretary, the particulars must be lodged in form CM27 of the Companies Administrative
Regulations.1856 It would seem that in the case of a secretary, however, the particulars
must be lodged in form CM27A; but the position is unclear, for in terms of reg 35A(1) of
the Companies Administrative Regulations that form must be lodged by the secretary
with the Registrar.1857 See notes on s 211.
OS, 2002 ch8-p268
Before the definition of 'officer' was amended by s 2 of the Companies Amendment
Act 37 of 1999, 'officer' did not include a secretary which was a body corporate.1858
Hence the references in s 216(2) and (3) to both an 'officer' and 'a secretary which is a
body corporate'.
Section s 268D(1) expressly provides that a body corporate or partnership may be
appointed to hold the office of secretary of a public company. Presumably the duties
imposed by s 216(1) must be understood as also imposed on such a partnership.
However, s 215 makes no provision for the particulars to be entered in the register in
regard to a partnership that is a secretary.
The return that must be lodged by the company with the Registrar in terms of s
216(2) must be lodge in form CM29. Any company which has failed within the time
prescribed to lodge the return with the Registrar may thereafter lodge it subject to the
payment to the Registrar of the prescribed additional fee.1859 Regulation 35A(2) of the
Companies Administrative Regulations provides that when during any financial year the
secretary of a public company resigns or is removed from office, the company must
lodge with the Registrar form CM27A stating the date of resignation or removal.1860
Regulation 28A(1)(b) of Companies Administrative Regulations provides that the
Registrar may from time to time by written notice sent to a company or an officer of the
company at the registered office or postal address of the company, require the company
or the officer to lodge with him, within a period stated in the notice (which may not be
less than 30 days) a copy of the form on which these particulars must be furnished to
him, reflecting at the time of lodging the contents of the register of directors and
officers.1861
Section 215(2) imposes on every company the duty to enter in the register the
particulars of the auditor and any changes in them. As to the auditor's obligation to
notify the company of any such changes, see s 276(3) read with s 215(2).
Section 268E(2) provides that no person shall act as secretary and no appointment of
secretary shall have legal force for the purposes of the Act or any other law unless, inter
alia, the company has complied with the provisions of ss 215 and 216.
The penalty for the offence in s 216(5) is a fine for every day during which the
contravention continues.1862 The court on convicting may order compliance with the
relevant provisions within such period as it may fix.1863


1856 GN R1948 of 19 October 1973.
1857 Regulation 35A was inserted by GN R 762 of 18 June 1999.
1858 Section 1 provided that in the Act, unless the context otherwise indicates, ' "officer" in relation to a
company includes any managing director, manager or secretary thereof but excludes a secretary which is a
body corporate'.
1859 s 178.
1860 Regulation 35A was inserted by GN R 762 of 18 June 1999.
1861 A company or officer who fails to comply with such notice is guilty of an offence and is liable on
conviction to a fine of R100: reg 28A(3).
1862 s 441(1)(q).
1863 s 441(2).

217 . . .
[S. 217 repealed by s. 16 (1) of Act 59 of 1978.]
RS 3, 2006 ch8-p269
Disqualifications of Directors (ss 218-220)


218 Disqualifications of directors
(1) Any of the following persons shall be disqualified from being appointed or acting as a director of a
company:
(a) A body corporate;
(b) a minor or any other person under legal disability;
[Para. (b) substituted by s. 17(1) of Act 59 of 1978 and by s. 24 of Act 132 of 1993.]
(c) any person who is the subject of any order under this Act or the repealed Act disqualifying him from being a
director;
(d) save under authority of the Court
(i) an unrehabilitated insolvent;
(ii) any person removed from an office of trust on account of misconduct;
(iii) any person who has at any time been convicted (whether in the Republic or elsewhere) of theft, fraud, forgery
or uttering a forged document, perjury, an offence under the Prevention of Corruption Act, 1958 (Act 6 of
1958), the Corruption Act, 1992 (Act 94 of 1992), Part 1 to 4, or section 17, 20 or 21 (in so far as it relates to
the aforementioned offences) of Chapter 2 of the Prevention and Combating of Corrupt Activities Act, 2004, or
any offence involving dishonesty or in connection with the promotion, formation or management of a company,
and has been sentenced therefor to imprisonment without the option of a fine or to a fine exceeding one
hundred rand;
[Sub-para. (iii) substituted by s. 36(1) of Act 12 of 2004.]
(iv) any person who has, in terms of an Act of Parliament, been removed from office for not being a fit and proper
person to serve as a director or in the management or in any other position of trust of the body in question due
to theft, fraud, forgery, uttering a forged document, corruption, whether in terms of the common law or not, or
any other act involving dishonesty.
[Sub-para. (iv) added by s. 3(c) of Act 20 of 2004.]
[Sub-s. (1) amended by s. 3(b) of Act 20 of 2004.]
(1A) (a) (i) The Registrar of the Court shall, upon
(aa) the issue of a sequestration order;
(bb) the issue of an order for the removal of a person from an office of trust on account of misconduct; or
(cc) a conviction for an offence referred to in subsection (1)(d)(iii),
send a copy of the relevant order or particulars of the conviction, as the case may be, to the Registrar.
(ii) The Registrar shall notify each company which has as a director the person to whom the order or
conviction relates, of the order or conviction.
(iii) A company notified in terms of subparagraph (ii) shall, within a period of 60 days from
notification, inform its shareholders in writing of such notification.
(b) The Registrar shall establish and maintain a register of the orders and convictions contemplated in
paragraph (a) and such register shall be open to inspection mutatis mutandis as if it were a register
contemplated in section 113.
RS 3, 2006 ch8-p270
(c) (i) If a person's name has been entered on the register contemplated in paragraph (b) because that
person was declared insolvent, the Registrar shall remove that person's name from the register as soon as he
or she is rehabilitated.
(ii) The Registrar shall remove a person's name from the register where a court has granted
authority as contemplated in subsection (1)(d).
[Sub-s. (1A) inserted by s. 3(d) of Act 20 of 2004.]
(2) Any person disqualified from being appointed or acting as a director of a company and who purports to
act as a director or directly or indirectly takes part in or is concerned in the management of any company, or
any director or officer of the company in question who knew or who could reasonably be expected to know of
the disqualification
(a) shall be guilty of an offence;
(b) shall be liable, jointly and severally, for all debts incurred by the company for the period during which such
person knew or could reasonably be expected to know of the disqualification.
[Sub-s. (2) substituted by s. 3(e) of Act 20 of 2004.]
(3) Nothing in this section shall be construed as preventing a company from providing in its articles for any
further disqualifications for the appointment of or the retention of office by any person as a director of such
company.
[S. 218 amended by s. 3(a) of Act 20 of 2004.]
Notes
General
Section 218(1) imposes a disqualification on certain persons from being appointed or
acting as a director of a company, or, except for a body corporate, from being concerned
or taking part, directly or indirectly, in the management of a company. The section
imposes an absolute disqualification on certain persons; and a qualified disqualification
on others, in the sense that they are disqualified 'save under authority of the Court'.
Section 218(2) imposes criminal and civil liability on (1) any person disqualified from
being appointed or acting as a director of a company and who purports to act as a
director or directly or indirectly takes part in or is concerned in the management of any
company and (2) any director or officer of the company in question who knew or who
could reasonably be expected to know of the disqualification. Such persons are guilty of
an offence. As far as civil liability is concerned, it is submitted that what was intended
was that the persons referred to in (1) should be personally liable for the debts of the
company during the period of their default and that those referred to in (2) should be
jointly and severally liable with those referred to in (2) for the debts of the company
incurred in the period during which those referred to in (2) knew or could reasonably be
expected to know of the disqualification. This, however, is not what the subsection says.
What it says is that either the persons referred to in (1) or the persons referred to in (2)
shall be jointly or severally liable for the debts incurred in the period during which those
referred to in (2) knew or could reasonably be expected to know of the disqualification.
This, of course, makes no sense. How can there be joint and several liability of
one or the other and why should those referred to in (1) only be liable for the debts
incurred by the
RS 3, 2006 ch8-p270-1
company in the period during which those referred to in (2) knew or could reasonably be
expected to know of the disqualification? Section 218(3) provides that the provisions of s
218 do not prevent a company from providing in its articles for any further
disqualifications for the appointment of or the retention of office by any person as a
director of the company, and indeed further disqualifications are provided for in art 65 of
Table A and art 66 of Table B.
Section 219(1A) requires the Registrar of the Court to send a copy of a sequestration
order, order for the removal of a person or particulars of a conviction as envisaged by s
218(1)(d)(i)-(iii), to the Registrar of Companies. No time period is stipulated for such
delivery. The provision requires delivery 'upon' the issue of the order or conviction so
presumably delivery is required as soon as is reasonably possible after the order or
conviction is made. In terms of s 218(1A)(ii) the Registrar of Companies must notify
each company which has as a director the person to whom the order or conviction
relates, of the order or conviction and the company so notified must within 60 days of
notification, inform its shareholders in writing of such notification. The Registrar of
Companies is required to establish and maintain a register of the orders and convictions
referred to in s 218(1A)(a) and such register shall be open to inspection mutatis
mutandis as if it were a register contemplated in s 113 (s 218(1A)). Where a person's
name has been entered on the register because that person was declared insolvent, the
Registrar must remove that person's name as soon as he or she is rehabilitated (s
218(1A)(c)(ii)). Section 218(1A)(c)(ii) requires that the Registrar must also remove a
person's name from the register where a court has granted authority as contemplated in
s 218(1)(d). It is to be noted, however, that the names of persons contemplated in s
218(1)(d)(iv) are not entered in the register unless they fall into the category of persons
removed 'from the office of trust on account of misconduct' (s 218(1A)(i)(bb)). This is
clear from a reading of s 218(1A)(c)(ii) with s 218(1A)(a)and (b). In fact s 218(1A) as a
whole appears to have no application whatsoever to persons contemplated in s
218(1)(d) which is anomalous and probably due to an oversight.
Absolute disqualification
The persons disqualified absolutely from being appointed or acting as a director of a
company are (a) a body corporate; (b) a minor or any other person under legal
disability; and (c) any person who is the subject of any order under the Act or the
repealed Act disqualifying him from being a director. The disqualification of a body
corporate cannot be circumvented by the appointment to the office of director of a
partnership in which a body corporate is a partner, because a partnership is not a legal
entity capable of being appointed and holding office as a director (although of course
partners, if otherwise eligible for the appointment as directors and who are natural
persons, could each be individually appointed).1864 It has been doubted whether
emancipation would have the effect of removing the disqualification of a minor.1865 The
court is empowered under s 219 to disqualify a person from holding the office of
director.
RS 3, 2006 ch8-p270-2
Qualified disqualification
(1) Disqualification
The persons disqualified from being appointed or acting as a director of a company save
under the authority of the court are: (a) an unrehabilitated insolvent; (b) any person
removed from an office of trust on account of misconduct; and (c) any person who has
at any time been convicted (whether in the Republic or elsewhere) of the offences
specified in s 218(d)(iii). This provision 'is not punitive'. Rather, '[i]t is designed to
protect the public and to prevent the corporate structure from being used to the financial
detriment of investors, shareholders, creditors and persons dealing with the company. In
its operation it is calculated to act as a safeguard against the corporate structure being
used . . . in a manner which is contrary to proper commercial standards'.1866
As to an offence involving dishonesty, 'dishonesty' means a lack of probity, a
disposition to deceive, defraud, or steal; it involves an element of fraud, and is used to
describe an act where there has been some intent to deceive or cheat.1867 An 'offence
involving dishonesty' is an offence of which dishonesty is an element or ingredient, in the
case of a common law offence in terms of its definition, and in the case of a statutory
offence in terms of the statute which created it.1868 As to an offence in connection with
the 'management of a company', it has been held that a company's articles of
association determine the persons by whom the management of the company is
conducted; and 'management of a company' means the management of the whole of the
company, ie the overall management of the company; and an 'offence connected with
the management of
RS 6, 2009 ch8-p271
a company' is one committed by a manager of a company in the course of his
management of the company and which relates to his management of the
company. 1869 This may, however, be too narrow an interpretation, see notes on s
218(2) below.
When a person is disqualified by reason of his having been convicted for an offence
specified in s 218(d)(iii), his disqualification is not suspended by noting an appeal
against the conviction. 1870 A sentence of imprisonment of six months or more which is
fully suspended constitutes imprisonment for at least six months within the intention of
the section. 1871 The word 'option' in the phrase 'without the option of a fine' must be
understood in its ordinary sense as 'the act or instance of choosing; the power or liberty
to choose'; thus free choice is the essential of the concept, and a sentence consisting of
both a sentence of imprisonment for six months or more and a fine is not a sentence
with the option of a fine. 1872
(2) Court's discretion
Where the court is empowered to authorise disqualified persons to be appointed and act
as directors, the court has an unfettered judicial discretion to grant such
authority. 1873 The exercise of this discretion is a far-roving inquiry in the fields of law
and morality. 1874 Accordingly, it is undesirable for the court to attempt to specify in
advance all the factors to be taken into account or the particular weight to be given to
anyone of them. 1875 In exercising its discretion the court will take into account that the
object of these disqualifications is not punishment, but the protection of the interests of
the shareholders, of those who deal with companies, and of the public in the clean
administration of companies. 1876 The principle is that there must be no danger to these
interests. 1877
Where the applicant is disqualified by reason of his having committed an offence, the
factors which the court may take into account in the exercise of its discretion include the
following:
RS 6, 2009 ch8-p272
First, the applicant's general character and conduct up to and after the
offence. 1878 Because directors are clothed with very great powers and occupy a position
of trust, the courts will subject applicants to a very strict test of honesty and
trustworthiness. 1879 Misleading or attempting to mislead the court hearing the
application will usually destroy an applicant's chances. 1880 But although honesty and
trustworthiness are the most important considerations, they are not the only
considerations. 1881 The question is whether in all the circumstances the applicant has
satisfied the court that he has rehabilitated himself and measures up to the high
standards required of directors. 1882 The balance of probability must be heavily against
the repetition of the offence. 1883 In addition, the court will also consider the possibility
of future dishonest conduct which will probably never amount to one of the disqualifying
offences. 1884
Secondly, the court will consider the nature of the applicant's offence, 1885 the
circumstances under which it was committed, 1886 the fact that premeditation and
planning were involved, 1887 the nature of the applicant's involvement, 1888 the degree
or quantum of repetitive breach, 1889 whether it was a first offence, 1890 the punishment
imposed, 1891 and the length of time since the offence was committed. 1892
OS, 2002 ch8-p273
Thirdly, relevant are the attitude of the shareholders and prominent associates, 1893
the number of persons interested in the company or companies in which the applicant
wishes to become involved, 1894 the structure of those companies and the nature of
their business, 1895 the interests of shareholders, creditors and employees, 1896 and the
risk to them or to the public.1897
Matters which have been taken in favour of the applicant are his honesty and
competency, 1898 hardship resulting to him, his personal and family business
interests; 1899 and his appreciation that future breaches could result in fresh
proceedings for his disqualification by the court.1900
Where the applicant is disqualified by reason of the fact that he is an unrehabilitated
insolvent, the question is whether in the circumstances there are exceptional
circumstances which make the applicant a fit and proper person to be appointed a
director despite the fact that he is an unrehabilitated insolvent.1901 The disqualification
of unrehabilitated insolvents from being directors and from taking part in the
management of companies is not intended to punish them, but to protect the public from
imprudent action which could cause the public to suffer financial loss.1902 Thus relevant
to the inquiry are the circumstances giving rise to applicant's sequestration 1903 and
other business failures; 1904 and therefore a full statement and explanation of those
facts must be placed before the court.1905
In the exercise of its discretion, the court may grant the applicant authority to
become a director of a particular company or a general authority to be a director of any
OS, 2002 ch8-p274
company.1906 An applicant will, however, have to make out a much stronger case for
the grant to him of such a general authority.1907 In many cases it will be proper to allow
a person to become a director of a particular company with which he has long been
associated or in which he has a particular interest, yet not proper to give him a general
authority.1908
The court is empowered only to authorise such a disqualified person to become a
director. Thus our courts have held that they do not have the power to authorise such a
person merely to take part in or be concerned in the management of a company without
becoming a director of it.1909
Section 218(2)
Section 218(2) provides that any person disqualified from being a director or acting as a
director of a company and who purports to act as a director, or directly or indirectly
takes part in or is concerned in the management of any company, is guilty of an offence.
The penalty is a fine or imprisonment not exceeding two years, or both the fine and
imprisonment.1910 The prohibition is limited to participation in the management of the
company. Thus in Re Farrari Furniture Co Pty Ltd1911 Street J said: 'A prohibition against
taking part in the management of a company does not import any prohibition against
taking part in business activities. But it denies to a person thus prohibited that statutory
advantage that flows from participating in the market place under the shield of statutory
limited liability. It is easy to take for granted the right of every citizen by the simple
procedure of incorporating a company to avail himself of this shield of limited liability.'
Although the prohibition should be widely constructed, it must be borne in mind that
'take part' and 'be concerned in' are directed to the 'management' of the company and
not to taking part or being concerned in the 'business' of the company, it not being
intended to deny a person in the prescribed categories the right to earn a living.1912
A director must necessarily, directly or indirectly, take part in or be concerned in the
management of a company.1913 The prohibition is not however limited to persons
carrying on all the functions of a director under the guise of some other position in the
company; 1914 and even participation to a minor extent in the management of a
company is to be indirectly, if not directly, concerned in that management.1915 It has
however been held that participation in the management of a company is participation in
the management of whole of the affairs of the corporation, viz the overall management
of the company.1916 But
RS 6, 2009 ch8-p275
it would seem that something less is sufficient, 1917 that is to say, a person takes part in
or is concerned in the management of a company, not only where he is involved in policy
and decision making related to the affairs of the company as a whole, but also when
involved policy and decision-making related to 'a substantial part' of its affairs 1918 if 'the
formation of those policies or the making of those decisions has some significant bearing
on the financial standing of the [company] or the conduct of its affairs'. 1919 It has been
held that it is not necessary that the person makes decisions at the highest level; nor is
it necessary that his decisions will not be subject to obtaining the approval of some
higher officer. 1920
In R v Goodman, 1921 it was held that the chairman of a company, who had used his
knowledge of the affairs of the company to commit the offence of insider trading had
committed an offence '. . . in connection with the . . . management . . . of a company'
within the scope and ambit of s 2(1) of the Company Directors Disqualification Act,
1986. So too, in R v Creggy, 1922 a solicitor who was also a director of a company was
found to have committed an offence in connection with the management of a company
by sheltering the criminal proceeds of fraud through the vehicle of the company. There
was a sufficient factual connection between the offence committed by the defendant and
the financial management of the company. Although both these cases were decided
under
RS 6, 2009 ch8-p276
the Company Directors Disqualification Act, 1986, they would, due to the similarity in
wording, be relevant to s 218(2) of the Companies Act of 1973.
The view has been expressed that, generally, the use by a shareholder of his vote in
general meeting on matters of management would not amount to taking part in
management within the meaning of the section, but that 'it is possible that in a particular
case a majority shareholder can so use his voting power, or the threat of the exercise of
his voting power, on questions of management that he would be in breach of [the
section]'. 1923 In one case it has been held that the mere fact that a company owned
42% of the shares of another company, and had three nominees on its board, was not
sufficient to make it a person who 'took part in the management of the company'. 1924
In S v Nixon1925 Milne J said: 'The disqualification of bodies corporate as directors was
only inserted by the amending Act 46 of 1952 and it is conceivable that the effect of [the
prohibition of participation in the management of companies by disqualified persons] was
not present to the mind of the Legislature. I am inclined to doubt however, whether the
control which a holding company exercises over the composition of the board of directors
of a subsidiary company constitutes participation in the management of the company (at
any rate where that control is exercised in a normal and otherwise lawful manner).'
It has been held that the absence of statutory provisions for invalidating acts
performed by a person disqualified as a director, coupled with the fact that s 218(2) read
with s 441(1)(d) imposes a criminal sanction, indicates that it was not the legislature's
intention that s 218(2) should, of itself, invalidate acts performed (in contravention of
the subsection) by a disqualified person or, where he purported to perform those acts in
his capacity as a director, render s 214 inoperative. 1926


1864Commercial Management Ltd v Registrar of Companies [1987] 1 NZLR 744 747 CA(NZ).
1865Ex parte Velkes 1963 (3) SA 584 (C).
1866per Bowen CJ in Re Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203 205 SC(NSW); and
see Australian Securities Commission v Knippe (1996) 20 ACSR 679 685 (Fed C of A).
1867Ex parte Bennett 1978 (2) SA 380 (W) 383-384; NUSCA v Da Ponte 1994 (3) SA 251 (BGD) 258-261.
1868Ex parte Bennett 1978 (2) SA 380 (W) 384; NUSCA v Da Ponte 1994 (3) SA 251 (BGD) 258-259.
In NUSCA v Da Ponte supra it was held that the offence of illicit diamond buying is an offence involving
dishonesty, being akin to receiving stolen property. In Ex parte Bennett supra it was held that the offences
created by Regulation Notice 1038 of the Regulation of Monopolistic Conditions Act of 1955 were not offences
involving dishonesty, the conduct prohibited being malum prohibitum and not malum in se. In Childs v
Australian Securities Commission (1996) 20 ACSR 196 197 SC(WA) Parker J said: 'On ordinary use of
language, stealing, an element of robbery, is dishonest, so it is an offence involving dishonesty. Stealing . . .
also involves the taking of property fraudulently, so that is an offence involving fraud.'
1869 Ex parte Bennett 1978 (2) SA 380 (W) 387-389.
1870 Von Steen v Von Steen 1984 (2) SA 203 (T).
1871 Marpo Trawling (Pty) Ltd v Cencelli 1992 (1) SA 407 (C) (a decision in regard to s 47(1)(b)(iii) of the
Close Corporations Act 69 of 1984, the provisions of which in this regard are identical to those in s
218(1)(d)(iii) of the CompaniesAct 61 of 1973).
1872 Marpo Trawling (Pty) Ltd v Cencelli 1992 (1) SA 407 (C).
1873 Ex parte Harrod 1954 (4) SA 28 (SR) 30; Ex parte Schreuder 1964 (3) SA 84 (O) 85; Ex parte K 1971
(4) SA 289 (D) 291; Ex parte Tayob 1990 (3) SA 715 (T) 717. A court of appeal will only interfere if it is
satisfied that the discretion was not exercised properly: Ex parte Tayob supra at 717.
1874 Ex parte R 1966 (1) SA 84 (SR) 87; Ex parte Schreuder 1974 (2) SA 358 (O); NUSCA v Da Ponte 1994
(3) SA 251 (BGD) 256.
1875 Ex parte Schreuder 1974 (2) SA 358 (O); Ex parte Barron 1977 (3) SA 1099 (C) 1100.
1876 Ex parte Erleigh 1950 2 PH E14 (W); Ex parte Harrod 1954 (4) SA 28 (SR) 30; Ex parte K 1971 (4) SA
289 (E); Ex parte Schreuder 1974 (2) SA 358 (O) 361; Re Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203
205 SC(NSW); Ex parte Bennett 1978 (2) SA 380 (W) 383; Re Minimix Industries Ltd (1982) 1 ACLC 511
SC(NSW); Von Steen v Von Steen 1984 (2) SA 203 (T) 207-208; NUSCA v Da Ponte 1994 (3) SA 251
(BDG) 256 262-263.
1877 Ex parte Harrod 1954 (4) SA 28 (SR) 30; Ex parte R 1966 (1) SA 84 (SR) 87 ('the question must be
whether in all the circumstances the applicant has satisfied the court that he has rehabilitated himself in the
sense that he is worthy of trust in carrying out the functions which he is seeking permission to undertake'); Ex
parte Schreuder 1974 2 SA 358 (O) 361; Re Maelor Jones Pty Ltd (1975) 1 ACLR 4 SC(SA) ('the whole purpose
of the section is to see that people are not put in a position where their money is at risk'); NUSCA v Da
Ponte 1994 (3) SA 251 (BGD) 263 ('could the court with complete confidence accept that an applicant is a fit
and proper person to be granted authority to be appointed or to act as a director of a company').
1878 Ex parte Schreuder 1964 (3) SA 84 (O) 86. And see Re Maelor Jones Pty Ltd (1975) 1 ACLR 4
SC(SA); Re Marsden (1981) 5 ACLR 694 SC(SA); Zuker v Commission for Corporate Affairs [1981] VR
72; Chew v NCSC (No 2) (1985) 9 ACLR 527 SC(WA); Commission for Corporate Affairs (WA) v
Ekamper (1987) 12 ACLR 519 SC(WA); NUSCA v Da Ponte 1994 (3) SA 251 (BGD) 263.
1879 Ex parte Erleigh 1950 2 PH E14 (W); Ex parte Schreuder 1964 (3) SA 84 (O) 86; Ex parte K 1971 (4)
SA 289 (D); Ex parte Schreuder 1974 (2) SA 358 (O) 361.
1880 See Re Maelor Jones Pty Ltd (1975) 1 ACLR 4 SC(SA); Re Macquarie Investments Pty Ltd (1975) 1 ACLR
40 SC(NSW); Zim Metal Products Pty Ltd (1977) ACLR 553 SC(Vic). The applicant must deal fully with
everything of relevance emerging from the record in the criminal case: Ex parte Tayob 1990 (3) SA 715
(T) 723.
1881 Ex parte Schreuder 1974 (2) SA 358 (O) 362.
1882 Ex parte R 1966 (1) SA 84 (SR); Ex parte K 1971 (4) SA 289 (D) 291; Ex parte Schreuder 1974 (2) SA
358 (O) 361; NUSCA v Da Ponte 1994 (3) SA 251 (BGD) 262. The fundamental question is whether the defect
of character no longer exists, and this part of the enquiry turns on whether the person concerned properly and
correctly appreciates the defect of character or attitude involved: Ex parte Tayob 1989 (2) SA 282
(T) 287; 1990 (3) SA 715 (T) 720.
1883 Ex parte R 1966 (1) SA 84 (SR); Ex parte Schreuder 1974 (2) SA 358 (O) 361.
1884 Ex parte Schreuder 1974 (2) SA 358 (O) 362; Ex parte Tayob 1990 (3) SA 715 (T) 723.
1885 Ex parte Barron 1977 (3) SA 1099 (C) 1100; Commission for Corporate Affairs (WA) v Ekamper (1987)
12 ACLR 519 SC(WA); Ex parte Tayob 1989 (2) SA 282 (T) 288; 1990 (3) SA 715 (T); NUSCA v Da Ponte 1994
(3) SA 251 (BGD)262.
1886 Ex parte Schreuder 1964 (3) SA 84 (O) 86.
1887 Re Farrari Furniture Co Pty Ltd [1972] 2 NSWLR 790 792.
1888 Zim Metal Products Pty Ltd (1977) ACLR 553 SC(Vic).
1889 Commission for Corporate Affairs (WA) v Ekamper (1987) 12 ACLR 519 SC(WA).
1890 Ex parte Barron 1977 (3) SA 1099 (C) 1100; NUSCA v Da Ponte 1994 (3) SA 251 (BGD) 262.
1891 Ex parte Barron 1977 (3) SA 1099 (C) 1100; Ex parte Tayob 1990 (3) SA 715 (T) 721.
1892 Ex parte Leal 1962 (4) SA 271 (D); Ex parte Schreuder 1964 (3) SA 84 (O) 86 (the more serious the
offence, the longer the period should be); Ex parte Tayob 1989 (2) SA 282 (T) 288; 1990 (3) SA 715
(T) 722; NUSCA v Da Ponte 1994 (3) SA 251 (BGD) 262. But see Re Marsden (1981) 5 ACLR 694 SC(SA),
where it was said that the time lapse since conviction is not a 'relevant consideration'. In Ex parte Tayob 1990
(3) SA 715 (T) 722 it was said that the 'thread that runs through the decided cases . . . is that sufficient time
should ordinarily have elapsed after the conviction to show that a recurrence is most unlikely'. The more
serious the offence the longer the time that should have passes before the court's authorisation is sought.
Although the passing of years does not per se provide evidence of reform, it is a useful guide. But there 'may
be cases in which the misdeed is so aberrant and the circumstances giving rise to it so unusual that it could be
said that a repetition is inconceivable. In such a case no period of time would be required to effect reform
because, strictly speaking, no reform is necessary'.
1893 Ex parte Harrod 1954 (4) SA 28 (SR) 31; Ex parte Schreuder 1964 (3) SA 84 (O) 86; Ex parte
Barron 1977 (3) SA 1099 (C) 1100; NUSCA v Da Ponte 1994 (3) SA 251 (BGD) 262.
1894 Ex parte Barron 1977 (3) SA 1099 (C) 1100.
1895 Commission for Corporate Affairs (WA) v Ekamper (1987) 12 ACLR 519 SC(WA). Cf Zuker v Commission
for Corporate Affairs [1981] VR 72, where it was it said that the size of the annual turnover will seldom on its
own afford a reason for refusing leave under the section. It has been said that if it is a public company the
chances of more people being affected by an unscrupulous or dishonest director are greater than in the case of
a private company: NUSCA v Da Ponte 1994 (3) SA 251 (BGD) 262.
1896 Re Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203 SC(NSW); Re Wallace (1983) 8 ACLR 311
SC(WA); Zim Metal Products Pty Ltd (1977) ACLR 553 SC(Vic); Commission for Corporate Affairs (WA) v
Ekamper (1987) 12 ACLR 519 SC(WA); NUSCA v Da Ponte 1994 3 SA 251 (BGD) 262. In Re C & J Hazell
Holdings Pty Ltd and Related Companies (1991) 4 ACSR 703 SC(Tas) it was held that, although not decisive,
there was substance in the contention that if the applicant was not permitted to act as a director the group
would suffer detriment and the security of its employees would be weakened.
1897 Re Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203 SC(NSW); Re Marsden (1981) 5 ACLR 694
SC(SA); Chew v NCSC (1985) 9 ACLR 527 SC(WA); Alford v Commission for Corporate Affairs (1984) 9 ACLR
183 SC(Qld);Commission for Corporate Affairs (WA) v Ekamper (1987) 12 ACLR 519 SC(WA); NUSCA v Da
Ponte 1994 (3) SA 251 (BGD) 262.
1898 Re Arctic Engineering Ltd (No 2) [1986] 2 All ER 346; Commission for Corporate Affairs (WA) v
Ekamper (1987) 12 ACLR 519 SC(WA).
1899 Chew v NCSC (1985) 9 ACLR 527 SC(WA); Commission for Corporate Affairs (WA) v Ekamper (1987) 12
ACLR 519 SC(WA).
1900 Chew v NCSC (1985) 9 ACLR 527 SC(WA); Re Wallace (1983) 8 ACLR 311 SC(WA); Commission for
Corporate Affairs (WA) v Ekamper (1987) 12 ACLR 519 SC(WA).
1901 Ex parte Dworsky 1970 (2) SA 293 (T) 295.
1902 Re Altim Pty Ltd [1968] 2 NSWLR 762; Poyser v Corporate Affairs Commission (1985) 9 ACLR 651 655-
656 SC(Vic); Commissioner of Corporate Affairs (Vic) v Bracht (1989) 14 ACLR 725 732 SC(Vic).
1903 Ex parte Dworsky 1970 (2) SA 293 (T) 295.
1904 See Re Altim Pty Ltd [1968] 2 NSWLR 762, where it was held that the applicant's long history of
business failures in the building industry demonstrated an incompetence from which the community should be
protected.
1905 Ex parte Dworsky 1970 (2) SA 293 (T) 295.
1906 Ex parte K 1971 (4) SA 289 (D) 292; NUSCA v Da Ponte 1994 (3) SA 251 (BGD) 263.
1907 Ex parte K 1971 (4) SA 289 (D) 292.
1908 Ex parte K 1971 (4) SA 289 (D) 292.
1909 Ex parte Hemphill 1967 (3) SA 101 (D) 103; Ex parte Nixon 1971 (4) SA 495 (N) 499. Cf Re Magna
Alloys & Research Pty Ltd (1975) 1 ACLR 203 SC(NSW); Re Zim Metal Products Pty Ltd (1977) ACLR 553
SC(Vic), where leave was granted to the applicant to take part in the management of companies but not to be
a director.
1910 s 441(1)(d).
1911 [1972] 2 NSWLR 790 792.
1912 per Ormiston J in Commissioner of Corporate Affairs (Vic) v Bracht (1989) 14 ACLR 725 732 SC(Vic).
1913 Ex parte Jacobson 1944 OPD 112 116; Ex parte Hemphill 1967 (3) SA 101 (D) 103.
1914 S v Nixon 1971 (4) SA 495 (N).
1915 S v Nixon 1971 (4) SA 495 (N) 498.
1916 Ex parte Jacobson 1994 OPD 112; Ex parte Bennett 1978 (2) SA 380 (W) 389; Marpo Trawling (Pty) Ltd
v Cencelli 1992 (1) SA 407 (C) (a decision in regard to s 47(1)(b)(iii) of the Close Corporations Act 69 of
1984).
1917 See Re Campbell [1984] BCLC 83 (CA) where was held that the word 'management' is very wide word
deliberately widely cast.
1918 In Australia in regard to a provision (see eg s 556 of the Companies (Qld) Code) which attached
personal liability for a debt incurred (inter alia) when there were reasonable grounds that the company would
not be able to pay all its debts when they became due, on any person who was a director of the company or
who 'took part in the management of the company', it was held that this expression was limited to persons
whose management role in the company may be likened to that of a director and meant that the person must
have some decision-making role in the company: Holpitt Pty Ltd v Swaab (1992) 105 ALR 421 (FC of A); Re
New World Alliance Pty Ltd; Sycotex Pty Ltd v Baseler (1994) 122 ALR 531 (FC of A); Standard Chartered Bank
of Australia Ltd v Antico (1995) 18 ACSR 1 66-67 SC(NSW).
1919 In Commissioner of Corporate Affairs (Vic) v Bracht (1989) 14 ACLR 725 733-734 SC(Vic) Ormiston J
said: 'While it is easy to exclude from the concept of management those activities of a corporation which
consist in the carrying out of day-to-day routine functions in accordance with predetermined policies, whether
they be clerical or involve the ordering or supply of goods or services on its behalf, it is harder to fix on those
elements which are critical to management. I cannot be confined to those matters performed by the board of
directors or a managing director, for those are already the subject of the prohibition against acting as a
director. The lower levels of administration comprehended by management must have some decision-making
powers, but it cannot be thought that every branch or division manager has the relevant powers of
management'. (See Byrnes v Australian Securities and Investment Commission (2000) 34 ACSR 320 336
(AAT).) Ormiston J concluded: 'It may be difficult to draw the line in particular cases, but in my opinion the
concept of "management" for the present purposes comprehends activities which involve policy and decision-
making, related to the business affairs as a whole or a substantial part of that corporation, to the extent that
the consequences of the formation of those policies or the making of those decisions has some significant
bearing on the financial standing of the corporation or the conduct of its affairs.'
1920 In Cullen v Corporate Affairs Commission (NSW) (1988) 14 ACLR 789 SC(NSW), where it was held that
the words 'concerned in the management' must have a broad operation, it was accepted that the lowest level
of administration comprehended by management must have some decision-making powers and that it cannot
be thought that every branch or division manager has relevant powers of management. The court concluded
(at 794) that: '[O]ne looks to see somebody making decisions as to the direction of the corporation though one
does not necessarily look for someone who is making decisions at the highest level, nor is it necessarily so that
the manager's decision will not be subject to obtaining the approval of some higher officer. However, even
though a person may be described as a manager if that person is merely carrying out the policy of the
corporation in charge of a branch or division of the business and not making decisions as to its direction then
probably that person is not taking a management role in the corporation'. And see Byrnes v Australian
Securities and Investment Commission (2000) 34 ACSR 320 336 (AAT)
1921 [1993] 2 ALL ER 789.
1922 [2008] 3 ALL ER 41 (CA).
1923 Per Bowen CJ in Re Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203 207 SC(NSW).
1924 Standard Chartered Bank of Australia Ltd v Antico (1995) 18 ACSR 1 66 SC(NSW), where the company
concerned did not take part in the management of the company for the purposes of s 556 of the Companies
(Qld) Code.
1925 1971 (4) SA 495 (N) 478.
1926 CyberScene Ltd v i-Kiosk Internet and Information (Pty) Ltd 2000 (3) SA 806 (C) 813.

219 Disqualification of directors, officers and others by the Court
(1) The Court may make an order directing that, for such period as may be specified in the order, a person,
director or officer shall not without the leave of the Court be a director of or in any way, whether directly or
indirectly, be concerned or take part in the management of any company when
(a) such person, director or officer, has been convicted of an offence in connection with the promotion, formation
or management of a company; or
(b) the Court has made an order for the winding-up of a company and the Master has made a report under this
Act stating that in his opinion a fraud has been committed
(i) by such person in connection with the promotion or formation of the company; or
(ii) by any director or officer of the company in relation to the company since its formation; or
(c) in the course of the winding-up or judicial management of a company it appears that any such person
RS 6, 2009 ch8-p276-1
(i) has been guilty of an offence referred to in section 424, whether or not he has been convicted of that offence;
or
(ii) has otherwise been guilty while an officer of the company of any fraud in relation to the company or of any
breach of his duty to the company; or
(d) a declaration has been made in respect of any person under section 424 (1).
(2) (a) An order under subsection (1) may be made
(i) by the Court having jurisdiction to wind up the company affected by the act or omission in respect of which the
order is sought, on application by the Master, or, in the case of a company being wound up or under judicial
management, by the Director of Public Prosecutions in terms of section 401, or by the liquidator or the judicial
manager or by any person who is a creditor or is or has been a member of such company; or
[Sub-para. (i) amended by s. 5(a) of Act 20 of 2004.]
RS 2, 2005 ch8-p277
(ii) in the case of an order in the circumstances set out in paragraph (a) of that subsection, also summarily by the
Court convicting the person concerned,
and any leave required under that subsection may be granted by the Court having jurisdiction to wind up the
company in relation to which such leave is sought.
(b) The applicant for any such order shall give not less than ten days' notice of his intention to apply for
the order, to the person against whom the order is sought and such person may attend the hearing of the
application and give evidence and call witnesses to give evidence on his behalf.
(3) Where an order under subsection (1) has been made, the person to whom the order relates shall give
not less than ten days' notice to the Master, the Director of Public Prosecutions, the liquidator or the person
who was the judicial manager of the company concerned, of any application he intends making for leave of the
Court referred to in subsection (1), who shall draw the attention of the Court to any matter which may appear
to them to be relevant, may give evidence and call witnesses.
[Sub-s. (3) amended by s. 5(a) of Act 20 of 2004.]
(4) (a) For the purposes of subsection (1)(b)(ii) the reference therein to an officer of a company shall be
construed as including a reference to any person in accordance with whose directions or instructions the
directors of the company have been accustomed to act.
(b) An order may be made under the said subsection (1)(b)(ii) whether or not criminal proceedings
have been instituted in respect of any matter on which the order is based.
(4A) (a) The Registrar of the Court which made an order under subsection (1) shall, within seven days after
the making of the order, transmit a copy of the order to the Registrar, who must notify each company which
has as a director the person to whom the order relates, of the order.
(b) A company notified in terms of paragraph (a) shall, within a period of 60 days from notification,
inform its shareholders in writing of such notification.
(c) The Registrar shall establish and maintain a register of the orders made under paragraph (a) and
the names of the persons to whom the orders relate, and such register shall be open to inspection mutatis
mutandis as if it were a register contemplated in section 113.
(d) The Registrar shall remove a person's name from the register
(i) if an appeal against an order contemplated in subsection (1) is successful; or
(ii) where a court has granted leave as contemplated in subsection (1).
[Sub-s. (4A) inserted by s. 4(a) of Act 20 of 2004.]
(5) Any person who contravenes any order made under subsection (1) or any director or officer of the
company in question who knew or who could reasonably be expected to know of the contravention
(a) shall be guilty of an offence;
RS 2, 2005 ch8-p278
(b) shall be liable, jointly and severally, for all debts incurred by the company for the period during which such
person knew or could reasonably be expected to know of the contravention.
[Sub-s. (5) substituted by s. 4(b) of Act 20 of 2004.]
Notes
Section 219(1) confers a discretion on the court to make such a disqualification order
and to determined the period for which it is to operate. It would seem that the factors
taken into account by the court when exercising its discretion under s 218(1)(d) will be
relevant here, such as the nature of the offence or wrongdoing, but that the crucial and
overriding consideration will be, as it is under s 218(1)(d), the protection of investors,
shareholders, creditors of and persons dealing with companies, and the public
generally.1927 That is to say, the overriding consideration is the prevention 'of persons
who have previously misconducted themselves in relation to companies, or have
otherwise shown themselves as unfit to be concerned in the management of a company,
from being so concerned', 1928 in order to ensure that the corporate structure is not
used 'in a manner which is contrary to proper commercial standards'.1929
The words 'be a director of or in any way, whether directly or indirectly, be concerned
or take part in the management of any company' are not free from ambiguity. But it
would seem that 'any company' means, not a particular company or companies, but all
companies; and therefore the court has no discretion to make an order in respect of
certain companies.1930 And, since s 219(1) provides that the order must direct that such
person may 'not without the leave of the Court be a director of or in any way, whether
directly or indirectly, be concerned or take part in the management of any company', it
would seem that the court has no discretion to disqualify the person concerned from
acting as a director but nevertheless permit him to be concerned or take part in the
management of companies; or to grant him leave to be a director of, or be concerned or
take part in the management of, a particular company or companies.
RS 3, 2006 ch8-p279
As to the meaning of 'director', see s 1(1) and notes on s 208. As to the meaning of
'officer', see s 1(1) and notes on s 211. Section 219(4) provides that for the purposes of
s 219(1)(b)(ii) 'an officer of the company' is to be construed as including a reference to
any person in accordance with whose directions or instructions the directors of the
company have been accustomed to act. Section 1(2) provides that a person is not to be
deemed to be a person in accordance with whose directions or instructions the directors
of a company are accustomed to act by reason only that the directors of the company
act on advice given by him in a professional capacity.
Section 219(1)(c) refers to 'any such person', which presumably means 'any person,
director or officer'. Section 219(1)(c)(ii), which is wider in ambit than any of the other
provisions (not only fraud, but also 'or any breach of his duty to the company') applies
where any such person has been guilty of fraud or any breach of his duty to the
company 'while an officer of the company'. Although the other provisions distinguish
between a 'director' and an 'officer', it would seem obvious that 'officer of the company'
in s 219(1)(c)(ii) must include a director.
Section 219(1)(b) refers to a 'a report under this Act' made by the Master 'stating
that in his opinion a fraud has been committed'. Section 185ter(1)(b) of the Companies
Act 46 of 1926 provided 'and the Master has made a further report under this Act stating
that in his opinion a fraud has been committed'. The Van Wyk de Vries Commission 1931
said that there were no 'further reports by the Master' under the 1926 Act. It
recommended 1932 that the words 'the Master has made a further report under this Act
stating that in his opinion' be repealed and superseded by the words 'it appears'.
Section 400 requires the liquidator to report to the Master any contraventions of the
Act or 'other offences', and the Master is required to transmit a copy of this report, but
the Master himself is not required to make any report. However, reg 5 of the Regulations
for the Winding-Up and Judicial Management of Companies 1933 provides that when in
the course of an enquiry or examination of a witness under the Act before a
commissioner or other person it appears that any person may have committed an
offence, the commissioner or person must, when forwarding to the Master the record of
the enquiry or examination, make mention in writing of the facts in the evidence which
appear to him to constitute such offence, and the Master must then submit the record to
the Attorney-General. It would seem that reg 5 does not apply where the Master himself
presides over the meeting. Nevertheless, it would appear to be assumed that where the
Master does preside he ought, in such circumstances, to submit the record to the
Attorney-General. Where the Master presides over a meeting of creditors, s 67(1) of the
Insolvency Act 24 of 1936 applies by virtue of s 416(1) of the Companies Act. Section
67(1) of the Insolvency Act provides that, if it appears from any statement made at an
interrogation at a meeting of creditors that there are reasonable grounds for suspecting
that any person has committed any offence, the Master must transmit the statement, or
a certified copy of it, and all necessary documents to the Attorney-General in whose area
of jurisdiction the interrogation was held or the offence is suspected to have been
committed, to enable him to determine whether any criminal proceedings should be
instituted in the matter.
RS 3, 2006 ch8-p280
Section 206(1)(c)(i) empowers the court to make a disqualification order when in the
course of the winding-up or judicial management of a company it appears that any such
person has been guilty of an offence referred to in s 424, whether or not he has been
convicted of that offence. Section 216(1)(d) empowers the court to make such an order
when a declaration has been made in respect of any person under section 424(1). The
logic of this distinction is far from clear. Section 206(1)(c)(i) applies only in the course of
winding-up or judicial management. Then, the court may make a disqualification if it
'appears' that any such person is guilty of the offence. It is unclear whether 'appears'
imports a less onerous test than that of 'beyond reasonable doubt'. Section
216(1)(d) applies whether or not the company is being wound up or is under judicial
management. But a declaration must have been made, and the court can make a
declaration only on the application of the Master, the liquidator, the judicial manager,
any creditor or member or contributory of the company. The evidentiary test for such a
declaration is, however, merely a balance of probabilities.1934
Section 219(4A) requires the Registrar of the Court which has made a disqualification
order to transmit a copy of the order to the Registrar of Companies. The latter must
notify each company which has as a director the person to whom the order relates, of
the order.
The Registrar of Companies must establish and maintain a register of the
disqualification orders and the names of the persons to whom the orders relate and such
register shall be open to inspection mutatis mutandis as if it were a register
contemplated in s 113. A person's name must be removed from the register if an appeal
against the disqualification order is successful or where the court has granted leave as
contemplated in s 219(1).
Section 219(5) imposes criminal and civil liability on (1) any person disqualified from
being a director or who in any way directly or indirectly takes part in or is concerned in
the management of any company and (2) any director or officer of the company in
question who knew or who could reasonably be expected to know of the disqualification.
Such persons are guilty of an offence. As far as civil liability is concerned, it is submitted
that what was intended was that the persons referred to in (1) above should be
personally liable for the debts of the company during the period of their default and that
those referred to in (2) should be jointly and severally liable with those referred to in (2)
for the debts of the company incurred in the period during which those referred to in (2)
knew or could reasonably be expected to know of the disqualification. This, however, is
not what the subsection says. What it says is that either the persons referred to in
(1) or the persons referred to in (2) shall be jointly or severally liable for the debts
incurred in the period during which those referred to in (2) knew or could reasonably be
expected to know of the disqualification. This, of course, makes no sense. How can there
be joint and several liability of one or the other and why should those referred to in (1)
only be liable for the debts incurred by the company in the period during which those
referred to in (2) knew or could reasonably be expected to know of the disqualification?
Section 219(5) provides that a person who contravenes any such order is guilty of an
offence, the penalty for which is a fine or imprisonment not exceeding two years, or both
the fine and imprisonment.1935
RS 7, 2010 ch8-p280-1
In England, under the Company Directors Disqualification Act of 1986 (ss 6 and 8) the
court is empowered, in certain circumstances, to disqualify a person from being a
director (without the leave of the court) and in any way, whether directly or indirectly,
being concerned or taking part in the management of a company, whose conduct as a
director 'makes him unfit to be concerned in the management of a company'. A
considerable number of cases concerning these provisions, for the most part at first
instance, have been reported. 1936


1927 In Re Gold Coast Holdings Pty Ltd (2000) 35 ACSR 107 111-112 SC(WA) Anderson J, considering the
court's powers under s 230 of Australian the Corporations Law, said: 'The factors to be considered in which
govern the court's power of disqualification are the character of the offender, the nature of the breaches,
structure of the company and nature of its business, interests of shareholders, creditors and employees, risks
to others from continuation of offenders as company directors, honesty and competence of the offender,
hardship to the offender and his personal and commercial interests, and the offender's appreciation that future
breaches could result in future proceedings: Commission of Corporate Affairs (WA) v Ekamper (1987) 12 ACLR
519 522 SC(WA); Australian Securities Commission v Roussi (1999) 32 ACSR (Fed C of A). The purpose of the
order . . . is protective not punitive: Re Minimix Industries Ltd (1982) 1 ACLC 511 512; Re Marsden (1981) 5
ACLR 694 699 SC(WA). The interest to be protected include those of the public who may unwittingly deal with
companies run by people who are not suitable to be involved in the management of companies and the public
interest generally in the transparency and accountability of companies and the suitability of directors to hold
office: Commission of Corporate Affairs (WA) v Ekamper at 525.'
1928 per Blacombe LJ in Secretary of State for Trade and Industry v Langride [1991] Ch 402 413-414;
[1991] 3 All ER 591 597-598 (as to the purposes and scope of the English Company Directors Disqualification
Act of 1986).
1929 per Bowen CJ in Re Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203 205 SC(NSW).
1930 Section 185 ter (1) of the Companies Act 46 of 1926 referred to 'the company'. The Van Wyk de Vries
Commission (Commission of Enquiry into the Companies Act Main Report RP 45/1970 para 44.08) suggested
that there had been an error when s 188 of the English Companies Act was taken over, for that section spoke
of 'any' company. The Commission recommended (recommendation 83(a)) that the reference to the
disqualification in respect of 'the company' be superseded by a reference to 'any company'.
1931 Commission of Enquiry into the Companies Act Main Report RP 45/1970 para 44.08.
1932 recommendation 83(b).
1933 Promulgated under GN R2490 of 28 December 1973.
1934 See notes on s 424.
1935 s 441(1)(d).
1936 See eg Re Lo-Line Electirc Motors Ltd [1988] Ch 477; [1988] 2 All ER 692; Re Bath Glass Ltd [1988]
BCLC 329; Re Cladrose Ltd [1990] BCLC 204; Re Keypak Homecare Ltd [1990] BCLC 440; Re Sammuel
Sherman [1991] 1 WLR 1070; Re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164; [1991] 3 All ER 578
(CA); Secretary of State for Trade and Industry v Langridge [1991] Ch 402; [1991] 3 All ER 591 (CA); Re City
Investments Centre Ltd [1992] BCLC 956; Re Austinsuite Furniture Ltd [1992] BCLC 1047; Re Cargo Agency
Ltd [1992] BCLC 686; Re Godwin Warren Control Systems plc [1993] BCLC 80; Re GSAR Realisations
Ltd [1993] BCLC 409; Re New Generation Engineers Ltd [1993] BCLC 435;Re Linvale Ltd [1993] BCLC 654; Re
A & C Group Services Ltd [1993] BCLC 1297; Re Polly Peck International plc (No 2) [1994] 1 BCLC 574; Re
Firedart Ltd [1994] 2 BCLC 340; Re Rex Williams Leisure plc [1994] Ch 350; [1994] 4 All ER 27 (CA); Re
Manion Trading Ltd [1995] 4 All ER 14 (CA); Re Barings plc (No 5) [1999] 1 BCLC 433; [2000] 1 BCLC 523
(CA).


220 Removal of directors and procedures in regard thereto
(1) (a) A company may, notwithstanding anything in its memorandum or articles or in any agreement
between it and any director, by resolution remove a director before the expiration of his period of office.
(b) The provisions of paragraph (a) shall not be construed as authorizing the removal of a director of a
private company who was holding office for life on the thirteenth day of June, 1949.
(2) Special notice shall be lodged with the company of any proposed resolution to remove a director under
this section or to appoint any person in the stead of a director so removed at the meeting at which he is
removed, and, on receipt of notice of such a proposed resolution, the company shall forthwith deliver a copy
thereof to the director concerned who shall, whether or not he is a member of the company, be entitled to be
heard on the proposed resolution at the meeting.
(3) Where notice is given of a proposed resolution to remove a director under this section, and the director
concerned makes representations with respect thereto not exceeding a reasonable length in writing to the
company and requests their notification to members of the company, the company shall, unless the
representations are received by it too late for it to do so
(a) in any notice of the resolution given to members of the company, state that such representations have been
made; and
(b) send a copy of the representations to every member of the company to whom notice of the meeting is sent,
whether such notice is sent before or after receipt of the representations by the company.
RS 7, 2010 ch8-p280-2
(4) If a copy of such representations is not sent as aforesaid because it was received too late or because of
the company's default, the director concerned may (without prejudice to his right to be heard orally) require
that the representations be read at the meeting.
(5) No copy of such representations shall be sent out and the representations need not be read out at any
meeting if, on the application of the company or of any
RS 8, 2011 ch8-p281
other person who claims to be aggrieved, the Court is satisfied that the rights conferred by this section are
being abused to secure needless publicity for defamatory matter.
(6) The Court may order the company's or the said other person's costs on an application under subsection
(5) to be paid in whole or in part by the director concerned, notwithstanding that he is not a party to the
application.
(7) Nothing in this section shall be construed as depriving a person removed thereunder of compensation or
damages which may be payable to him in respect of the termination of his appointment as director or of any
appointment terminating with that of director or as derogating from any power to remove a director which may
exist apart from this section.
Notes
Removal from office under s 220
The provisions of s 220 were first introduced in 1952 as s 69ter of the Companies Act 46
of 1926 '[i]n pursuance of the policy of giving shareholders a greater voice in the
administration of the company'. Before their introduction, if the articles provided that a
director was to hold office for a period, or even for life, and did not empower the
members to remove him, the members had no power to remove him before the
expiration of his office. 1937
Thus, while there is no doctrine of the common law which enables the members to
remove a director where the articles provide that he shall hold office for a period and do
not empower the members to remove him, 1938 s 220 provides that a company may by
ordinary resolution 1939 remove a director before the expiration of his office,
notwithstanding anything in its memorandum or articles or in any agreement between it
and him. 1940
The word 'director' can be read as including the plural 'directors', so that one
resolution can remove all the directors simultaneously. 1941 It has been held that the
section
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is designed exclusively for the removal of persons who are at the material time directors
of the company, and that it therefore does not apply where the company disputes that
the person in question is a director (it was pointed out that the assertion that the
persons in question had resigned as directors and the proposal to remove them from the
office of directors involved an obvious inconsistency). 1942 But the better view would
seem to be that there is no reason why shareholders in general meeting should not pass
a resolution dismissing a person as a director on the assumption that he is one. 1943
Since this provision authorises only the disregard of the company's articles or
agreements between the company and a director, it does not authorise the disregard by
members in general meeting of a contract that they, in their private or individual
capacities, have entered into binding themselves to retain a person in
office. 1944 Therefore, notwithstanding the existence of this provision, a person to whom
the members have so bound themselves can restrain them from voting for his removal.
Furthermore, the provision, because it does no more than make an ordinary resolution
sufficient to remove a director, does not fetter the right of a private company 1945 to
issue shares with voting rights loaded or weighted disproportionately to the number of
shares held. 1946 Therefore, if by the articles of a private company shares held by a
director sought to be removed carry additional voting rights, he may use those rights to
defeat a resolution for his removal. 1947 And this holds true even where the director's
shares carry the additional voting rights only when a resolution for his removal is voted
on, ie even where the additional voting rights do not apply generally in respect of every
occasion when a resolution is proposed at a general meeting. 1948What is more, where
the articles of a company, whether a public or private company, contain a provision that
the general meeting shall not have a quorum unless the holder of a particular class of
shares or his proxy is present, a member holding shares of that class can, by not
attending the meeting at which a resolution for his removal from office as director is to
be voted on, effectively prevent the company from
OS, 2002 ch8-p283
passing the resolution.1949 But provisions in the articles of a company, whether a
private or public company, which give a director, independently of his voting rights in
general meeting, a right to prevent an otherwise valid resolution from having any force
or effect, or which entitle members to be directors, are invalid in so far as they conflict
with the right of the members to remove a director by ordinary resolution.1950
The special notice requirement in s 220(2) means that, although a director may be
removed from office by ordinary resolution, the general rule requiring a minimum of 14
days' notice of an ordinary resolution does not apply. Instead, the person intending to
move the resolution has to give not less than 28 day's notice to the company, and the
company has to give not less than 21 days' notice to its members.1951 In addition, the
director has the protection afforded him by the provisions of s 220(2).
Although s 220 appears to assume a meeting requisitioned by members rather than
having application to a meeting called by the directors, 'it would not be purposeful to
hold that it [is] not a procedure available to directors.1952
A director is not entitled to an interdict to interfere with the company's statutory right
to remove him from the board on the ground that, if he were removed, he would be
entitled to a winding-up order on the just and equitable ground.1953 And the court will
not interdict a company from acting on a resolution for a director's removal on the
ground of irregularities in regard to the resolution where such irregularities caused the
director no prejudice and could be cured by going through the proper process.1954
OS, 2002 ch8-p284
Removal at common law and in terms of articles
Section 220(7) provides inter alia that nothing in s 220 empowering a company by
ordinary resolution to remove a director before the expiration of his office is to be
construed as derogating from any other power to remove a director which may exist.
At common law a director can be removed by ordinary resolution where the
company's articles are silent in regard to both the power to remove directors and the
director's term of office.1955
The articles of a company may empower its members, its directors, 1956 or even a
third party, 1957 to remove a director from office.1958 An exercise of such a power will
always effectively remove a director from office, ie even if it constitutes a breach of
contract on the part of the company.1959 And, because a company cannot be precluded
from altering its articles, a company may always alter its articles so as to include such a
power or an additional ground for disqualifying a director.1960
Where the articles of a company set up such a procedure for removal of directors
which is different from s 220, those who convene the meeting at which removal
resolutions are to be put, have, in effect, the right of election whether to proceed under
the company's articles or under s 220. Thus, where the articles empower the members
to remove directors, the members have a choice of procedure, and the company's board
of
RS 8, 2011 ch8-p285
directors does not have the right to pre-empt this choice. Where the members proceed
under the articles, they subject themselves to the requirements of the articles, and the
requirements of s 220 have no application (and where they proceed under s 220, the
requirements of the articles are irrelevant). 1961 Thus, where a director is to be removed
in terms of a provision in the articles, he is not entitled to the special notice 1962 that
must be given to him when the statutory power to remove him is to be exercised, for the
section of the Act conferring that power 1963 has no relevance whatever in regard to the
exercise of a power under the articles. 1964
Unless the articles so provide, it is not necessary that the power to remove be
exercised only on reasonable, good or sufficient cause. 1965 The cause for removal is,
however, relevant where the company has contracted with the director that he shall hold
office for a certain period and the director alleges that his removal from office
constituted a breach of that contract by the company. Because the shareholder's right to
vote is a proprietary right, he can ordinarily exercise his vote in any way he pleases, and
therefore a resolution by the general meeting removing a director from office cannot be
impeached on the ground that it was not passed bona fide in the interests of the
company. But where the directors have the power to remove, they must exercise that
power in the best interests of the company and not for an improper or ulterior
reasons. 1966
Removed director's rights
Section 220(7) provides inter alia that nothing in s 220 empowering a company by
ordinary resolution to remove a director before the expiration of his office is to be
construed as depriving a person removed thereunder of compensation or
damages 1967 which may be payable to him in respect of the termination of his
appointment as director or of any appointment terminating with that of director. In other
words, where the director's removal from office constitutes a breach of contract on the
part of the company, or where the company has contracted to compensate him in the
event of his removal from office, the fact that he was removed from office under the
statutory power does not affect his right to claim damages or compensation from the
company. The position is the same in the case of a director removed from office under a
provision in the company's articles, ie his removal does not, as such, deprive him of any
claim for
RS 8, 2011 ch8-p286
damages that he might have for termination of his office or of any appointment
terminating with that of director (eg that of managing director). 1968
Thus, a director who has been removed from office has an action for damages against
the company if, but and only if: (a) he has a contract 1969 with the company binding it to
compensate him or not to terminate his office (or any appointment terminating with the
termination of his office as director) despite the existence in its articles of the power to
do so 1970 or, where no such power already exists, despite any subsequent alteration of
the articles; 1971 and (b) he has not committed a breach of that contract which entitles
the company to cancel it. 1972 Therefore, in the absence of an agreement to the
contrary, he has no action even where he did contract with the company, if that contract
was no more than a contract in terms of the company's articles, ie if it was a contract
that he would hold office on the terms provided for in the company's articles governing
the office of director. This is because the company's power to remove him (whether that
power existed in the articles when the contract was entered into or was subsequently
introduced) formed part of his contract with the company. Hence his removal is in terms
of that contract, and not in breach of it. 1973 For example, where a director so contracted
with company and its articles provided that he should hold office for life, it was held that
he had no action for damages when the company subsequently altered its articles so as
to make him subject to re-election and, in terms of those amended articles, he
subsequently ceased to be a director. 1974
RS 8, 2011 ch8-p286-1
In SA Post Office v Mampeule, 1975 the court was faced with the validity of a typical
clause in a contract of employment that the removal from office, as director, of the chief
executive officer of the company would result in the automatic termination of his
appointment as chief executive officer.
In this case, the respondent was, in terms of a five-year fixed term contract,
appointed as a director and chief executive officer of the applicant, the South African
Post Office Ltd, which was a state owned entity. As is common practice, the contract
explicitly provided that membership of the board of directors was a prerequisite for the
appointment of a chief executive officer. The contract provided further that the
appointment of the chief executive officer may be terminated by the incapacity or
misconduct of the chief executive officer or by operational requirements.
About two and a half years after the respondent's appointment as chief executive
officer of the applicant, its board of directors approved a motion by the Minister of
Communication, on behalf of the sole shareholder, to remove the respondent from office
as director of the applicant. The reason for the motion was simply that as a result of the
respondent's conduct, the applicant had lost its trust and confidence in him.
The respondent's removal from office as director was followed by the termination of
his appointment as chief executive officer. The respondent referred the dispute to the
Labour Court on the ground that his dismissal was unfair. The court ruled that the
'automatic termination' clause of the contract had conflicted with the respondent's right
not to be unfairly dismissed, with the result that the clause in question was void. The
automatic termination of the respondent's employment as chief executive officer had
limited his rights under the Labour Relations Act 66 of 1995. The respondent had a right
not to be unfairly removed from office as chief executive officer - a right that could not
be contracted out by the parties. The automatic termination clause had been superseded
by the right not to be unfairly dismissed. The court a quorefrained, however, from
deciding the constitutional validity of the automatic termination clause.
On appeal, it was held, upholding the decision of the court a quo, that a managing
director or chief executive officer holds two positions, and acts in two different
capacities. He is a director and an employee of the company, and so, incidentally is a
full-time executive director of a company, which the court made no mention of. As an
employee, his contractual relationship with the company was found to fall within the
ambit of the Labour Relations Act. As such, the respondent had enjoyed a right not to be
unfairly removed.
It is disappointing to find in the judgment of the Labour Appeal Court, a rather
superficial, shallow and indifferent analysis of the underpinning corporate law principles
relating to the right of shareholders to remove a director before the expiration of the
period of his office. Section 220(7) of the Companies Act of 1973 balances the interests
of the parties by preserving the director's right to claim damages where his removal
from office is in breach of his contract with the company.
In the case of a 'quasi-partnership' or 'domestic' company, the courts may, where it is
just and equitable to do so, order the winding-up of the company on the just and
equitable
OS, 2002 ch8-p287
ground 1976 on the application of a member who has been removed from office as
director. A member of such a company who has been removed from office as director
ought, also, to be able to obtain relief under s 252.1977
A company may not make any payment or grant any benefit or advantage to any
director or past director of the company or its subsidiary or holding company, or a
subsidiary of its holding company, by way of compensation for loss of office, unless that
payment is made in compliance with the provisions of s 227. No such disclosure or
approval is, however, required in respect of any bona fide payment made or benefit or
advantage granted by way of damages for breach of contract (see s 227(6)).
Vacation of office
A director who becomes disqualified from holding office under the Companies Act ceases
to hold office on becoming so disqualified.1978 A director who is required by the articles
to hold a share qualification vacates his office if he does not obtain such qualification
within two months or within such shorter period as may be provided in the articles.1979
On the making of a compulsory winding-up order the directors of the company cease to
hold office.1980 In the case of a voluntary winding-up, however, the directors do not
cease to hold office. The position is, rather, that as from the commencement of the
winding-up all the powers of the directors cease except in so far as their continuance is
sanctioned by the liquidator or the creditors (in a creditors' voluntary winding-up) or by
the company in general meeting (in the case of a members' voluntary winding-up).1981
It would seem that in the case of a judicial management the directors, although deprived
of their powers of management, do not cease to hold office.1982
OS, 2002 ch8-p288
In addition, the articles 1983 of companies usually provide that the office of director
shall be vacated if the director
(a) ceases to be a director 1984 or becomes prohibited from being a director by virtue of any
provision of the Act; 1985 or
(b) without the consent of the company in general meeting holds any other office of profit
under the company except that of managing director or manager; 1986 or
(c) resigns his office by notice in writing to the company and the Registrar; or
(d) for more than six months is absent without permission of the directors from meetings of
directors held during that period; 1987 or
(e) is directly or indirectly interested in any contract or proposed contract with the company
and fails to declare his interest and the nature thereof in the manner required by the
Act.1988
OS, 2002 ch8-p289
Upon the happening of such specified event the office is ipso facto vacated.1989 If the
cause of vacation is the doing or suffering of some act, the outgoing director may,
however, be re-elected, 1990 unless the cause of the vacation is a continuing one.1991
Where a person has vacated office under a provision in the articles and the cause of that
vacation is a continuing one, he cannot be validly re-elected a director of that company
until that cause has ceased to exist.1992
Where the articles provide that a director's office is to be vacated if all the other
directors request him to resign, the other directors must exercise this power bona fide in
the interests of the company and not for an ulterior purpose; but even if their purpose is
improper, their request will effectively terminate the director's appointment.1993
Retirement from office
The articles of companies usually provide that all directors shall retire from office at the
first annual general meeting, and that at the annual general meeting in every
subsequent year one-third of the directors for the time being (or if their number is not
three or a multiple of three, the nearest to one third) shall retire.1994 Where there are
only two directors subject to such a provision, neither of them is bound to retire.1995 It
is also usually
OS, 2002 ch8-p290
provided in the articles of companies that the directors to retire in every year shall be
those who have been longest in office since their last election, 1996 but as between
persons who have become directors on the same day, those to retire shall, unless they
otherwise agree among themselves, be determined by lot.1997 The articles may provide
that a director whose term of office has come to an end shall continue in office until his
place has been filled.1998 The general rule however is that a director 'on his appointment
does not ordinarily step into an office which is perpetual unless terminated by some act,
but into an office the holding of which is limited by the terms of the articles', and
therefore, in the absence of an express provision to the contrary, he vacates his office
when his term office of is completed even if no meeting is held at which his position
could be filled.1999
Resignation
Subject to any provision to the contrary in the company's articles and in any contract
between the director and the company, a director is entitled to relinquish his office at
any time he pleases by proper notice to the company, and such resignation is not
dependent upon any acceptance of the company.2000 Consequently, once having given
proper notice of
RS 5, 2008 ch8-p291
his resignation, a director is not entitled to withdraw it unilaterally, and may do so only
with the consent of those entitled to appoint a new director. 2001 The articles usually
provide that a director vacates his office if he resigns his office by notice in writing to the
company and the Registrar. 2002 Where the articles thus provide for a written notice of
resignation to the company, a verbal notice of resignation to the company in general
meeting will nevertheless be equally effective. 2003 Where the articles require written
notice to the company or the board of directors, oral notice of resignation becomes
effective only upon acceptance by the company. 2004 Where the articles provide that a
director vacates his office if he resigns his office by notice to the company, or they make
no provision for the director's resignation, a director who has contracted to serve the
company for a fixed period can effectively resign before the termination of that period,
but he will be liable to the company in damages for any loss which it suffers as a result
of his premature termination of his services. 2005 If the articles provide that a director's
office will be vacated only when (and not merely that its vacation will be suspended
until) his resignation is accepted by the company, his resignation is not effective until it
has been so accepted. 2006 Consequently, he will remain a director until such
acceptance, and he may withdraw his resignation at any time before it has been
accepted. 2007 Despite the entitlement a director
RS 5, 2008 ch8-p292
has to resign at any time, it may result in contempt of court. In Minister of Water
Affairs & Forestry v Stilfontein Gold Mining Co Ltd and Others 2008 a gold mining
company hadfailed to comply with an order of the High Court in which the company had
been compelled to comply with certain directives issued by the Minister of Water Affairs
and Forestry in terms of the provisions of s 19(3), read with s 19(1), of the National
Water Act 36 of 1998. The directives were aimed at the prevention of water pollution.
The case involved an application by the Minister for an order declaring the company and
its directors to be in contempt for failing to comply with the court's order. The ex-
directors resisted the application on, inter alia, the ground that neither they nor the
company were in wilful contempt. More specifically, they contended that they had
resigned as directors of the company. It appeared from the evidence that they had
resigned their positions shortly after having abandoned an application for the winding-up
of the company and on legal advice that if they continued in office, the company's non-
compliance with the court order might render them party to reckless trading or force
them to manage the company on the basis that it did not comply with court orders.
The court found that the respondents were in contempt - they were guilty of a wilful
and mala fide refusal or failure to comply with the court order. Salient aspects of Hussain
J's judgment were:
The company had sufficient funds to comply with the interim payment sought in the
directives.
There was no risk that the directors would be subject to accusations of reckless trading
simply because they complied with an order of court. Indeed, if there were any
recklessness, it was in the directors' mass resignation, thereby leaving the first
respondent, a listed company, 'completely rudderless'. The timing of the resignations
was rushed in order to meet the hearing date of the application. One did not expect,
within the corporate environment, that the entire board of a public company would
suddenly resign. There should, at the very least, have been some form of notification. At
the very least, the directors ought to have called a special general meeting of the
company to inform the members of their decision to resign. At least, then, the members
in a meeting would have been given an opportunity to decide the future fate of the
company. Investors and shareholders do not expect or foresee that all of the directors of
a public company will suddenly resign with no notice. This must have had a negative
impact on the stock exchange.
At all material times the directors were under a duty to act bona fide in the interests of
the company. This is the fundamental duty which qualifies the exercise of any powers
which the directors in fact have. The 'interests' in this context, are only those of the
company itself as a corporate entity and those of its members as a body. The court was
not persuaded that the directors in the case acted in good faith upon reasonable grounds
for their decision to resign. All that the directors achieved was merely to incapacitate
themselves from discharging their duties towards the company and its members. This
was unacceptable and the directors could not be allowed to merely walk away because it
was convenient for them to do so. They accepted appointments as directors of a listed
company and they thereby accepted the duties and obligations that go with it.
RS 7, 2010 ch8-p292-1
The conduct of the directors flew in the face of everything recommended in the code of
corporate practices and conduct recommended by the King Committee. 2009 They acted
irresponsibly in merely abandoning the company, a listed company of which they were
the directors.
The court stressed the characteristic of good corporate governance, namely, social
responsibility, which was stated by the King Committee as follows:
'A well-managed company will be aware of, and respond to, social issues, placing a high priority on
ethical standards. A good corporate citizen is increasingly seen as one that is non-discriminatory,
non-exploitative, and responsible with regard to environmental and human rights issues. A
company is likely to experience indirect economic benefits, such as improved productivity and
corporate reputation, by taking those factors into consideration.'
By resigning as they did, the court said that the directors were simply walking away from
their environmental obligations.
The situation that arose in this case is perhaps analogous to the situation where a
director 'deliberately contrary to the interests of the company . . . does not attend [a]
meeting, or leaves it, or simply does not vote'. 2010 In such circumstances the director
would be in breach of the duty to act bona fide in the interests of the company. 2011 A
director who promotes a cause amongst his fellow directors may, in the circumstances,
breach this duty even if he refrains from voting when the matter is put to the directors.
In Darvall v North Sydney Brick & Tile Co Ltd 2012 Kirby P rejected the argument that a
director, because he left the meeting at the stage when the transaction was to be voted
on, was not to be counted in determining the bona fides of the directors:
'He only left after that agreement was signified and then after reading out his proposal to make
the bid I do not believe that he can escape involvement in the by then formal ratification of the
agreements which followed by the simple expedient of leaving the room.'
Hussain J's judgment raises interesting issues:
How far does a director's liberty to resign extend? And in circumstances where the
director's fiduciary duties require the director not to resign, how long is he/she required
to remain in office before resigning? A careful balancing act will be required to give
effect, on the one hand, to a director's duty to act bona fide in the interest of the
company, and on the other, to a person's basic constitutional right to resign.
Another question that the judgment raises is the role that corporate governance
practices can play in resolving legal issues. The King Code and King's other
recommendations on corporate governance do not have legal binding force. (It is not
clear from Hussain J's judgment to what extent he placed reliance on these suggested
principles in arriving at his decision in the case perhaps his dicta are to be seen
asobiter.)
RS 7, 2010 ch8-p292-2
In conclusion it is to be noted that in relation to the fact that all the directors had
resigned at once, Hussain J said: 'I do not believe it was ever conceived that such a set
of circumstances would materialise.'2013 This is odd. Such a situation is no different to
one in which, for example, all the directors are killed at the same time in an accident,
which is quite conceivable. Also, s 182 clearly conceives of such situations by giving the
power to convene a general meeting of a company '[w]here all the directors of the
company have become incapacitated or have ceased to be directors . . .'
Where directors resign in order to put 'stooge' directors in their place and then
continue to control the company, their resignation is a sham and will de jure be
disregarded. 2014
Termination of a directorship by mutual consent is, of course, possible. 2015 Thus it has been
held: 2016 'Like the membership of a co-operative society . . . the relationship between a director
and a company is essentially contractual and I can see no reason why that relationship cannot be
terminated by mutual consent. Unless, of course, such an agreement is specifically excluded by
the articles of the company. However, the mere fact that the articles do not specifically provide for
termination by agreement does not mean that this has been excluded.'
Restrictions on Directors, their Powers and Certain Acts (ss 221-228)


1937 See Report of the Committee on Company Law Amendment Cmd 6659 (1945) para 130 (the Cohen
Committee) and Final Report of the Company Law Amendment Enquiry Commission 1947-1948 UG No 69-1948
para 125-126 (the Millin Commission). On the removal of the director from office, see: R C Beuthin 'A Director
Firmly in the Saddle' (1969) 86 SALJ 481; D Prentice 'Removal of Directors from Office' (1969 32 MLR 695);
Anon '"Weighted" or "Loaded" Votes in Private Companies' (1977) SA Company LJ D5-20; M J Oosthuizen
'Swerdlow v Cohen & Others 1977 (1) SA 178 (W)' 1977 TSAR 165; Bernard J Cartoon 'The Removal of
Company Directors' [1980] JBL 17; D A Preis 'Prevention of the Statutory Removal of Directors' (1983)
5 MBL 111; J Birds 'Excluding a Director from Office' (1985) 6 Company Lawyer 37; M P Larkin 'Distinctions
and Differences: A Company Lawyer Looks at Executive Dismissals' (1986) 7 ILJ 248; M J Oosthuizen
'Onrelmatige Vergaderingsprosedure en Ontslag van Direkteure: James North (Zimbabwe) (Pvt) Ltd v
Mattinson 1990 (2) SA 228 (ZHC)' 1991 TSAR 301.
1938 Imperial Hydropathic Hotel Co, Blackpool v Hampson (1882) 23 ChD 1 7.
1939 Swerdlow v Cohen 1977 (3) SA 1050 (T) 1053.
1940 s 220(1)(a). This does not apply in the case of a director of a private company who was to hold office
for life on 13 June 1949: s 220(1)(b).
1941 Taylor v McNamara [1974] 1 NSWLR 164; Claremont Petroleum NL v Indosuez Nominees Pty Ltd (1986)
10 ACLC 520 SC(Qld). And see Re Holmes Life Funds of Australia Ltd [1971] 1 NSWLR 860.
1942 Currie v Cowdenbeath Football Club Ltd [1992] BCLC 1029 CS(OH).
1943 Browne v Panga Pty Ltd (1995) 17 ACSR 75 SC(WA).
1944 Stewart v Schwab 1956 (4) SA 791 (T); Desai v Greyridge Investments (Pty) Ltd 1974 (1) SA 509
(A) 518; Swerdlow v Cohen 1977 (3) SA 1050 (T) 1057; Amoils v Fuel Transport (Pty) Ltd 1978 (4) SA 343
(W) 347 (where the court rejected the argument that 'company' in s 220(1)(a) refers to shareholders in
general meeting and that that section therefore empowers the shareholders to remove a director
notwithstanding a shareholders' agreement to the contrary);Barlows Manufacturing Co Ltd v R N Barrie (Pty)
Ltd 1990 (4) SA 608 (C) 611-612. It makes no difference that the company is also a party to the agreement if
the agreement between the shareholders inter se is severable from the agreement with the company and is
enforceable between the shareholders inter se: Amoils v Fuel Transport (Pty) Ltd 1978 (4) SA 343 (W) 347. (It
may be noted that the correctness of the conclusion in Stewart v Schwab supra that a shareholders' agreement
precluding removal of a director is valid and enforceable was challenged in Desai v Greyridge Investments
(Pty) Ltd supra 518, but the court found it unnecessary to rule on the question).
1945 A public company cannot issue such loaded or weighted shares: s 195(1); but a private company (save
in the exceptional circumstances provided for in s 194(1)) is prevented only from issuing shares with no voting
rights attached: s 193(1); see Swerdlow v Cohen 1977 (1) SA 178 (W) 184.
1946 Bushell v Faith [1970] AC 1099; [1970] 1 All ER 53 (HL); Swerdlow v Cohen 1977 (1) SA 178 (W).
1947 Bushell v Faith [1970] AC 1099; [1970] 1 All ER 53 (HL); Swerdlow v Cohen 1977 (1) SA 178
(W); James North (Zimbabwe) Pvt Ltd v Mattinson 1990 (2) SA 228 (ZHC) 239-242. See also Swerdlow v
Cohen 1977 (3) SA 1050 (T) 1057, where the correctness of the decision in Bushell v Faith was assumed.
1948 Bushell v Faith [1970] AC 1099; [1970] 1 All ER 53 (HL); and see Swerdlow v Cohen 1977 (3) SA 1050
(T) (where the correctness of the decision in Bushell v Faith was assumed); James North (Zimbabwe) Pvt Ltd v
Mattinson 1990 (2) SA 228 (ZHC) 239-242. But see Swerdlow v Cohen 1977 (1) SA 178 (W) and the
dissenting speech of Lord Morris in Bushell v Faith supra.
1949 Harman v BML Group plc [1994] 2 BCLC 674 678 (CA), where Dillon LJ, pointing out that it is not
uncommon in private companies for steps to be taken to prevent a minority holding from being overridden by
the majority shareholders by entrenching voting rights on particular questions (referring here to Bushell v
Faith [1970] AC 1099; [1970] 1 All ER 53 (HL), said: 'Here we have, in the shareholders' agreement signed by
all the shareholders attaching rights to the shareswhich must have the same effect as if the rights had been
set out as class rights in the articlesthe provision that [the person in question] is entitled to remain in office
as a director of the company for so long as he . . . owns the B shares. Then there is the quorum provision that
a shareholder's meeting shall not have a quorum unless a B shareholder or proxy is present. That is essential
to entrench [the person in question's] right to remain a director. With nothing else to protect it that would be
overridden by an ordinary resolution. The provision as to quorum is not just the mere chance that that is how
the number of shares are held. It is a special provision to secure the directorship. . . I do not see why it is not
equally entrenched as a provision which enables [him] to preserve in office any people who are his allies for
the time being on the board.'
1950 Swerdlow v Cohen 1977 (1) SA 178 (W); 1977 (3) SA 1050 (T).
1951 As to special notice, see s 186(3).
1952 Dick v Comvergent Telecommunications Ltd (2000) 34 ACSR 86 90 SC(NSW), where it was held that
instructions by a managing director to the secretary to convene a general meeting to consider a resolution for
the removal of certain directors, could not amount to notice under s 203D(2) of the Australian Corporations
Law, for the meeting called was not a meeting called after notice of intention to move the resolution had been
given to the company.
1953 Bentley-Stevens v Jones [1974] 2 All ER 653. And see Pennell, Sutton and Moraybell Securities Ltd v
Venida Investments Ltd (unreported July 25, 1974), noted by Susan J Burridge 'Wrongful Rights Issues' (1981)
44 MLR 40, where the court refused to grant an injunction interfering with the defendant company's statutory
right to remove a director from office.
1954 Bentley-Stevens v Jones [1974] 2 All ER 653, where the director did not receive the required notice of
meeting of the board that convened the general meeting in question, and it was held that an interlocutory
injunction would not be granted to him since the irregularity could be cured by giving a valid notice. And
see James North (Zimbabwe) Pvt Ltd v Mattinson 1990 (2) SA 228 (ZHC).
1955 Appel v Sher 1950 (2) SA 224 (W) 229, where it was held that, the articles being silent as to the term of
office of the directors, the company 'can appoint a director and then, when it pleases, remove that director'.
See howeverImperial Hydropathic Hotel Co, Blackpool v Hampson (1882) 23 ChD 1 10, where Cotton LJ found
it unnecessary to express any opinion whether a company has any inherent power to remove directors where
the articles do not provide for the duration of their office of director; and see Transcash SWD (Pty) Ltd v
Smith 1994 (2) SA 295 (C), where it would seem to have been accepted that in the absence of a contrary
provision in the articles, a director can be removed only by the special procedure laid down in s 220.
1956 See eg Shuttleworth v Cox Bros & Co (Maidenhead) Ltd [1927] 2 KB 9; [1926] All ER Rep 498
(CA); Bersel Manufacturing Co Ltd v Berry [1968] 2 All ER 552 (HL).
1957 See Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701; [1940] 2 All ER 445 (HL).
1958 Section 220(7) provides that nothing in s 220 shall be construed as derogating from any power to
remove a director which may exist apart of that section. In Delfante v Delta Electrical Industries Ltd 1992 (2)
SA 221 (C) it was held that a provision in an agreement entered into by all the company's shareholders
purporting to entitle certain of them to appoint and remove a director, had the effect of nullifying a provision in
the articles of the company in terms of which a director's office would be ipso facto terminated if he were given
notice requiring him to resign by shareholders holding 50% of the voting rights of all the members. However,
while it is undoubted that the shareholders of a company can bind themselves to one another not to exercise a
power that they have under the company's articles, such an agreement cannot have the effect of altering the
articles: see notes on s 199.
1959 Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701; [1940] 2 All ER 445 (HL); De Villiers v
Jacobsal Saltworks (Michaelis & De Villiers) (Pty) Ltd 1959 (3) SA 873 (O) 874; and see Ross & Co v
Coleman 1920 AD 408 418. It has been said that this is because a company cannot be precluded from acting
on its articles: Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 740-741; [1940] 2 All ER 445 469
(HL), per Lord Porter. But there is no reason in principle why a company cannot bind itself not to exercise
powers conferred on it by its articles, and indeed companies frequently do so. It has also been suggested that
this rule is simply the (now qualified) rule that a contract of personal service will not be enforced
specifically: Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 723; [1940] 2 All ER 445 458-459
(HL), per Lord Wright. But the better view would seem to be that the nature of the office of a director is such
that courts will not compel a company to have a director it does not want, and that the appropriate remedy is
always in damages. See however Barlows Manufacturing Co Ltd v R N Barrie (Pty) Ltd 1990 (4) SA 608
(C) 611, where the court would seem to have been of the opinion that, where a managing director has a
contract with the company entitling him to remain in office for a certain period, the company can effectively
remove him from office only if it has not given up the right to revoke the service agreement on good cause.
1960 Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701; [1940] 2 All ER 445 (HL); De Villiers v
Jacobsal Saltworks (Michaelis & De Villiers) (Pty) Ltd 1959 (3) SA 873 (O) 874; and see Ross & Co v
Coleman 1920 AD 408 418.
1961 Re Holmes Life Funds of Australia Ltd [1971] 1 NSWLR 860; Browne v Panga Pty Ltd 1995 17 ACSR 75
85-86 SC(WA); Shanahan v Pivot Pty Ltd (1998) 26 ACSR 740 748 SC(Vic); Link Agricultural Pty Ltd v
Shanahan (1998) 28 ACSR 498 516-517 SC(Vic); Howard v Mechtler (1999) 30 ACSR 434 437-438
SC(NSW); Dick v Comvergent Telecommunications Ltd (2000) 34 ACSR 86 SC(NSW).
1962 ie the special notice required by s 220(2) when the power to remove under s 220(1) is to be exercised.
1963 ie s 220.
1964 Re Holmes Life Funds of Australia Ltd [1971] 1 NSWLR 860 (where it was held that, since the articles
did not provide for notice, the director could be removed without notice); Browne v Panga Pty Ltd (1995) 17
ACSR 75 85-86 SC(WA).
1965 Inderwick v Snell (1875) 2 Mac & G 216 221-223; 42 ER 83 85-86.
1966 Lee v Chou Wen Hsien [1984] 1 WLR 1202; [1985] BCLC 45 (PC); on directors' duties in regard to the
exercise of their powers, see note DUTY TO EXERCISE POWERS FOR PROPER PURPOSE in notes on s 208.
1967 As to damages, see Beach v Reed Corrugated Cases Ltd [1956] 2 All ER 652 659; Shindler v Northern
Raincoat Co Ltd [1960] 2 All ER 239; Bold v Brough, Nicholson & Hall Ltd [1963] 3 All ER 849; Yetton v
Eastwoods Froy Ltd [1966] 3 All ER 353. In Bold v Brough, Nicholson & Hall Ltd supra the damages awarded to
the wrongfully dismissed director covered: (1) loss of salary and commission; (2) diminution in pension and
loss of life insurance cover under the defendant company's staff pension and assurance scheme; (3) the
amount of premiums payable under the defendant company's discretionary pension and life assurance scheme
which the company had undertaken to pay on behalf of the director.
1968 'The articles may give them the power to dismiss, but the power to dismiss is to be distinguished from
the right to dismiss', per Lord Wright in Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 722; [1940] 2
All ER 445 458 (HL).
1969 The articles of association of a company do not themselves create a contract between the company and
a director in his capacity such: De Villiers v Jacobsal Saltworks (Michaelis & De Villiers) (Pty) Ltd 1959 (3) SA
873 (O) 874 877. But where no express contract has been entered into, a contract in terms of the articles will
ordinarily be implied: see eg Ross & Co v Coleman 1920 AD 408 418.
1970 Nelson v James Nelson & Sons Ltd [1914] 2 KB 770; [1914-1915] All ER Rep 433 (CA).
1971 Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701; [1940] 2 All ER 445 (HL); De Villiers v
Jacobsal Saltworks (Michaelis & De Villiers) (Pty) Ltd [1959] 3 SA 873 (O). A company cannot by altering its
articles justify a breach of contact: ibid.
1972 See eg Farmers' Associated Dairies v Goldstein 1924 WLD 181.
1973 Read v Astoria Garage (Streatham) Ltd [1952] Ch 637; [1952] 2 All ER 292 (CA). Such a contract is a
contract made upon the terms of an alterable article, the alteration of which by the company in terms of its
statutory powers can afford no valid ground of complaint by either of the contracting parties: Shuttleworth v
Cox Bros & Co (Maidenhead) Ltd [1927] 2 KB 9; [1926] All ER Rep 498 (CA); De Villiers v Jacobsal Saltworks
(Michaelis & De Villiers) (Pty) Ltd 1959 (3) SA 873 (O) 874 880. The principle here was stated thus by Innes CJ
in Ross & Co v Coleman 1920 AD 408 418-419 (a case concerning the director's right to remuneration): 'The
machinery for alteration was there, operative to the knowledge of the parties in respect of the entire matter of
directors' remuneration. Was there anything in their agreement which prohibited any change during the
plaintiff's period of service? Express prohibition there was none, and I can see no sufficient ground for implying
a prohibition. When an article has been duly amended, the future operation of that article upon existing rights
cannot be excluded unless the intention of the contracting parties to preserve such rights intact is beyond
doubt. . . . A director is entitled to such benefits as the articles may specify; the articles are subject to
amendment; and any agreement as between the company and the director, that those benefits shall remain
undiminished under all circumstances, must very clearly appear, if it is to be given effect to. The general rule,
as pointed out by Lindley MR [in Allen v Gold Reefs of West Africa [1900] 1 Ch 656 673] is that existing rights
founded or dependent upon alterable articles are limited as to their duration by the duration of the articles
which confer them.'
1974 De Villiers v Jacobsal Saltworks (Michaelis & De Villiers) (Pty) Ltd 1959 (3) SA 873 (O).
1975 (2010) 31 ILJ 2051 (LAC).
1976 s 344(h).
1977 There was authority for the proposition that s 111 bis of the Companies Act 46 of 1946 could not be
invoked in these circumstances, because it was concerned only with prejudice to a member qua member. The
test in s 252 is however not identical to the test contained in s 111 bis of the 1926 Act, and it would seem to
be reasonably certain that a member-director of such a company who is removed from office can now obtain
relief under s 252. See notes on s 252.
1978 s 218 and s 219.
1979 s 213(1)(a).
1980 Our courts have taken the view that, on the grant of a winding-up order, including a provisional
winding-up order, the directors of the company at the commencement of the winding-up cease to be such
functionally, officially and nominally, their powers and duties terminate, and they are deprived of all control of
the company's property: Attorney-General v Blumenthal 1961 (4) SA 313 (T) 314-315; S v Cope 1970 (3) SA
605 (T) 608; Volkskas Bpk v Darrenwood Electrical (Pty) Ltd 1973 (2) SA 386 (T) 389-390; Secretary for
Customs & Excise v Millman 1975 (3) SA 544 (A) 552. See however Re Country Traders Distributors Ltd and
The Companies Act [1974] 2 NSWLR 135 138; Austral Brick Co Pty Ltd v Falgat Construction Pty Ltd (1990) 2
ACSR 766 SC(NSW). Although our courts have held that a director's office is terminated on the making of a
winding-up order, they have nevertheless accepted that where a provisional winding-up order has been made,
the directors have a residual power (without the co-operation of the provisional liquidator, if any) to cause the
company to take the necessary steps to oppose the grant of a final winding-up order (and to anticipate the
return day for that purpose) and to appeal against the grant of such order. See notes on s 348.
1981 s 353(2).
1982 Section 428(2) provides that a provisional judicial management order must contain (inter alia) directions
that the company shall be under the management of a provisional judicial manager 'and that any other person
vested with the management of the company's affairs shall from the date of the making of the order be
divested thereof'; and under s 443, on the making of a final judicial management order, the judicial manager
must 'take over from the provisional judicial manager and assume the management of the company'. In Alpha
Bank Bpk v Registrateur van Banke 1996 (1) SA 330 (A) 352 the court rejected the argument that, while the
management of the company is transferred to the judicial manager (s 443(a) (b) (f) and (g)), control of the
company remains in the board and, hence, the directors retain certain residual powers (in particular, the power
to issue unissued shares). It was held that, while the shareholders 'control' the company, the board of
'manages' it; and therefore when the management of a company is transferred to the judicial manager its
board is left with no residual powers.
1983 See art 65 of Table A and art 66 of Table B.
1984 As to expiry of term of office, see below.
1985 See art 65(a) of Table A and art 66(a) of Table B.
1986 See art 65(b) of Table A and art 66(b) of Table B.
1987 See art 65(d) of Table A and art 66(d) of Table B. When no meetings of the directors are held during the
specified period, the directors do not vacate their offices: The South African Bank v Faure (1887) 5 SC 54.
Where the article provides that a director shall vacate office, not if he 'is absent', but if he 'absents himself',
this means 'if he voluntarily absents himself' and therefore absence through illness does not result in vacation
of office: Re London and Northern Bank (Mack's Claim) [1900] WN 114; Re London Northern Bank (McConnell's
Claim) [1901] 1 Ch 728.
1988 See art 65(e) of Table A and art 66(e) of Table B. For the provisions of the Act in regard to such
disclosure, see ss 234-241 and notes thereon. Unless the articles otherwise provide, the fact of holding shares
in another company contracting with the company is a sufficient interest to create disqualification: Dimes v
Proprietors of Grand Junction Canal Co (1852) 3 HLC 759; Todd v Robinson (1884) 14 QBD 739 (CA); Turnbull
v West Riding Athletic Club Leads Ltd(1894) 70 TL 92. In Star Steam Laundry Company v Dukas (1913) 108 LT
367 the article provided that the office of director was vacated 'if he is concerned in or participated in the
profits of any contract with the company'. Farwell LJ held that it was enough that the director had been
concerned in the contract, although there had been no profit. In Nel v De Necker 1948 (1) SA 884 (W) the
company's articles provided that the office of director 'shall be vacated . . . if he is concerned or participated in
the profits of any contract with the company unless such concern or participation in the profits of any such
contract be made with the unanimous knowledge and consent of his co-directors'. Ramsbottom J distinguished
the decision in Star Steam Laundry Company v Dukas supra. The articles in that case, he said, did not read 'if
he is concerned in', but meant, rather 'if he is concerned in the profits or if he participated in the profits'. The
learned judge said (at 890) that, had the company adopted an article that the office of a director shall be
vacated if the director 'is directly or indirectly interested in any contract with the company or participates in the
profits of any contract with the company', it would have been sufficient to show that the applicant was
interested in a contract with the company.
1989 Re Bodega Co Ltd [1904] 1 Ch 276; [1900-3] All ER Rep 770; James North (Zimbabwe) Pvt Ltd v
Mattinson 1990 (2) SA 228 (ZHC) 237 (where it was held that the director had automatically vacated office
from the date of his letter of resignation, and there was no question that his resignation had to be accepted
before it could take effect). It is not necessary that the board should resolve that he has vacated his office -
indeed, in the words of Ramsbottom J in Nel v De Necker 1948 (1) SA 884 (W) 887, such a resolution is
irrelevant 'since a director who did the prescribed act would cease to be a director even though the board were
to resolve that he should not vacate his office'. In Re Bodega Co Ltd [1904] 1 Ch 276; [1900-1903] All ER Rep
770 Farwell J said: 'In my opinion it is quite plain on the words of the article that he ipso facto or
automatically, vacates his office on the act being done: there is no distinction between this and the other
events mentioned in the articles, eg bankruptcy, and in none of them is there any locus poentitentiae for him,
or any means by which the directors can condone the offence or the act which causes the vacation. The office
is vacated automatically, and if his co-directors wish him still to act, he has to be re-elected in the usual way;
or the casual vacancy has to be filled up under the article to that effect. The directors having nothing whatever
to do with the vacation of the office by an event over which they have no control, and with which they have
nothing to do except to satisfy themselves that the fact has happened, if the fact be put in issue.'
1990 Re Bodega Co Ltd [1904] 1 Ch 276; [1900-1903] All ER Rep 770.
1991 Re Bodega Co Ltd [1904] 1 Ch 276; [1900-1903] All ER Rep 770; Haupt v De Villiers (1883) 2 SC
392; Ebden v Arderne (1884) 2 SC 411. In Re Bodega Co Ltd supra Jessel MR said (at 284-285; at 773-774):
'I do not understand the article to mean that, if a man be concerned in a contract not disclosed, and he
thereby vacates his office, he cannot be elected in a subsequent year. To my mind it is not a continuing
disqualification unless the work to be done under the contract is a continuing work. If the work to be done
under the contract ought to be reviewed by the director concerned in the contract, and the discretion which the
company is entitled to expect from that director is still to be exercised after the next election, then, and then
only, the re-election would be avoided by the continuing contract. But when, as here, it is a contract made
once and for all for a particular purchase, and the matter comes to an end in the current year, then I think, it
only applies to the particular holding of the directorship for the current year.'
1992 Haupt v De Villiers (1883) 2 SC 392; Ebden v Arderne (1884) 2 SC 411; Re The Bodega Co Ltd [1904] 1
Ch 276; [1900-3] All ER Rep 770. As to vacation of office under provisions in the articles, see art 65 of Table A
art 65 and art 66 of Table B.
1993 Lee v Chou Wen Hsien [1984] 1 WLR 1202; [1985] BCLC 45 (PC).
1994 See art 66 of Table A. Article 67 of Table B, however, provides inter alia that the company in general
meeting may from time to time determine the terms of office and the manner of retirement. In Mills v Durban
Roodeport Mining Syndicate Ltd 1925 WLD 108 it was held that even where the company's articles contain an
article in this form the directors may tacitly agree that all of them should retire.
1995 In Re David Moseley & Sons Ltd [1939] Ch 719; [1939] 2 All ER 791 a company provided by its articles
of association that at every annual general meeting one-third of the directors, or, if their number was not a
multiple of three, then the nearest number to, but not exceeding, one-third, should retire from office, the
director or directors who had been longest in office to be the ones to retire. The number of directors of the
company was reduced to two. It was held that neither of them was bound to retire from office. Simonds J held
(at 723, at 794): 'The article, in my judgment, does not provide for the retirement of a director unless one of
two conditions is satisfied: either there must be a number which is one-third of the directors, or there must be
a number which is nearest to but does not exceed one-third. Here it is clear that neither of those conditions is
satisfied. There are two directors, and, therefore, you cannot find a number which is one-third. There are two
directors, and, therefore, you cannot find a number which is nearest to, but does not exceed, one-third.
Accordingly, although it may be that the general intention of this particular article is not satisfied, the answer is
that the articles will have to be altered to give effect to what may well be the intention of the company'.
1996 See Kraus v JG Lloyd Pty Ltd [1965] VR 232 233-234.
1997 See art 67 of Table A. See Parsons v Langemann 1948 (4) SA 258 (C). 'By lot' means depending on
chance, and where the word 'ballot' is used instead it means by lot unless there is an indication to the
contrary: Eyre v Milton Property Ltd [1936] Ch 244 (CA).
1998 In Grundt v Great Boulder Proprietary Gold Mines Ltd [1948] Ch 145; [1948] 1 All ER 21 (CA) the
articles of the company provided that: 'If at any general meeting at which an election of directors ought to take
place the place of any director retiring by rotation is not filled up, he shall, if willing, continue in office until the
next ordinary meeting in the next year, and so on from year to year until his place is filled up, unless it shall be
determined at any such meeting on due notice to reduce the number of directors in office.' At an annual
general meeting a director retired by rotation but a resolution for his re-election was lost on a show of hands.
There was no resolution to reduce the number of directors in office. It was held that the director continued in
office in terms of the company's articles. Grundt v Great Boulder Proprietary Gold Mines Ltd supra was followed
in: Re QCT Resources Ltd 1992 1 QdR 417; Re Morris (1994) 15 ACSR 490 SC(Qld) (it is irrelevant that the
articles also contain a provision empowering the members by ordinary resolution to remove a director before
the expiration of his term of office); Jones v Money Mining NL (1995) 17 ACSR 531 SC(WA) (such an article
applies to a case of inadvertence - a case where by sheer oversight, the meeting fails to fill up the place of the
retiring director). Where the directors retiring at the meeting are immediately re-elected or, not being re-
elected because there is no resolution to fill the office, they remain directors, there is no vacation of the office
at all: Walker v Kenns Ltd [1937] 1 All ER 566 (CA).
1999 per Sargant J in Re Consolidated Nickel Mines Ltd [1914] 1 Ch 883 888; Re New Cedos Engineering Co
Ltd [1994] 1 BCLC 797. In Re Consolidated Nickel Mines Ltd supra the company's articles provided that at the
ordinary general meeting to be held in 1906 all the directors should 'retire from office'. No general meeting was
held or called in 1906 or 1907, but the directors continued to act as such. It was held that the directors
vacated office on December 31, 1906 (being the last day on which a general meeting for that year could have
been held). The duty of the directors was to call a meeting in 1906 and 1907, and they could not take
advantage of their own default in that respect and say that they still remained directors. See also Morris v
Kanssen [1946] AC 459; [1946] 1 All ER 586 (HL); Cane v Jones [1981] 1 All ER 533; Re Zinotty Properties
Ltd [1984] 3 All ER 754 763; Club Flotilla (Pacific Palms) Ltd v Isherwood (1988) 12 ACLR 387 SC(NSW).
2000 Re Bodega Co Ltd [1904] 1 Ch 274; [1900-3] All ER Rep 770; Glossop v Glossop [1907] 2 Ch
370; Marks v Commonwealth (1965) 111 CLR 549 571 (HC of A); Rosebank Television & Appliance Co (Pty)
Ltd v Orbit Sales Corporation (Pty) Ltd 1969 (1) SA 300 (T) 302; James North (Zimbabwe) Pvt Ltd v
Mattinson 1990 (2) SA 228 (ZHC) 237; On the Street Pty Ltd v Cott (1990) 3 ACSR 54 61 SC(NSW); Re
Elgindata Ltd [1991] BCLC 959 976.
2001 Sales Corporation (Pty) Ltd 1969 (1) SA 300 (T) 302; James North (Zimbabwe) Pvt Ltd v
Mattinson 1990 (2) SA 228 (ZHC) 237; On the Street Pty Ltd v Cott (1990) 3 ACSR 54 61 SC(NSW); Re
Elgindata Ltd [1991] BCLC 959 976.InGlossop v Glossop [1907] 2 Ch 370 374-375 Neville J said: 'I have no
doubt that a director is entitled to relinquish his office at any time he pleases by proper notice to the company,
and that his resignation depends upon his notice and is not dependent upon any acceptance by the company,
because I do not think they are in a position to refuse acceptance. Consequently, it appears to me that a
director, once having given in the proper quarter notice of his resignation of his office, is not entitled to
withdraw that notice, but, if it is withdrawn, it must be by the consent of the company properly exercised by
their managers, who are the directors of the company. But, of course, that is always dependent upon any
contract between the parties, and that has to be ascertained from the articles of association.'
2002 See art 65(c) of Table A and art 66(c) of Table B. In Symington v Pretoria-Oos Privaat Hospitaal Bedryfs
(Pty) Ltd 2005 (5) SA 550 (SCA) at para 18 it was held that the relationship between a director and his
company is essentially a contractual one which can be terminated at any time by mutual consent, unless this is
excluded by the articles of the company. Article 66(c) of Table B of Schedule 1 of the Act states that the office
of a director shall be vacated if the director resigns his office by written notice to the company and the
Registrar. The Court held that article 66(c) (if applicable) does not preclude an effective resignation by a
director by agreement with the company; article 66(c) applies only to unilateral resignations and has no effect
on vacation of office by agreement.
2003 Latchford Premier Cinema Ltd v Ennion [1931] 2 Ch 409; 1931 All ER Rep 55. Where the articles provide
that a certain length of notice (eg six months) be given within a certain specified period (eg within 12 months
of a takeover), they do not require that the resignation be effective within the latter specified period, and,
consequently, if notice of resignation is given within that period any consequential rights of the director will be
preserved even though the notice does not expire until after the end of the period: Taupo Totara Timber Co Ltd
v Rowe [1978] AC 537; [1977] 3 All ER 123 (PC).
2004 See Harding & Others v Standard Bank of South Africa Ltd 2004 (6) SA 464 (C) 4691. In this case the
director agreed to resign his office and the resignation was accepted by the sole remaining director. The court
accepted this as a valid resignation.
2005 Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 722; [1940] 2 All ER 445 458 (HL). However,
where a company causes a director to resign by demoting him or reducing his salary in breach of his contract,
this is equivalent to wrongful dismissal. In Yetton v Eastwoods Froy Ltd [1966] 3 All ER 353, the court held
that refusal by the plaintiff, who had been dismissed as managing director, to accept reappointment at the
existing salary as an assistant managing director, was, in view of the reduction in status, not unreasonable,
and that the plaintiff was accordingly entitled to damages. Cf Holdsworth & Co Ltd (Wakefield) Ltd v
Caddies [1955] 1 All ER 725 (HL).
2006 Glossop v Glossop [1907] 2 Ch 370.
2007 Glossop v Glossop [1907] 2 Ch 370. See also Municipal Freehold Land Ltd Co v Pollington (1890) 59 LJ
Ch 734.
2008 2006 (5) SA 333 (W).
2009 The Court referred to the King Report at 22, para 2.1.1. F H I Cassim 'Company Law' (2006) Annual
Survey of South African Law at 511.
2010 See notes on s 208.
2011 See Permanent Building Society v McGee (1993) 11 ACLR 260 289-290 SC (WA); on appeal, sub nom
Permanent Building Society v Wheeler (1994) 14 ACSR 109 160 SC (WA); Fitzsimmons v The Queen (1997) 23
ACSR 355 358 SC (WA); Duke Group Ltd v Pilmer (1991) 31 ACSR 213 240-241 SC (WA); Darvall v North
Sydney Brick & Tile Co Ltd (1989) 15 ACLR 230 250 CA (NSW).
2012 (1989) 15 ACLR 230 250 CA (NSW).
2013 At 350D.
2014 S v De Jager 1965 (2) SA 616 (A) 622-623.
2015 See Symington & Others v Pretoria-Oos Privaat Hospitaal Bedryfs (Pty) Ltd 2005 (5) SA 550 (SCA).
2016 Ibid at 560E-F.


221 Restriction of power of directors to issue share capital
(1) Notwithstanding anything contained in its memorandum or articles, the directors of a company shall not
have the power to allot or issue shares of the company without the prior approval of the company in general
meeting.
(2) Any such approval may be in the form of a general authority to the directors, whether conditional or
unconditional, to allot or issue any shares in their discretion, or in the form of a specific authority in respect of
any particular allotment or issue of shares.
(3) If any such approval is given in the form of a general authority to the directors, it shall be valid only
until the next annual general meeting of the company but it may be varied or revoked by any general meeting
of the company prior to such annual general meeting.
(4) Any director of a company who knowingly takes part in the allotment or issue of any shares in
contravention of subsection (1), shall be liable to compensate the company for any loss, damages or costs
which the company may have sustained or incurred thereby, but no proceedings to recover any such loss,
damages or costs shall be commenced after the expiration of two years from the date of the allotment or issue.
RS 4, 2007 ch8-p292-3
Notes
Restriction on power to issue shares
The provisions of s 221 were introduced on the recommendation of the Van Wyk de Vries
Commission. 2017 The Commission found that there was 'a strong body of opinion to the
effect that directors should not have unlimited powers, whether derived from the articles
or a resolution by the company in meeting, to issue shares'. It pointed out that 'the issue
by the company of further shares is a matter which directly affects the interests of each
holder of shares in that company and is in this respect distinguishable from ordinary
managerial acts by the directors performed in carrying on the business of the company'.
Thus, there 'seems to be justification for imposing a curb on unlimited powers of
directors in this respect'. It would, however, 'be cumbersome, and inconvenient to
require the consent of shareholders to each an every issue of shares by the company'.
The Commission said that the only limitation of the powers of directors that it had in
mind 'is in respect of the general authority placing the reserve share capital at the
discretion of the directors for an indefinite period of time'. Such general authority should
be valid only to the next annual general meeting unless revoked by an earlier meeting of
members.
The Commission said that, 'in practice, if it is desired to maintain such general
authority, the annual general meeting would merely pass the necessary resolution which
would then be valid until the next annual general meeting'. And that, indeed, is now the
RS 8, 2011 ch8-p293
almost invariable practice. It is questionable whether this annual ritual does in fact
impose any meaningful limitation on the directors' power to issue shares. One possible
limitation may be where the directors intend to make a particular issue. Then, it would
seem, they will act in breach of duty, and indeed in bad faith, if they do not disclose that
intention to the general meeting and, instead, merely seek a general authority to allot or
issue any shares at their discretion.
The Directors' Powers
General
Unlike the members in general meeting, the directors have no inherent powers, ie they
have only such powers as are conferred on them by the Act and the articles of
association. 2018 In fact, the Act does not confer powers on the directors. Rather, it
restricts the powers that can be conferred on the directors by the company's
memorandum and articles. For example, ss 221, and 228 provide that 'notwithstanding
anything contained in its memorandum or articles, the directors of a company shall not
have the power . . . .' And s 222 provides that 'no provision in any memorandum or in
any resolution of the company authorising the directors . . . shall authorise . . .' Thus,
subject to those provisions of the Companies Act that require certain powers to be
exercised by the members in general meeting, the articles of association determine the
division of powers between the board of directors and the general meeting, 2019 and
hence determine that powers of the directors. Thus where the Act empowers the
company to do something, the question whether the general meeting or the directors are
to exercise the power is to be determined by the particular company's articles of
association. 2020
RS 8, 2011 ch8-p294
All powers so conferred on the directors are conferred upon them collectively as a
board, to be exercised by a majority vote or unanimous decision. 2021 Where the articles
of association speak of 'the directors' being vested with a power or authority to
discharge a certain function, or to perform certain actions, the reference to 'the
directors' is a reference to the board of directors acting as such. 2022 Thus directors
have, as such, no power to act individually as agents for the company, unless specifically
empowered to do so by the articles or the board of directors. 2023
The articles of virtually all companies charge the directors with the management of
'the business' of the company and, for that purpose, authorise the directors to exercise
all the powers of the company other than those required by the Act or the articles to be
exercised by the company in general meeting. In addition, certain particular powers are
usually specifically conferred on the directors. The articles usually also empower the
directors to delegate their powers to committees of the board and to a managing
director.
(1) Power to manage company's business
Although the Companies Act does not require that the directors be empowered to
manage the business of the company, the articles of companies almost invariably confer
that power upon the directors, usually in the form contained in art 59 of Table A (art 60
of Table B). That article provides that 'the business' of the company shall be managed by
the directors and that they 'may exercise all such powers of the company as are not by
the Act, or by these articles, required to be exercised by the company in general
meeting'. This does not mean that the directors may exercise all the powers of the
company other than those required by the Act or the articles to be exercised by the
company in general meeting. It means, rather, that the directors (and the directors
alone) may exercise all the company's powers in regard to the management of the
company's business, except those that the Act or the articles require to be exercised by
the company in general meeting. In other words, the provision that the directors 'may
exercise all such powers of the company as are not by the Act, or by these articles,
required to be exercised
RS 8, 2011 ch8-p295
by the company in general meeting' does not enlarge or augment the directors' powers.
All it does is to facilitate or provide an aid for their effective exercise of their power to
manage the company's business. 2024
The authorised business of the company is its main object together with all objects
ancillary to that main object that have not been expressly excluded in the company's
memorandum. 2025 Thus the directors are empowered to do whatever is reasonably
incidental to the carrying on of the business of the company. 2026 This power includes
the power to initiate, conduct and defend legal proceedings. 2027 Inherent in the power
to manage the business of the company is the power to stop the company's trading
activities or other operations. 2028 But the bringing of an application for the winding-up
of a company 2029 is not a matter falling within the scope of the management of the
company's business, for the object of winding-up is not the working of the company's
business but the
RS 8, 2011 ch8-p296
destruction of the company. 2030 It has, however, been suggested that an article that
empowers the directors to manage the "affairs' of the company is wide enough to include
the power to bring such an application. 2031
Unless the articles otherwise provide, powers conferred by the articles on the
directors to manage the company's business are conferred on them exclusively, and
therefore the members in general meeting can neither exercise those powers
concurrently with the directors nor control the directors in their exercise of those
powers. 2032 However, the general power to manage the business of the company
conferred by art 59 of Table A (and art 60 of Table B) is conferred on the directors
subject to such regulations of the general meeting as are not inconsistent with any of the
provisions of the Act or with any of the other provisions of the articles. In Ben-Tovim v
Ben-Tovim2033 the court stated:
'The pendulum of the division of powers between the general meeting and the board of directors
has through the years swung from the general meeting as the supreme organ to prominence of
the articles of association. There are indications, at least in other jurisdictions, that the pendulum
is beginning to swing back again . . .. Whatever swings of the pendulum and differences of
emphasis there might have been, it has been generally accepted that if for some reason the
directors cannot or will not exercise powers vested in them, the general meeting may do so.'
RS 8, 2011 ch8-p296-1
(2) Other specific powers conferred by the articles
Typically, the articles of companies contain an article empowering the directors to
exercise all the powers of the company to borrow money and to mortgage or bind its
undertaking and property or any part thereof, and to issue debentures, debenture stock
and other securities whether outright or as security for any debt, liability or obligation of
RS 8, 2011 ch8-p297
the company or of any third party. 2034 Such an article, however, usually provides that
(apart from temporary loans obtained from the company's bank in the ordinary course of
business) the directors may not without the prior sanction of the company in general
meeting borrow in excess of a certain amount, usually one-half of the amount of the
company's issued share capital plus the amount of its share premium account. 2035
The articles of companies usually also confer certain other specific powers on the
directors, eg powering them to fill vacancies on the board, 2036 to appoint a managing
director, 2037 to pay interim dividends,2038 and to create reserves. 2039 Directors are
sometimes also empowered to refuse transfers of shares. 2040
Delegation of directors' powers
(1) General
Unless authorised by the articles to do so, directors cannot delegate their
powers. 2041 The articles of companies usually authorise the directors to delegate their
powers to a managing director or manager, 2042to a committee of directors, 2043 and to a
foreign committee. 2044 Such a delegation may take place impliedly, the facts from which
such a delegation will be inferred being the course of dealing within the
company. 2045 But
RS 8, 2011 ch8-p298
implied delegation always requires the both consent of the individual members of the
board and the communication by words or conduct of those consents to one another,
and, where not themselves directors, to the persons to whom the powers are being
delegated. 2046
Where the directors delegate their powers, the persons to whom the powers are
delegated derive their powers, not from the directors, but from the company's articles
that provide for the delegation; hence those persons are not mere agents of the
company, but exercise the company's powers, and consequently constitute an organ or
organs of the company. 2047
The directors' power to delegate is a fiduciary power that must be exercised bona
fide in the interests of the company and not for an unauthorised or collateral
purpose. 2048 Furthermore, the directors can never delegate their powers so as to divest
themselves of all responsibility; they must continue to exercise proper supervision. 2049
Thus, even where the articles empower the directors to delegate all their powers to
any person, the directors have no power to enter into a contract on behalf of the
company entitling another party in certain circumstances to appoint a person to manage
the business of the company and giving him the sole right of dismissal of such manager.
This is because the directors cannot divest themselves of their fiduciary duties to their
company; they must retain ultimate control, and cannot divest themselves of the power
of dismissal. 2050 It would seem that this power and duty of ultimate control must
remain vested in the board, because the power to revoke a delegation of powers is not
itself a power that can be delegated. 2051 It is to be noted that directors have the power
to make 'discretionary decisions' and 'non-discretionary decisions'. 2052 The former
power may not be delegated in the absence of authorisation to do so. The latter power,
also referred to as the power to make 'purely mechanical decisions' 2053 may be
delegated.
OS, 2002 ch8-p299
(2) Committees of directors
The articles of companies usually empower the directors to delegate their powers to a
committee consisting of such member or members of their body as they thinks fit, 2054
and to form foreign committees with such powers and duties as the directors may from
time to time determine.2055 Because the power to delegate is a fiduciary power, the
directors may not make use of their power to delegate powers to a committee for the
purpose of excluding one of their number from participation in the management of the
company.2056 Where the directors have properly delegated their powers to a committee
of directors, in the absence of provisions regulating these matters, all acts of the
committee must be done in the presence of all the members of the committee; the
committee must act by a majority; and its members have no power to add to their
number or to fill a vacancy.2057 The directors 2058 or the company may ratify an act
done by a committee beyond its powers.2059
(3) Delegation of powers to managing director and division of powers between
board and managing director
Under the normal articles, the directors are empowered to appoint one or more of their
number to the office of managing director for such period and on such terms as they
think fit.2060 The articles then usually empower the directors to delegate from time to
time to the managing director such of the powers and authorities vested in them as they
think fit, and to confer such powers and authorities for such time and to be exercised for
such objects and purposes and upon such terms and conditions and with such
restrictions as the directors think expedient. Usually, such powers and authorities may
be conferred either collaterally or to the exclusion of, and in substitution for, all or any of
the powers and authorities of the directors; and the directors may from time to time
revoke or vary all or any of such powers and authorities.2061 Thus, where a company's
articles contain such provisions, its directors may not only delegate their powers to a
managing director, but, subject to their power to re-invest themselves with those
powers, may also, when doing so, actually divest themselves of their power to manage
the company's business in favour of the managing director.2062
OS, 2002 ch8-p300
When delegating powers to a managing director under such an article, the board
delegates its power to manage the business of the company. There is no delegation of
the remaining powers of the board. Such important powers, for example, as the financial
policy of the company, the dividends to be declared, and the issue of new shares are all
reserved to the board.2063


2017 Commission of Enquiry into the Companies Act Main Report RP 45/1970 para 44.40 and
recommendation 101.
2018 Re Emmadart Ltd [1979] 1 Ch 540; [1979] 1 All ER 559 and Ex parte Russlyn Construction (Pty)
Ltd 1987 (1) SA 33 (D) (no power to bring application for winding-up of company unless conferred upon them
by articles); Re Smith, Knight & Co (Weston's Case) (1868) LR 4 Ch App 20 and Re National Provincial Marine
Insurance Company (Gilbert's Case) (1870) 5 Ch App 559 565 (no inherent power to refuse a proper and valid
transfer, if a proper and valid transfer is submitted to them). And see Woolworths Ltd v Kelly (1991) 4 ACSR
431 450-451 CA(NSW), where Mahoney JA said: 'But the company, as a corporate body, can exercise its power
only in ways provided by the law in that regard. The primary or, at least, the residual organ for exercising the
powers of the company is the shareholders in general meeting. . . . However the articles of association may
vest in, eg, the board of directors such powers over the affairs of the company as the relevant company
legislation does not proscribe.'
2019 See K A Aickin 'Division of Powers between Directors and General Meeing as a Matter of Law and as a
Matter of Fact and Policy' (1967) 5 MULR 448; K W Wedderburn 'Going the Whole Hogg v Cramphorn?' (1968)
31 MLR 690; Colin Jack Cohen 'The Distribution of Powers in a Company as a Matter of Law' (1973)
90 SALJ 262.
2020 See eg Smith v Duke of Manchester (1883) 24 ChD 611 615; Re Standard Bank of Australia (1898) 24
VLR 304; Re Galway & Salthill Tramways Co [1918] 1 IR 62; Re Birmacely Products Pty Ltd [1943] ALR
276; Re Woulfe & Son Pty Ltd [1972] QWN 50; Re Emmadart Ltd [1979] 1 Ch 540; [1979] 1 All ER 559; Ex
parte Russlyn Construction (Pty) Ltd 1987 (1) SA 33 (D); Ex parte Screen Media Ltd 1991 (3) SA 462 (W). But
see Ex parte Tangent Sheeting (Pty) Ltd 1993 (3) SA 488 (W), where it has held that it is not necessary for the
directors to obtain authorisation by the general meeting in order to bring an application for the winding-up of
the company. Section 346(1)(a) provides that an application for the winding-up of a company may be
made inter alia by 'the company' itself; and the court (at 489) held that question whether or not the directors
are empowered to bring such an application on behalf of the company is to determined upon a proper
construction of the meaning of 'the company' in s 346(1)(a). This, however, is to ignore the principle that
where the Act simply empowers 'the company' to do something, the question who within the company has the
power to act on behalf of the company in the matter is to be determined by the company's articles (which
allocate the powers of the company to either its board or its general meeting). A company's board of directors
has no powers simply by reason of the fact that it is an organ of the company. On the contrary, it is an organ
of the company only because, and only to the extent that, it is empowered to act on behalf of the company by
the company's articles.
2021 Re Haycraft Gold Reduction & Mining Co [1900] 2 Ch 230; Trek Tyres Ltd v Beukes 1957 (3) SA 306
(W); Burstein v Yale 1958 (1) SA 768 (W); Northside Developments Pty Ltd v Registrar-General (1990) 2 ACSR
161 201 (HC of A);Brick & Pipe Industries v Occidental Life Nominees Pty Ltd (1990) 3 ACSR 649 672 SC(Vic).
It is not sufficient to procure the separate authority of a sufficient number of directors to constitute a
quorum: Re Haycraft Gold Reduction & Mining Co supra, where Cozens-Hardy J did not agree with the view of
Bacon V-C in Re Bonelli's Telegraph Co (Collie's Claim) (1871) LR 12 Eq 246 that an agreement signed by four
directors at different dates and not as a board was a contract binding on the company.
2022 R v Byrnes (1995) 183 CLR 501 516; (1995) 17 ACSR 551 562 (HC of A); (1996) 20 ACSR 260 264-265
SC(SA).
2023 See African Claim and Land Co Ltd v W J Langermann 1905 TS 494 504; Robinson v Randfontein Estates
Gold Mining Co Ltd 1921 AD 168 217; Wolpert v Uitzicht Properties (Pty) Ltd 1961 (2) SA 257 (W) 267
268; Rosebank Television & Appliance Co (Pty) Ltd v Orbit Sales Corporation (Pty) Ltd 1969 (1) SA 300
(T) 303; Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 (HC of A); Pyramid Building
Society v Scorpion Hotels Pty Ltd (1996) 20 ACSR 214 (Vic).
2024 That part of the article which gives the directors all the powers of the company subject to the exception
must be read along with the opening words giving powers of management, and is merely in aid of the proper
and effective exercise of such powers: Re Galway & Salthill Tramways Co [1918] 1 IR 62 65; Re Emmadart
Ltd [1979] 1 Ch 540; [1979] 1 All ER 599 604; Ex parte Russlyn Construction (Pty) Ltd 1987 (1) SA 33 (D) 37.
Cf Campbell v Rofe [1933] AC 91; (1932) 48 CLR 258 (PC), where the company's articles (art 117) provided
that "the management of the business of the company shall be vested in the directors who in addition the
powers and authorities by these present or otherwise expressly conferred upon them may exercise all such
powers and do all such acts and things as may be exercised or done by the company and are not hereby or by
statute directed or required to be exercised or done by the company in general meeting'. The High Court of
Australia ((1931) 45 CLR 82) held that this article was concerned only with the management of the business of
the company and not with the relations of the members of the company inter se, and hence did not empower
the directors to issue preference shares. The Privy Council held that the directors did have that power under
another article (art 10), but added that, "if their Lordships had taken a different view as to art 10, they would
have been prepared to hold that art 117 clearly delegated to the directors power to do everything that the
company could do except where the authority of a general meeting of the company is expressly prescribed'
(including power to issue preference shares). In Strong v J Brough & Son (Stratfield) Pty Ltd (1991) 5 ACSR
296 298 SC(NSW) Young J accepted this as a "guide as to how one construes this sort of article'. He held that
an article providing that the business of the company is to be managed by the directors and entitling them to
exercise all such powers of the company as are not required by the articles or by law to be exercised by the
company in general meeting, is to be construed broadly. And that it empowers the directors to sell the
business of the company (cf s 228 of our 1973 Act). But the learned judge in fact reasoned (at 302) that the
sale of the particular business that the company in question (the memorandum of which contained no objects
clause, the insertion of such a clause being optional in Australia, see s 177(2) of the Corporations Law)
happened to be carrying on fell within the power to manage its business. This was because "the evidence in the
instant case is not strong enough to demonstrate that the business of the company . . . was, in the mind of the
corporators, the only business which would be carried out, or, indeed, the principal business that would be
carried out by them'. In other words, the power to manage the business of the company was not merely a
power to manage the particular business that the company happens to be carrying on.
2025 The main object of a company is the main object stated in its memorandum: s 33(1). But if the main
business actually carried on at any time by the company falls within an object ancillary to the main object
stated in the company's memorandum, such main business is deemed to be the main object of the company: s
33(2).
2026 Hutton v West Cork Railway Co (1883) 23 Ch 654 (CA); Re Lee, Behrens & Co Ltd [1932] 2 Ch 46;
[1932] All ER Rep 889; Parke v Daily News Ltd [1962] Ch 927; [1962] 2 All ER 929.
2027 Paramount Acceptance Co Ltd v Souster [1981] 2 NZLR 38 43; and see John Shaw & Sons (Salford) Ltd
v Shaw [1935] 2 KB 113; [1935] All ER Rep 456 (CA); Macson Development Co Ltd v Gordon (1959) 19 DLR
(2d) 465 471; Kraus v JG Lloyd Pty Ltd [1965] VR 232; Breckland Group Holdings Ltd v London & Suffolk
Ltd [1989] BCLC 100; Louw v WP Koperasie Bpk 1991 (3) SA 593 (A) 602-603; Engling v Bosielo 1994 (2) SA
388 (BGD) 393. The power to authorise an attorney to institute proceedings on behalf of the company is
something that is ordinarily within the powers of those who have authority to manage the business or affairs of
the company: John Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113 134 142-143; Omega Estates Pty Ltd v
Ganke (1962) [1963] NSWR 1416; Glover v Willert (1996) 20 ACSR 182 185 SC(Qld).
2028 Ex parte Russlyn Construction (Pty) Ltd 1987 (1) SA 33 (D) 37.
2029 ie in terms of s 346(1)(a), which empowers the company to bring an application for its winding-up up by
the court.
2030 Smith v Duke of Manchester (1883) 24 ChD 611 615; Re Standard Bank of Australia (1898) 24 VLR
304; Re Galway & Salthill Tramways Co [1918] 1 IR 62; Re Birmacely Products Pty Ltd 1943 ALR 276; Re
Woulfe & Son Pty Ltd [1972] QWN 50; Re Emmadart Ltd [1979] 1 Ch 540; [1979] 1 All ER 559; Ex parte
Russlyn Construction (Pty) Ltd 1987 (1) SA 33 (D); Ex parte Screen Media Ltd 1991 (3) SA 462 (W). But
see Ex parte East London Cafe (Pty) Ltd 1931 EDC 111; Ex parte Voorligter Drukkery Beperk 1922 EDL 315; Ex
parte Edenvale Wholesalers and General Suppliers(Pty) Ltd 1959 (2) SA 477 (W); Ex parte Umtentweni Motels
(Pty) Ltd 1968 (1) SA 144 (D). The Australian courts would seem to take the view that an article concerning
the management of the business of the company does empower to directors to bring such a winding-up
application: see eg Re Inkerman Grazing Co Pty Ltd (1972) 1 ACLR 102 106 SC(NSW); Spicer v Mytrent Pty
Ltd (1984) 8 ACLR 711 SC(NSW). In Ex parte Tangent Sheeting (Pty) Ltd 1993 (3) SA 488 (W) the decisions
in Ex parte Russlyn Construction (Pty) Ltd supra and Ex parte Screen Media Ltd supra were not followed and
the decision in Ex parte Edenvale Wholesalers and General Suppliers(Pty) Ltd supra was held to be correct, ie
an application by a company for its own winding-up may be brought on the authority of a resolution of its
directors. (See also Graaf-Reinet Rollermeule (Edms) Bpk 2000 (4) SA 670 (E).) However, in Ex parte Tangent
Sheeting (Pty) Ltd the court, ignoring the principle that the division of powers within a company is determined
by its articles, assumed question was to be decided on an interpretation of what is meant by "the company' in
s 346(1)(a). See further general note above and notes on s 346.
2031 Ex parte Russlyn Construction (Pty) Ltd 1987 (1) SA 33 (D) 36-37. Cf Re Galway & Salthill Tramways
Co [1918] 1 IR 62.
2032 See Automatic Self-Cleansing Filter Syndicate v Cuninghame [1906] 2 Ch 34 (CA); Gramophone and
Type Writer Ltd v Stanley [1908] 2 KB 89; [1908-10] All ER Rep 833 (CA); Salmon v Quin & Axtens Ltd [1909]
1 Ch 311 (CA), affdsub nom Quin & Axtens Ltd v Salmon [1909] AC 442 (HL); John Shaw & Sons (Salford) Ltd
v Shaw [1935] 2 KB 113; [1935] All ER Rep 456 (CA); Scott v Scott [1943] 1 All ER 582; Wessels & Smith v
Vanugo Construction (Pty) Ltd 1964 (1) SA 635 (O); Re Argentum Reductions (UK) Ltd [1975] 1 All ER
608; Alexander Ward and Co v Samyang Navigation Co [1975] 2 All ER 424 (HL); Turner v Berner [1978] 1
NSWLR 66 71; Commissioner of Taxation of the Commonwealth of Australia v Commonwealth Aluminum
Corporation Ltd (1980) 143 CLR 646 660-661 (HC of A); Van Tonder v Pienaar 1982 (2) SA 336
(SE) 341; National Roads and Motorists' Association v Parker (1986) 6 NSWLR 517; (1986) 11 ACLR 1
SC(NSW); Breckland Group Holdings Ltd v London & Suffolk Properties Ltd [1989] BCLC 100; James North
(Zimbabwe) (Pvt) Ltd v Mattinson 1990 (2) SA 228 (ZHC) 236-237; Poliwka v Heven Holdings Pty Ltd (1992) 8
ACSR 747 SC(WA). And see eg Teck Corporation v Millar (1973) 33 DLR (3d) 288 307; Howard Smith Ltd v
Ampol Petroleum Ltd [1974] AC 821 837; [1974] 1 All ER 1126 1135-1136 (PC); Fraser v NRMA Holdings
Ltd (1995) 15 ACSR 590 607-608 (FC of A);Glover v Willert (1996) 20 ACSR 182 SC(Qld).
2033 2001 (3) SA 1074 (C) at 1085J-1086A.
2034 See art 60 of Table A and art 61 of Table B.
2035 Table A art 60 table B art 61. In Irvine v Union Bank of Australia (1877) 2 App Cas 366 (PC) 380 the
court found it unnecessary to consider what the lender's rights would be if the sum advanced was less that half
the paid up capital but, if added to the amounts previously borrowed by the company, would exceed that
amount. In principle, it would seem that the lender will be protected by the rule in Turquand's case (as to
which, see notes on s 36), unless the sum being advanced is such as to put him on inquiry.
2036 See arts 72 and 78 Table A and arts 70 and 77 Table B .
2037 See arts 61-62 of Table A and arts 62-63 of Table B.
2038 See art 85 of Table A and art 84 of Table B.
2039 See art 87 of Table A and art 86 of Table B.
2040 Re Smith, Knight & Co (Weston's Case) (1868) LR 4 Ch App 20; Re National Provincial Marine Insurance
Company (Gilbert's Case) (1870) 5 Ch App 559 565, where it was held that there is no inherent power in the
directors, apart from the provisions of the articles, to refuse a proper and valid transfer, if that proper and
valid transfer is submitted to them.
2041 Re Leeds Banking Co (Howard's Case) (1866) 1 Ch App 561. In Louw v WP Koperasie Bpk 1991 (3) SA
593 (A) the court appears to have taken the view that there is no such principle. That case, however,
concerned an instruction given to a manager by the board of a co-operative society to institute sequestration
proceedings against a debtor of the society. The court rejected the argument that, because the board had no
power to delegate, it was not competent to give those instructions. But both the argument, and the reasoning
of the court when rejecting it, would appear to be misconceived. The board does not delegate its powers when
it instructs a servant of the company to institute legal proceedings on behalf of the company. On the contrary,
it exercises its powers. Thus it is that, while articles of companies do not usually empower a managing director
to delegate his powers, this cannot possibly mean that the managing director does not have the power to
instruct servants of the company to carry out particular tasks and to authorise them to bind the company in
transactions in connection with those tasks. See Tesco Supermarkets Ltd v Nattrass [1972] AC 153; [1971] 2
All ER 127 (HL), where it was held that the company had not delegated to the manager of one of its stores its
duty (under the Trade Descriptions Act 1968) of taking precautions and exercising diligence. Lord Reid said (at
135): 'I have said that a board of directors can delegate part of their functions of management so as to make
their delegate an embodiment of the company within the sphere of delegation. But here the board never
delegated any part of their functions. They set up a chain of command through regional and district
supervisors, but they remained in control. The shop managers had to obey their general directions and also to
take orders from their superiors.' And see also Lord Morris's speech at 140.
2042 See art 62 of Table A and art 63 of Table B.
2043 See art 80 of Table A and art 79 of Table B, which authorise the directors to delegate their powers to
committees consisting of such member or members of their body as they think fit.
2044 See art 64 of Table A and art 65 of Table B art 65, which authorise the directors to appoint persons
resident in a foreign country to be a foreign committee.
2045 Robinson v Randfontein Estates Gold Mining Co Ltd 1921 AD 168 181; Dickson v Acrow Engineers (Pty)
Ltd 1954 (2) SA 63 (W) 64-65; Rosebank Television and Appliance Co (Pty) Ltd v Orbit Sales Corp (Pty)
Ltd 1969 (1) SA 300 (T)303; Tuckers Land and Development Corp (Pty) Ltd v Perpellief 1978 (2) SA 11 (T) 15.
2046 See Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 501; [1964] 1 All
ER 630 643 (CA).
2047 Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705; [1914-15] All ER Rep 280
(HL); Moresby White v Rangeland Ltd 1952 (4) SA 285 (SR) 287; Tesco Supermarkets Ltd v Nattrass [1972]
AC 153; [1971] All ER 127 (HL); El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685 (CA); Meridian Global
Funds Management Asia Ltd v Securities Commission [1995] 3 All ER 918 (PC). On this doctrine, see notes on
s 65.
2048 Robinson v Imroth 1917 WLD 159 173.
2049 Horn v Henry Faulder & Co Ltd (1908) 99 LT 524; Re City Equitable Fire Insurance Co Ltd [1925] 1 Ch
407; Tesco Supermarkets Ltd v Nattrass [1972] AC 153 171; [1971] 2 All ER 127 132 (HL) (the board may
delegate 'some part of their functions of management'); Barlows Manufacturing Co Ltd v R N Barrie (Pty)
Ltd 1990 (4) SA 608 (C); Re Westmid Packing Service Ltd [1998] 2 BCLC 646 653; [1998] 2 All ER 124 130
(CA); Re Barings plc (No 5) [1999] 1 BCLC 433 487.
2050 Barlows Manufacturing Co Ltd v R N Barrie (Pty) Ltd 1990 (4) SA 608 (C) 610-611. In this case the
company's articles contained two provisions concerning the directors' power to delegate. Since, in terms of the
first of these the directors retained the power to revoke the delegation, and in terms of the second the
directors were not empowered to delegate to the exclusion of and in substitution for their powers, the directors
in fact did not have the power to enter into such a contract (see at 613). Nevertheless, the court's statement
of general principle is a powerful one: and it would seem to follow from this principle that any article that
purports to empower the directors to divest themselves of ultimate control is invalid. The court stated that
while a director may delegate some or all of his powers, he may not abdicate. The board must retain ultimate
control.
2051 In Huth v Clarke (1890) 25 QB 391 395; [1886-90] All ER Rep 542 544 Wills J said: 'Delegation, as the
word is generally used, does not imply a parting with powers by the person who grants the delegation, but
points rather to the conferring of an authority to do things which otherwise that person would have to do
himself.' Thus, the concept entails the retention of the power to revoke. Articles 62 of Table A and 63 of Table
B both expressly provide that the directors may from time to revoke all or any of the powers or authorities that
they have delegated. But even if these articles did not so provide, the retention of the power to revoke would
be implied; for otherwise the directors would be empowered to part with their powers and so, in effect, cease
to be directors.
2052 See Nelson Mandela Metropolitan Municipality v Greyvenouw CC 2004 (2) SA 81 (SE) paras 4751.
2053 Ibid.
2054 See art 80 of Table A and art 79 of Table B, which provide that any such committee must, in the
exercise of the powers delegated to it, conform to the rules that may be imposed on it by the directors.
2055 See art 64 of Table A and art 65 of Table B, which empower the directors to appoint foreign committees
with such powers and duties as the directors may from time to time determine.
2056 Robinson v Imroth 1917 WLD 159 173.
2057 Re Liverpool Household Stores Association Ltd (1890) 59 LJ Ch 616.
2058 Bolton Partners v Lambert (1889) 41 Ch 295 (CA).
2059 In Welgedacht Exploration Co Ltd v Transvaal and Delagoa Bay Investment Co Ltd 1909 TH 90 105-106
it was said that where the articles provide that a committee may have the full powers of the directors, an
outsider dealing with a properly appointed committee may assume that it has all the powers which it purports
to exercise. But this is almost certainly not correct. The rule that an outsider dealing with a company may
assume that an organ of the company has all the powers that it could have under the company's articles
applies when, and only when, those powers are in fact usually conferred on such organs. This holds true in the
case of a managing director, but it is very doubtful whether it also holds true in the case of a committee of
directors, for directors of companies do not usually delegate all their powers to such committees. See further
notes on s 36.
2060 See art 61 of Table A and art 62 of Table B. As to the office of managing director, see notes on s 211.
2061 See art 62 of Table A and art 63 of Table B.
2062 See Metal Manufacturers Ltd v Lewis (1988) 13 ACLR 357 365-366 CA(NSW).
2063 Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 218 (CA); affd Southern Foundries (1926) Ltd
v Shirlaw [1940] AC 701; [1940] 2 All ER 445 (HL).


222 Restriction on issue of shares and debentures to directors
(1) No provision in any memorandum or articles or in any resolution of a company authorizing the directors
to allot or issue any shares or debentures convertible into shares of the company at the discretion of the
directors, shall authorize the allotment or issue of any such shares or debentures to any director of the
company or his nominee, or to any body corporate which is or the directors of which are accustomed to act in
accordance with the directions or instructions of such director or nominee, or at a general meeting of which
such director or his nominee is entitled to exercise or control the exercise of one-fifth or more of the voting
power, or to any subsidiary of such body corporate unless
(a) the particular allotment or issue has prior to the allotment or issue been specifically approved by the company
in general meeting; or
(b) such shares or debentures are allotted or issued under a contract underwriting such shares or debentures; or
(c) such shares or debentures are allotted or issued in proportion to existing holdings, on the same terms and
conditions as have been offered to all the members or debenture-holders of the company or to all the holders
of the shares or such debentures of the class or classes being allotted or issued; or
(d) such shares or debentures are allotted or issued on the same terms and conditions as have been offered to
members of the public.
[Sub-s. (1) amended by s. 19 of Act 64 of 1977.]
(2) (a) Any director of a company who contravenes or permits the contravention of this section, shall be
guilty of an offence and shall be further liable to compensate the company for any loss, damages or costs
which the company may have sustained or incurred thereby.
(b) No proceedings to recover any such loss, damages or costs shall be commenced after the expiration
of two years from the date of the allotment or issue.
Notes
The predecessor of s 222 was s 70dec of the Companies Act 46 of 1926, which was
introduced in 1952 on the recommendation of the Millin Commission.2064 The
Commission observed that it was common to have an article empowering the directors to
issue unissued shares to such persons and on such terms and conditions as they may
determine. The Commission accepted that an opportunity may arise to dispose of shares
OS, 2002 ch8-p301
to the advantage of the company which may be lost if time has to be taken to convene a
general meeting to consider the matter, eg an offer enabling the company to acquire
property or rights against the issue of shares. But the Commission said that it had 'heard
a good deal of evidence to show that the power is not seldom abused by directors who
do not scruple to issue shares to themselves or to their friends on terms not offered to
the general body of shareholders'. The Commission said that, as the law then stood,
there was nothing to prevent directors making an allotment to themselves and their
friends, and to do so without offering the shares at a premium, even though the shares
stood much above par market, provided only that the company required the new capital
and the shares were not issued merely to obtain additional voting power. 'This state of
affairs, the Commission said, was 'regarded by the general body of shareholders as a
serious grievance; and we think with justice'.
The Van Wyk de Vries Commission recommended that the section should be amended
by incorporating in it a provision making an allotment in contravention of the section
voidable at the instance of the company or a shareholder within 18 months of the date of
the allotment, and making a director who knowingly contravened the section guilty of an
offence.2065 The first of these recommendations was not adopted. Instead the provisions
in sub-s (2) were added, imposing civil liability. The provision in sub-s (1)(a) permitting
such an allotment or issue with the prior approval of the company in general meeting,
was also added, thus largely destroying the effectiveness of a once salutary provision.
It would seem that 'the directors' in the phrase 'at the discretion of the directors' in
sub-s (1) is a reference to the board of directors. This would seem to leave outside the
prohibition debentures convertible into shares of the company at the option of the
director to whom they are issued, although that can hardly have been the intention of
the legislature.
For the purposes of the Act, a person is not deemed to be a person in accordance with
whose directions or instructions the directors of a company are accustomed to act by
reason only that the directors of the company act on advice given by him in a
professional capacity.2066
Since an allotment or issue of shares or debentures in contravention of the section is
done without authority, it would seem that such an allotment or issue is void.
Because sub-s (1)(a) makes prior approval of the particular allotment or issue a
necessary condition, it would seem that the general meeting cannot ratify; or at least, if
ratification is possible, contravention of the section remains an offence under sub-s
(2)(a) and damages can still be claimed under sub-s (2).
A company which has made an allotment or issue in contravention of these provisions
should apply to the court for an order directing it to rectify its records.2067
The penalty for the offence in s 222(2)(a) is a fine or imprisonment not exceeding one
year or both the fine and the imprisonment.2068
OS, 2002 ch8-p302


2064 Final Report of the Company Law Amendment Enquiry Commission 1947-1948 UG No 69-1948 para
155-156.
2065 Commission of Enquiry into the Companies Act Main Report RP 45/1970 para 44.42 and
recommendation 102.
2066 s 1(2).
2067 Ex parte Keir & Cawder (South Africa) Ltd 1968 (2) SA 207 (T).
2068 s 441(1)(e).


223 Share option plans where director interested
After the commencement of this Act no option or right given directly or indirectly to any director or future
director of a company in terms of any scheme or plan, to subscribe for any shares of that company or to take
up any debentures convertible into shares of that company on any basis other than that laid down in section
222(1)(c), shall be valid unless authorized in terms of a special resolution of that company: Provided that
(a) the term 'future director' shall not include a person who becomes a director of the company after the lapse of
six months from the date upon which such option or right is acquired by such person; and
(b) no such option or right shall be invalid in terms of this section if such director or future director of the company
holds salaried employment or office in the company and is given such option or right in his capacity as an
employee.
Notes
This provision was introduced on the recommendation of the Van Wyk de Vries
Commission. The Commission considered that '[d]irectors should not under any scheme
or plan providing an option to take up shares in their company be placed in a more
favourable position than the members of the company'.2069 The basis laid down s
222(1)(c) is that the option or right be given 'on the same terms and conditions' as they
are given 'to all the members or debenture-holders of the company or to all the holders
of the shares or such debentures of the class or classes' to which they are being given.
The prohibition is largely neutralised by the exclusion in s 223(b) of options and rights
given to a director or future director who holds salaried employment or office in the
company and is given such option or right in his capacity as an employee.
Presumably, a person who has a right to subscribe has essentially the same rights as
a person who has exercised an option to subscribe. Strictly speaking, neither an option
nor a right to subscribe will entitle a person to be allotted shares. No doubt that right will
arise from the 'scheme or plan'.
The prohibition was introduced together with a provision (contained in s 224)
prohibiting a director from dealing in options to buy or sell his company's shares, which
provision was repealed without explanation by s 6 of Act 78 of 1989, presumably on the
theory that it is sufficient merely to prohibit of insider trading.


2069 Commission of Enquiry into the Companies Act Supplementary Report and Draft Bill RP 31/1972 vol 2 p
206.


224 . . .
[S. 224 amended by s. 20 of Act 64 of 1977 and repealed by s. 6 of Act 78 of 1989.]


225 Prohibition of tax free payments to directors
(1) No company shall pay to any of its directors (whether in his capacity as a director or otherwise) any
remuneration free of any taxation in respect of his income, or otherwise calculated by reference to or varying
with the amount of such taxation,
OS, 2002 ch8-p303
or with the rate of taxation on incomes, except under a contract which was in force on the thirteenth day of
June, 1949, and which provides expressly, and not merely by reference to the articles of the company, for
payment of remuneration as aforesaid.
(2) Any provision contained in the articles of a company, or in any contract other than such a contract as
aforesaid, or in any resolution of a company or of its directors, providing for the payment to a director by way
of remuneration of any amount to be determined in a manner prohibited by subsection (1), shall be construed
as if it provided for the payment of that amount without reference to such manner of determination thereof.
Notes
This provision as introduced in 1952 as s 70 sept of the Companies Act 46 of 1926 on
the recommendation of the Millin Commission.2070 The Commission noted that in
England the Cohen Committee 2071 had expressed the view that the payment to
directors of fees or salaries free of income tax should be prohibited on public policy
grounds, because it created a class of persons immune from any increase in taxation.
The Millin Commission, however, considered that 'a more direct objection from the point
of view of company law, [is] that the shareholders cannot tell what in fact the company
is paying for the services of a director who gets a contract on these terms'.


2070 Final Report of the Company Law Amendment Enquiry 1947-1948 UG No 69-1948 para 134.
2071 Report of the Committee on Company Law Amendment Cmd 6659 (1945) para 88.


226 Prohibition of loans to, or security in connection with transactions
by, directors and managers
(1) No company shall directly or indirectly make a loan to
(a) any director or manager of
(i) the company; or
(ii) its holding company; or
(iii) any other company which is a subsidiary of its holding company; or
(b) any other company or other body corporate controlled by one or more directors or managers of the company
or of its holding company or of any company which is a subsidiary of its holding company;
or provide any security to any person in connection with an obligation of such director, manager, company or
other body corporate.
(1A) For the purpose of subsection (1)
(a) 'loan' includes
(i) a loan of money, shares, debentures or any other property; and
(ii) any credit extended by a company, where the debt concerned is not payable or being paid in accordance with
normal business practice in respect of the payment of debts of the same kind; and
(b) one or more directors or managers of a company contemplated in subsection (1)(b) shall be deemed to control
another company or body corporate only if
OS, 2002 ch8-p304
(i) such director or manager or his nominee is a member or such directors or managers or their nominees are
members of such other company or body corporate and the composition of its board of directors is controlled
by such director, manager or nominee or such directors, managers or nominees, and such composition shall be
deemed to be so controlled if such director or manager or his nominee or such directors or managers or their
nominees may, by the exercise of some power and without the consent or concurrence of any other person,
appoint or remove the majority of the directors concerned, and such director, manager or nominee or such
directors, managers or nominees shall be deemed to have power to appoint a director where a person cannot
be appointed as a director without his or their consent or concurrence; or
(ii) more than one-half of the equity share capital of that other company or body corporate or, if that other body
corporate is a corporation as defined in section 1 of the Close Corporations Act, 1984 (Act 69 of 1984), more
than 50 per cent of the interest in such corporation is held by such director, manager or nominee or such
directors, managers, or nominees; and
[Sub-para. (ii) substituted by s. 5 of Act 29 of 1985.]
[Para. (b) amended by s. 21(1)(a) of Act 64 of 1977.]
(c) 'security' includes a guarantee.
(1B) The provisions of subsection (1) and of paragraph (b) of subsection (1A) shall not be construed as
prohibiting a company from making a loan to, or providing security to any person in connection with an
obligation of, its holding company or subsidiary or a subsidiary of such holding company;
[Sub-s. (1B) inserted by s. 21(1)(b) of Act 64 of 1977.]
(2) The provisions of subsection (1) shall not apply
(a) in respect of
(i) the making of a loan by a company to its own director or manager;
(ii) the provision of security by a company in connection with an obligation of its own director or manager;
(iii) the making of a loan by a company to any other company or other body corporate controlled by one or more of
the directors or managers of the first-mentioned company; or
[Sub-para. (iii) inserted by s. 21(1)(c) of Act 64 of 1977.]
(iv) the provision of security by a company in connection with an obligation of any other company or other body
corporate controlled by one or more of the directors or managers of the first-mentioned company,
[Sub-para. (iv) inserted by s. 21(1)(c) of Act 64 of 1977.]
with the prior consent of all the members of the company or in terms of a special resolution relating to a
specific transaction: Provided that in respect of any such loan made or security provided at any time before the
date of commencement of the Companies Amendment Act, 1992, such consent shall be deemed to have been
given if the transaction concerned has subsequently, whether before or after that date, been ratified by all the
members of the company; or
[Para. (a) amended by s. 6 of Act 82 of 1992.]
RS 8, 2011 ch8-p305
(b) subject to the provisions of subsection (3), in respect of anything done to provide any director or manager with
funds to meet expenditure incurred or to be incurred by him for the purposes of the company concerned or for
the purpose of enabling him properly to perform his duties as director or manager of that company; or
(c) in respect of anything done bona fide in the ordinary course of the business of a company actually and
regularly carrying on the business of the making of loans or the provision of security; or
(d) to the provision of money or making of loans by a company for the purposes contemplated in section
38(2)(b) and (c); or
(e) to the making of a loan or the provision of security with the approval of the company in general meeting for
housing for its director or manager; or
(f) in respect of
(i) the making of a loan by a company to a director or manager of its subsidiary; or
(ii) the provision of security by a company to another person in connection with an obligation of a director or
manager of its subsidiary;
provided such director or manager is not also a director or manager of such company itself.
[Para. (f) amended by s. 21(1)(d) of Act 64 of 1977.]
(3) No loan shall be made or security provided by virtue of the provisions of subsection (2)(b), except
(a) with the prior approval of the company given at a general meeting at which the amount of the loan or the
extent of the security and the purposes thereof are disclosed; or
(b) on condition that, if the approval of the company is not given as aforesaid at or before the next annual general
meeting of the company, the loan shall be repaid or the liability under the security shall be discharged, within
six months from the conclusion of that annual general meeting.
(4) Any director or officer of a company who authorizes, permits or is a party to the making of any loan or
the provision of any security contrary to the provisions of this section, shall
(a) be liable to indemnify the company and any other person who had no actual knowledge of the contravention,
against any loss directly resulting from the invalidity of such loan or security; and
(b) be guilty of an offence.
(5) For the purposes of subsection (4) 'director or officer of a company' includes, where the company is a
subsidiary, any director or officer of its holding company.
[S. 226 substituted by s. 19 of Act 111 of 1976.]
Notes
General
In England, in 1945, the Cohen Committee took the view that it is undesirable that
directors should borrow from their companies: 'If the director can offer good security, it
is no hardship to him to borrow from other sources. If he cannot offer good security, it is
RS 8, 2011 ch8-p306
undesirable that he should obtain from the company credit which he would not be able to
obtain elsewhere.' The Committee recommended that, subject to certain exceptions, 'it
should be made illegal for any loan to be made by a company or by any of its subsidiary
companies or by any other person under guarantee from or on security provided by the
company or by any of its subsidiary companies to any director of the company'. 2072 Our
Millin Commission took the same view, 2073 and in 1952 s 70 oct was inserted in the
1926 Companies Act. In England, the Jenkins Committee recommended that the
provision should be strengthened, by extending it to prohibit loans by a company to
another company in which one or more of the directors of the lending company hold
singly or collectively, and whether directly or indirectly, a controlling interest. 2074
Our Van Wyk de Vries Commission considered that, while the loopholes in the section
should be eliminated where possible, further extension of the prohibition was not
justified. It did, however, recommend (inter alia) that, to strengthen the provision, the
loans should be prohibited whether made 'directly or indirectly'. 2075 As enacted, s 226
contained certain further innovations. In particular, it extended the prohibition to
directors and officers of any company controlled by one or more of the directors of the
company. This made little sense, and in 1976 a prohibition for loans to companies
controlled by the company's directors or managers was substituted. 2076 The possible
conflicts between this prohibition and the provisions of s 37 (intergroup transactions)
were met by the insertion of s 226(1B). 2077
Purpose and interpretation
The purpose of the prohibition is twofold. First, its purpose is to prevent the directors or
managers of a company from acting in their own interests and against the interests of
shareholders by burdening the company with obligations, not for its benefit, but for their
own benefit or for the benefit of another company controlled by them. 2078 Secondly,
where the company has a holding company, the section prevents abuse of control by
preventing
RS 8, 2011 ch8-p307
the directors and managers of that holding company from using their control of the
company to benefit themselves or the directors and managers of other subsidiaries of
the holding company.
The prohibition is not unqualified. In certain identified circumstances such use of the
company's assets is permitted, 'presumably on the basis that in the excepted
circumstances there are sufficient safeguards to establish a likelihood that the use of the
company's assets for the benefit of its directors or managers or of companies controlled
by them, will also be for the benefit of the company and not at its expense'.2079 What is
more, even the specific transactions that are considered to be prima facie unlawful are
subject to a list of exceptions. Thus, while the broad purpose or purposes of the section
are clear, namely, the prevention of misuse by directors of their position to advantage
themselves, there is no single unqualified purpose that can be used as a touchstone for
the interpretation of the section. Both the extent of what is prohibited and the extent of
what is permitted must be determined; and the legislature's purpose is relevant to both
elements. In particular, because the prohibition constitutes only part of the legislature's
whole purpose, the section is not to be interpreted, a priori, only in the light of the
legislature's intention to impose a prohibition. And there is even less warrant for taking
the intention to impose that prohibition as justifying a departure from the literal meaning
of words that indicate that the legislature has placed emphasis on the other aspect of its
intention, namely, the creation of exceptions. 2080
Disqualified persons
The disqualified persons are any director or manager 2081 of the company, or of its
holding company, or of any other company which is a subsidiary of its holding
company 2082 (s 226(1)(a)). In addition, in order to prevent circumvention of the
prohibition, s 226(1)(b) disqualifies any other company or body corporate controlled by
one or more of such directors or managers. The theory is that loans to, and the provision
of security for, such a company is in economic effect a loan to, or the provision of
security for, the director or manager concerned.
Section 226(1A)(b) contains and exhaustive definition of 'control' for the purposes of
s 226. 2083 It provides that directors or managers of a company are deemed to control
another company or body corporate only if: (i) they or their nominees hold more than
one-half of its equity share capital or, if the other body corporate is a close
corporation, 2084 more than 50 per cent of the interest in such corporation (s
226(1A)(b)(ii)); or (ii) they are members 2085 of it and can control the composition of its
board (s 226(1A)(b)(i)).
RS 8, 2011 ch8-p308
The word 'holds' is not defined in the Act. But, since the section refers to shares held
by directors or managers 'or their nominees', it would seem that shares are held for the
purposes of this provision by the person who is the registered member in respect of
them. The meaning of holding 'more than one-half' of a company's equity share capital
as these words appeared in the s 1(3)(a)(i)(bb) of the former definition of 'subsidiary
company' was considered by Goldstone J in Sage Holdings Ltd v Unisec Group
Ltd. 2086 He held that, if the share capital of the company has both ordinary and
preference shares and the one class consists of par value shares and the other of no par
value shares, then: 'If one has regard to the generally accepted meaning of "capital" in
this context, ie the funds invested in the company, and to the provisions of the Act in
relation to the issue of shares, the logical and practical conclusion appears to be that one
must have regard to the share capital account in the case of shares with a par value and
to the stated capital account in the case of no par value shares. In each case that will
represent the value of the full issue price or other consideration for such shares paid to
and received by the company. In the case of shares with and shares without a par value,
the amount in question will be readily ascertainable from the books of account of the
company and will not fluctuate from day to day.'
The definition of 'equity share capital' is to be found in s 1(1) of the Act which
provides that 'equity share capital and equity shares, in relation to a company, means its
issued share capital and shares, excluding any part thereof which, neither as respects
dividends nor as respects capital, carries any right to participate beyond a specified
amount on distribution'. 'Equity share capital' is, then, a kind of 'issued share capital'.
The phrase 'issued share capital' is not defined in the Act. As to when a share is 'issued',
see notes on s 92.
Section 226(1A)(b)(i) provides that disqualified directors or managers (or their
nominees) are deemed (this deeming provision is exhaustive) 2087 to control the
composition of the board of another company or body corporate if they 'may, by the
exercise of some power and without the consent or concurrence of any other person,
appoint 2088 or remove the majority of the directors concerned'. Before the present
definition of a 'subsidiary company' was inserted (by Companies Amendment Act 82 of
1992), a company was defined as a 'subsidiary' of another company when, inter alia,
that other company was a member of it and controlled the composition of its board of
directors, and the composition of a company's board of directors was deemed to be
controlled by another company if that other company 'may, by the exercise of some
power, without the consent or concurrence of any other person, appoint or remove the
majority of the directors'. In The Unisec Group Ltd v Sage Holdings Ltd2089 Coetzee J
held
RS 7, 2010 ch8-p309
that the word 'some' in the phrase 'exercise of some power' made it possible to travel
outside the articles in search of the source of the power, eg voting trusts. He
said 2090 that 'control' and 'some power to appoint' were not to be construed
restrictively, and hence: (a) the source of the power was not limited to that contained in
the articles and could arise extraneously, from contracts or any other relationship which
makes it legally exercisable; and (b) it was not necessary that it should be a power
immediately exercisable, ie without any intermediate step which has first to be taken.
However, while 'some power to appoint' was not to be limited to an actual one-step
power excluding a potential power, this was 'not be taken as a suggestion that any
potentiality, however remote, would always be one to which the section applies'. Each
case would 'depend on its own facts' and 'the quality and extent of the power' would
always 'have to be carefully examined' in order to decide whether it is one, which by its
exercise, enabled one company to appoint the majority of the directors of another.
Although he found it unnecessary to speculate on the degree of remoteness, he did
suggest an example: a non-negotiable option to acquire 51% of the share capital of a
company for some unrealistic number of millions of rands by a company of modest
means or one hedged in with so many conditions precedent of such a nature that it is
rendered wholly impractical in a commercial sense. The point about the remoteness of
the power is, he said, 'that it may be one which, upon analysis of it and examination of
the facts, cannot be regarded with any degree of conviction as "some power" which only
has to be exercised to lead with little further ado to the appointment of the majority of
the directors'. Thus not every option held by a company to buy more than 50% of
another company's shares would have turned the holder into a holding company of the
latter.
Directors or managers are deemed (this deeming provision is not exhaustive) 2091 to
have the power to appoint a director where a person cannot be appointed as a director
without their consent or concurrence. 2092
Loans
(1) Meaning of 'loan'
'Loan' means a loan in the ordinary sense of contracts
of mutuum or commodatum. 2093 Section 226(1A) provides that, for the purpose of the
prohibition, 'loan' includes a loan of money, shares, debentures or any other property,
and 'any credit extended by a company where the debt concerned is not payable or
being paid in accordance with normal business practice in respect of the payment of
debts of the same kind'. 2094 Because the statutory prohibition cannot in any event be
evaded by means of a simulated transaction, this inclusion within the definition of 'loan'
for the purposes of s 226 of any
RS 7, 2010 ch8-p310
such credit extended by a company is not designed to forestall the evasion of the
prohibition by certain simulated transactions that are in reality loans by the
company. 2095
(2) Directly or indirectly
Section 226(1) prohibits the making of a loan 'directly or indirectly' to a disqualified
person. The idea of a loan 'directly' made by a company contemplates a contract of loan
between two persons, one of whom (the lender) contracts to lend and does lend a
fungible or non-fungible thing to another (the borrower) for the purpose, in the case of a
fungible, of consumption (mutuum), and in the case of a non-fungible, for use
(commodatum). 2096 Where the loan is the extension of credit as defined in the
provision, the idea of a 'direct' extension of such credit envisages a creditor company
and a debtor, and the direct extension of credit by the former to the latter on the terms
contemplated by the provision. 2097 The common law concept of a loan encompasses the
situation where the loan is made indirectly to the borrower, eg where the lender pays
the money borrowed to the borrower's creditor. Thus the words 'directly or indirectly'
merely emphasise that the prohibition applies whether the loan is constituted by a
payment made by the lender directly to the borrower (ie where the lender advances
money to the borrower directly), or indirectly upon the borrower's becoming obliged to
repay to the lender a sum of money which has become a loan from the lender to the
borrower in any number of possible indirect ways (eg where the lender makes a
payment directly to a creditor of the intended borrower and thereby simultaneously
makes a loan to the borrower indirectly). 2098 Hence the words 'directly or indirectly' do
not extend the disqualification beyond the immediate parties to the contract of
loan. 2099 They are tautologous, for if omitted, the prohibition would in any event apply
to all loans, whether made directly or indirectly, to disqualified borrowers. 2100
Therefore, the prohibited indirect ways do not encompass a transaction which does
not result in a contract of a loan between a lender company and a borrower who is
disqualified in relation to such lender company. Consequently, it does not encompasses a
loan made to someone linked to a disqualified borrower (eg his wife or a close relation)
with the intention that the disqualified borrower will indirectly benefit from the loan. Nor
does it encompass a loan made to a disqualified person through an intermediary or
conduit where the intermediary or conduit receives the money by way of a loan from the
OS, 2002 ch8-p311
company and then lends it to a disqualified person.2101 For instance, the prohibition
does not extend to a transaction in which a subsidiary company makes a loan to its
holding company 2102 which enables the holding company, in turn, to make a further
loan to a borrower who, though not disqualified from obtaining the loan from the holding
company, is disqualified from obtaining it from the subsidiary.2103 In other words, a
transaction (other than one for the granting of security) is not prohibited, unless it is
shown to be a contract of loan between a company and a borrower disqualified in terms
of the section.2104
It is unclear whether this interpretation of 'indirectly' is what the Van Wyk de Vries
Commission had in mind. The Commission said: 'It has been said that the prohibition is
circumvented in practice by making loans to the wives or children or other relatives of
the director, and it has been suggested that the section should extend to loans to such
wives or children or to any other relative within the first degree of consanguinity. After
consideration we have decided that it would not be desirable to extend the section in this
way. As we see it, it would still be an easy matter to circumvent that prohibition.
However, we agree with the proposal that the section should include the phrase "directly
or indirectly" which would appear to strengthen the position and we are accordingly
making a recommendation to that effect'.2105 And it went on to say that, '[i]f our
recommendation to extend the prohibition to "indirect" loans is accepted, the evasions
complained about will be subject to stricter control. Despite the imprecision of the term
"indirect" we believe that its inclusion will strengthen the section'.2106
Security granted 'in connection with any obligation'
The provision of security (which includes a guarantee, s 226(1A)(c)) is prohibited if it is
granted in 'connection with any obligation' (ie not only an obligation arising from a
contract of loan) of a disqualified person (s 226(1)). The words 'in connection with' in the
prohibition of the provision of security do not mean that the prohibition extends to a
OS, 2002 ch8-p312
provision of security that has only a remote connection with the obligation in
question.2107 Where a third party lent money to a company and the company furnished
security for the loan, it being contemplated in the loan agreement that the borrowing
company would lend some of the money borrowed to a company controlled by one of its
directors, it was held that the contemplated loans were so far removed from the
indebtedness for which the security was furnished that it could not be said that the
security was furnished by the company in connection with the loans made by it to the
controlled company.2108
Intergroup loans
Section 226(1B) provides that the prohibitions do not prohibit a company from directly
or indirectly making a loan to, or providing security for its holding company or subsidiary
or a subsidiary of its holding company. Such intergroup transactions are governed by s
37.2109 Section 37 does not prohibit such transactions, but requires full disclose and
imposes liability on the directors or officers of the subsidiary making the loan (or
granting the security) to compensate their company if the loan (or grant of the security)
is unfair or unreasonable. The significance of s 226(1B) is that such intergroup
transactions do not fall within the prohibition even where the holding company is
controlled by one or more of its, or its subsidiary's, directors or managers.
When prohibitions do not apply
Section 226(2) specifies the situations in which the prohibition in 226(1) does not apply.
(1) Prior consent
Section 226(2)(a) provides that the prohibitions do not apply in respect of the making of
a loan to, or the provision of security for the company's own director or manager 2110 or
a company or body corporate controlled by one or more of its directors or
managers, 2111 with the prior consent 2112 of all the members of the company or in
terms of a special resolution relating to the specific transaction. The word 'prior' was
inserted by s 6 of the Companies Amendment Act 1992. The reason for this amendment
was the decision in Neugarten v Standard Bank of South Africa Ltd2113 where the
Appellate Division held that when consent is required in terms of s 226(2), the lack of it
before or at the time the loan was made (or the security was provided) is fatal to the
validity of the transactions,
RS 7, 2010 ch8-p313
reversing the decision of Goldblatt J in Standard Bank of SA Ltd v Neugarten 2114 to the
effect that shareholder consent at any stage is sufficient to comply with s
226(2). 2115 Where there is only one member in a company, a literal construction of s
226(2)(a) renders an absurd result, and accordingly the requirement of 'prior consent'
must be disregarded. 2116
(2) Prior or subsequent approval
Section 226(2)(b) read with s 226(3) provides that the prohibitions do not apply in
respect of anything done to provide a director or manager with funds to meet
expenditure incurred or to be incurred by him for the purpose of the company or for the
purpose of enabling him properly to perform his duties as a director or manager, 2117 if
done with the prior approval of the company in general meeting as specified in s
226(3)(a), or on the condition that such approval is subsequently given at the next
annual general meeting or the loan is repaid (or the liability under the security is
discharged) as specified in s 226(3)(b).
Section 226(2)(e) provides that the prohibitions do no apply to the making of a loan
or the provision of security with the approval of the company in general meeting for
housing for its director or manager.
(3) Absolute exclusions
Section 226(2)(c) provides that the prohibitions do not apply in respect of anything
done bona fide in the ordinary course of the business of a company actually and
regularly carrying on the business of making loans or the provision of security. Section
70oct of the 1926 Act merely referred here to 'a company whose ordinary business'
included the lending of money or the giving of guarantees in connection with loans made
by other persons. This gave rise to uncertainty, because it was thought this might
include a company whose memorandum contained an object entitling it to carry on such
business. The Van Wyk de Vries Commission therefore recommended that the phrase
should be 'which is actually carrying on the business of the lending of money or the
giving of guarantees as part of its ordinary business'. 2118
Section 226(2)(d) provides that the prohibitions do not apply to the provision of
money or the making of loans by a company for the purposes contemplated in s
38(2)(b) and (c). Section 38(2)(b) permits a company to give money for the subscription
for or purchase of its shares or the shares of its holding company by trustees to be held
by or for the benefit of employees of the company, including any director holding a
salaried employment or office in the company; and s 38(2)(c) permits a company to
make loans to persons, other than directors, bona fide in the employment of the
company with a view
RS 7, 2010 ch8-p314
to enabling those persons to purchase or subscribe for shares of the company or of its
holding company to be held by themselves as owners.
Section 226(2)(f)(i)-(ii) provide that the prohibitions do not apply in respect of the
making of a loan to, or the provision of security for, a director or manager of the
company's subsidiary, provided that he is not also a director or manager of the company
itself. The theory is that such 'downward' loans do not entail the same likelihood of
abuse, for such director or manager has no say in the matter and is hence in a position
no different from any other third party. The exception is necessary because, although s
226(1) does not prohibit loans and the granting of security to a director or manager of
the company's subsidiary, s 226(1)(c)(iii) prohibits the making of loans to (and the
granting of security) to any director or manager of any company which is a subsidiary of
the company's holding company; and therefore, where the company has a holding
company, its subsidiary company is also a subsidiary company of its holding
company. 2119 However, although loans to a director of such a lending company's
subsidiary are excluded from the prohibition, loans to a company controlled by such a
director are not excluded. 2120 It would seem that this was an oversight.
Loans by third parties to be used to make loans to disqualified persons
Where money is lent by a third party to the company, and it is a term of that contract of
loan that the company will lend the money thus borrowed by it to another company
controlled by one of its directors, the loan is not a contravention of the section unless it
is established that the third party knew that the borrowing company intended to lend the
money it borrowed in contravention of the section, 2121 ie that it would lend the money
without the consent of all its members or without a special resolution. This is because
there is a presumption that parties to a contract intend to act lawfully; and where a
contract may be performed in two ways, one lawfully and the other unlawfully, the
contract is void only if it is proved that the intention was to perform it in an illegal
way. 2122 In other words, the third party is entitled to assume that the borrower
company will carry out the terms of the agreement in a lawful manner, ie by obtaining
the necessary consent or special resolution. And therefore, in the absence of an
allegation that he knew that the borrowing company intended to enter into and carry out
the agreement in an unlawful manner, he cannot be precluded from claiming payment
from the borrowing company of amounts advanced to it in terms of the agreement. 2123
RS 5, 2008 ch8-p315
Permissible transactions not affected by other prohibitory provisions in section
Since the prohibitory clauses in s 226(1) do not apply to a loan by a company to (or the
provision of security in connection with an obligation of) its own director with the
consent of the company, 2124 if such a loan (or the grant of such security) is duly
authorised, the transaction is not affected by any of the other prohibitory clauses. And
therefore it is not forbidden, merely because the director who received the loan (or in
respect of whom security was provided) happened also to be a director of the lending
company's holding company, or a director of another subsidiary of its holding
company. 2125
By parity of reasoning, a loan is not prohibited (and does not have to be made with
the consent of all the members or in terms of a special resolution) if made to a person
who is not a director (or a manager) of the lending company, but who is a director (or
manager) of both its holding company and of its (ie the lending company's)
subsidiary. 2126 This is because, although a loan to a director of the lending company's
holding is prohibited, a loan to a director of the lending company's subsidiary is
expressly permitted. 2127 221-228)
Consequences
A loan granted or security provided in contravention of this provision is void. 2128
Since the section was enacted to protect companies and their shareholders and
creditors from misapplication of the company's funds, it would seem to be implicit in the
section that the company has an unqualified right to recover the amount of a loan made
by it in contravention of the section from the director or manager or controlled company
concerned. Furthermore, and for the same reason, it would seem that an infringement of
the section ought not to brand with the consequences of illegality all transactions which
are related to the loan or the giving of security, at least in those cases where to brand
such a transaction with illegality would work to the detriment of the company, eg a
guarantee given by a third party to the company to secure repayment of a prohibited
loan. 2129
Any director or officer of a company or of its holding company 2130 who authorises,
permits or is a party to the making of any loan or the provision of any security contrary
to these prohibitions is liable to indemnify the company and any other person who had
no actual knowledge of the contravention, against any loss directly resulting from the
RS 5, 2008 ch8-p316
invalidity of the loan or security. 2131 Such director or officer is entitled to claim
indemnification or contribution from his or her fellow directors of the proportional
amount that he or she is obliged to pay to the company in terms of s 226(4). 2132 A
member can initiate proceedings under s 266 for enforcement of the company's right to
be indemnified. The court may in terms of s 248 relieve the director or officer from
liability to the company. Although a registered special resolution is probably a public
document to which the doctrine of constructive notice applies, a third party's right to be
indemnified is protected by the requirement in s 226(4)(a) to the effect that he is
entitled to be indemnified if he has 'no actual knowledge of the contravention'.
Where more than one director or manager is party to a contravention of s 226,
although each is liable in full in terms of s 226(4)(a) for the loss suffered, the one who
has paid has a right of recourse against each of the others. 2133 The right of recourse is
founded on the general principle that in the cases of solidarity co-debtorship, more
frequently referred to as joint and several liability, if one of the debtors pays the full
amount of the debt, h/she has, in the absence of an agreement to the contrary, a right
of recourse against the other debtors, but only for their respective proportionate
shares. 2134
Such director or officer is also guilty of an offence. 2135Mens rea must be
proved. 2136 Proof of culpa is sufficient to establish mens rea, 2137 and thus a director or
manager is guilty of the offence if he authorises, permits or becomes a party to the
making of a loan (or the provision of security) contrary to the provisions of the section
through a negligent failure on his part to take reasonable steps to acquaint himself with
the relevant provisions. 2138
In addition to liability under s 226, the directors or officers concerned may, in the
circumstances, also incur liability to their company on the ground of breach of their
fiduciary duties or their duty of care and skill; and, in the circumstances, a minority
shareholder may have a remedy under s 252.
Annual financial statements
Section 295(1) requires details to be given in the annual financial statements of any
loans or security granted by virtue of the provisions of s 226(2)(a), (b) and (e), ie loans
and security which may be granted subject to the approval of the company's
members. 2139
RS 5, 2008 ch8-p317


2072 Report of the Committee on Company Law Amendment Cmd 6659 (1945) para 94.
2073 Final Report of the Company Law Amendment Enquiry Commission 1947-1948 UG No 69-1948 paras
135-136.
2074 paras 98 and 99(c).
2075 Commission of Enquiry into the Companies Act Main Report RP 45/1970 paras 44.37 and 44.38.
2076 s 19 of Act No 111 of 1976.
2077 s 21(1)(b) of Act 64 of 1977.
2078 Standard Bank of SA Ltd v Neugarten 1987 (3) SA 695 (W) 705; Standard Bank of SA Ltd v
Neugarten 1988 (1) SA 652 (W) 658; Neugarten v Standard Bank of South Africa Ltd 1989 (1) SA 797
(A) 802; S v Pouroulis 1993 (4) SA 575 (W) 588-589; Bevary Investments (Edms) Bpk v Boland Bank
Bpk 1993 (3) SA 597 (A) 625; Kirsten v Bankorp Ltd 1993 (4) SA 649 (C) 662; Corumo Holdings Ltd v C Itoh
Ltd (1990) 3 ACSR 438 447 SC(NSW), referring to Neugarten v Standard Bank of South Africa Ltd supra.
On s 226, see S J Naud Memorandum to the Standing Advisory Committee on s 226 of the Companies Act 20
November 1974; Selwyn Faber 'The Prohibition of Loans to Directors and Managers' (1978) South African
Chartered Accountant347; M J Oosthuizen 'Sekerheidstelling in Stryd met Artikel 226 van die Maatskappywet
Enkele Aspekte Standard Bank of SA Ltd v Neugarten 1987 3 SA 695 (W)' 1988 TSAR 133; M J
Oosthuizen 'Toestemming Ingevolge Artikel 226 van die Maatskappywet Standard Bank of SA Ltd v
Neugarten 1988 1 SA 652 (W)' [1988] TSAR 303; Stephanie M Luiz 'Security by a Company Ex Post Facto
Approval' (1989) 18 Businessman's Law 229; Richard Jooste 'Loans to Company Directors: The Requirement of
Consent' (1990) 20 Businessman's Law 71.
2079 per Stegmann J in S v Pouroulis 1993 (4) SA 575 (W) 589.
2080 Bevary Investments (Edms) Bpk v Boland Bank Bpk 1993 (3) SA 597 (A) 623-624.
2081 As originally enacted, s 226(1) referred to 'officer'. 'Manager' was substituted for 'officer' by s 19 of Act
111 of 1976. As to the meaning of 'manager', see s 1(1) and notes on s 211. There is nothing in the definition
of manager in s 1(1) that would exclude a company or body corporate holding the position of a manager.
2082 As to meaning of holding company and subsidiary company, see s 1(3)-(5) and notes thereon.
2083 S v Pouroulis 1993 (4) SA 575 (W) 602-604.
2084 as defined in s 1 of the Close Corporation Act 69 of 1984.
2085 As to who is a member of a company, see ss 103 and 91A and notes thereon.
2086 1982 (1) SA 337 (W) 352-353.
2087 In Sage Holdings Ltd v The Unisec Group 1982 (1) SA 337 (W) Goldstone J held that the (for all relevant
purposes) identical deeming provision in s 1(3)(a)(i)(aa) of the (now repealed) definition of 'subsidiary
company' was exhaustive (ie one company controlled the composition of the board of another company for the
purposes of that definition only if it could, by the exercise of some power, without the consent or concurrence
of any other person, appoint or remove the majority of the directors of that other company).
2088 In The Unisec Group Ltd v Sage Holdings Ltd 1986 (3) SA 253 (T) 270-271 Coetzee J held that the word
'appoint' in the (for all relevant purposes) identical provision in s 1(3)(b) of the (now repealed) definition of
'subsidiary company' was used in the sense in which it is 'generally employed in company law jargon to
describe the filling of the office of director, however that is accomplished, which more often than not follows
upon voting at a members' meeting'.
2089 1986 (3) SA 259 (T) 269-270.
2090 1986 (3) SA 259 (T) 274-275.
2091 See Sage Holdings Ltd v Unisec Group Ltd 1982 (1) SA 337 (W) 353 where Goldstone J concluded that
the (for all relevant purposes) the identical deeming provision in s 1(3)(b) of the (now repealed) definition of
'subsidiary company' was not intended to curtail the phrase 'by the exercise of some power', but to extend it.
On appeal, Coetzee J accepted that this as correct: Unisec Group Ltd v Sage Holdings Ltd 1986 (3) SA 253
(T) 271.
2092 Section 226(1A)(b)(i).
2093 S v Pouroulis 1993 (4) SA 575 (W) 589.
2094 Section 226(1A)(a)(ii).
2095 S v Pouroulis 1993 (4) SA 575 (W) 590-591.
2096 S v Pouroulis 1993 (4) SA 575 (W) 589.
2097 S v Pouroulis 1993 (4) SA 575 (W) 590.
2098 In Kirsten v Bankorp Ltd 1993 (4) SA 649 (C) 660 the following from Stegmann J's judgment in S v
Pouroulis 1993 (4) SA 575 (W) 601 judgment was quoted with approval: 'The words ''directly or indirectly''
merely emphasise that the prohibition applies whether the loan is constituted by payment made by the lender
directly to the borrower or indirectly upon the borrower's becoming obliged to repay to the lender a sum of
money which has become a loan from the lender to the borrower in any number of possible indirect ways. The
prohibited indirect ways do not encompass any transaction which does not result in a contract of loan between
a lender company and a borrower who is disqualified in relation to such lender company.'
2099 S v Pouroulis 1993 (4) SA 575 (W) 590-595. See also Kirsten v Bankorp Ltd 1993 4 SA 649 (C) 660-
661.
2100 S v Pouroulis 1993 (4) SA 575 (W) 590-595. See also Kirsten v Bankorp Ltd 1993 (4) SA 649 (C) 660-
661. This is because, if the word 'indirectly' is to be compelled to yield some additional meaning, then the
prohibition would have to be taken to extend to transactions falling outside the concept of loans as known to
the common law: S v Pouroulis 1993 (4) SA 575 (W) 594-595. See also Kirsten v Bankorp Ltd 1993 (4) SA 649
(C) 660-661.
2101 S v Pouroulis 1993 (4) SA 575 (W) 591-602, in which case (at 599-600) the position under s 37 was
distinguished on the ground that s 37, although also containing the words 'directly or indirectly', contains in
addition the words 'whether through the instrumentality of its subsidiary or otherwise' and, furthermore,
contemplates an enquiry into the source of the funds employed in the loan ('any funds of . . . employed . . . in
a loan'), while s 226 'contains no equivalent words to justify any enquiry other than to identify the lender and
the borrower in a contract of loan, and to determine whether the borrower belongs to a class which is
disqualified from the borrowing from the lender' (per Stegmann J at 600).
2102 a loan which, by virtue of s 226(1B) is not subject to the prohibition contained in s 226(1)(b).
2103 S v Pouroulis 1993 (4) SA 575 (W) 596-598. In this case it was said that where a subsidiary makes a
loan to its holding company (which holding company is not itself a subsidiary of another company) with the
intention of putting the holding company in a position to make a loan, and the holding company then makes a
loan to a company (X Co) controlled by a director of the subsidiary, the holding company has contravened s
226(1)(b), but the subsidiary has not contravened that provision by 'indirectly' making a loan to X Co. While
this example is flawed (clearly, the loan by the holding company to X Co is not a contravention of the section,
for s 226 does not prohibit a holding company which is not itself a subsidiary from making loans to a director of
its subsidiary or to a company controlled by such a director), the question whether the 'indirect' loan by the
subsidiary is a contravention of the section remains. And the court held that it is not contravention of the
section.
2104 S v Pouroulis 1993 (4) SA 575 (W) 601; Kirsten v Bankorp Ltd 1993 (4) SA 649 (C) 660.
2105 Commission of Enquiry into the Companies Act Main Report RP 45/1975 para 44.37.
2106 Commission of Enquiry into the Companies Act Main Report RP 45/1975 para 44.38.
2107 Kirsten v Bankorp Ltd 1993 (4) SA 649 (C) 662, where the court referred to the following statement of
Miller JA in Lipshitz v UDC Bank Ltd 1979 (1) SA 789 (A) 804: '[I]t is probably seldom that the words ["in
connection with"] are used in legislation in their wide, literal sense. An act only remotely associated with an
event may be said, literally, to have been an act in connection with such event, but unless the subject-matter
of the legislation and the context of the particular provision clearly indicate otherwise, it would not ordinarily be
accepted that even the most remote connection was intended to be visited with sanctions or penal
consequences.'
2108 Kirsten v Bankorp Ltd 1993 (4) SA 649 (C) 662-663.
2109 S J Naud, 'Loans or Security by Subsidiaries: The New Section 37 and Abuse of Control' (1979) 1 MBL 8.
2110 s 226(2)(a)(i)-(ii).
2111 s 226(2)(a)(iii)-(iv).
2112 But in respect of any such loan made or security provided at any time before the date of the
commencement of the Companies Act, 1992, such consent is deemed to have been given if the transaction
concerned has subsequently, whether before or after that date, been ratified by all the members of the
company: s 226(2)(a) as amended by s 6 of the Companies Amendment Act 1992.
2113 1989 (1) SA 797 (A).
2114 1988 (1) SA 652 (W).
2115 In effect, this proviso reverses the decision of the Appellate Division in regard to loans made (or security
provided) before the commencement of the Companies Act 1992.
2116 See Hanekom v Builders Market Klerksdorp (Pty) Ltd & Others 2006 (1) SA 423 (T). The case dealt
with s 52 of the Close Corporation Act 69 of 1984 which provides, inter alia, that a loan or provision of security
by a close corporation to or on behalf of members of the close corporation or to companies or close
corporations controlled by one or more of them, is prohibited unless given with the express previously obtained
consent in writing of the other members of the corporation. The issue in the case was whether this requirement
was satisfied in the case of a sole member when he signs a suretyship. The court answered in the affirmative.
This decision was confirmed in Hanekom v Builders Market Klerksdorp (Pty) Ltd 2007 (3) SA 89 (SCA).
2117 Section 226(2)(b).
2118 Commission of Enquiry into the Companies Act Main Report RP 45/1970 para 44.37(c).
2119 Section 1(3)(a)(ii) provides that a company shall be deemed to be a subsidiary of another company if it
is a subsidiary of any company which is a subsidiary of that other company.
2120 This is because, in terms of s 226(1)(b), a company is not permitted to make a loan to a company
controlled by directors or managers of a company which is a subsidiary of the lending company's holding
company. It is not clear why loans to such a company or body corporate are not excluded from the prohibition,
while (in terms of s 266(2)(f)) loans to the director or manager himself are excluded.
2121 Kirsten v Bankorp Ltd 1993 (4) SA 649 (C) 662.
2122 Kirsten v Bankorp Ltd 1993 (4) SA 649 (C) 661.
2123 Kirsten v Bankorp Ltd 1993 (4) SA 649 (C) 662. It was also held (at 663) that, just as a loan is capable
of being made in a lawful or unlawful manner, so, too, can security be furnished in a lawful or unlawful
manner. Thus where a loan is made by a third party to a disqualified person, and security for that loan is to be
furnished to the lender by the company (vis--vis that person is disqualified), the lender may assume that the
company is not giving the security unlawfully, ie it may assume that the necessary authorisation of the
company's members will be obtained before it grants the security. What, however, was meant by this is
unclear. Clearly, the security will be valid if, and only if, the necessary consents of the members are obtained,
or the special resolution is passed, before it is granted: Neugarten v Standard Bank of South Africa Ltd 1989
(1) SA 797 (A).
2124 which s 226(2)(a)(i)-(ii) permits.
2125 Bevary Investments (Edms) Bpk v Boland Bank Bpk 1993 (3) SA 597 (A). Cf the dissenting judgment of
Botha JA, with whom Nicholas AJA agreed.
2126 Unless, perhaps, the loan or security is expressly granted to the such person in his capacity as (or
because he is) a director of the holding company.
2127 s 226(f), which like s 226(2)(a), concerns loans to which s 226(1) 'does not apply'.
2128 Neugarten v Standard Bank of South Africa Ltd 1989 (1) SA 797 (A).
2129 See Corumo Holdings Ltd v C Itoh Ltd (1990) 3 ACSR 438 SC(NSW). In this case Rogers C J pointed out
(at 451) that where a third party gives security to a company for a loan made by it to one of its directors, 'it
hardly protects a company from having its assets misused to disable it from recovering its money by enforcing
the guarantee it had obtained'. The learned judge referred here to the decision of the High Court of Malaysia
in Che Wan Development SDN BHD v Cooperative Central Bank BHD (1989) 2 ACSR 61, the effect of which, he
said, was that while 'the lender could look to the director for recovery of the moneys it lent, the only security it
had to make its loan recoverable was unenforceable'. However, in Che Wan Development SDN BHD v
Cooperative Central Bank BHD supra the company did not make the loan; rather, it guaranteed a loan made to
one of its directors by a third party, and the court held that the guarantee was void.
2130 s 226(5).
2131 s 226(4)(a).
2132 Shell Auto (Pty) Ltd v Laggar and Others 2005 (1) SA 162 (D). The Court said that there was no judicial
authority on the scope and the effect of s 226(4)(a) but, after referring to English law and general common-
law principles in South African law, ruled that the right to a contribution between concurrent wrongdoers is
recognised in South African law.
2133 See Shell Auto Care (Pty) Ltd v Laggar and Others 2005 (1) SA 162 (D) which involved an exception to
a claim under s 226(4)(a).
2134 Ibid at 166H.
2135 s 226(4)(b). He is liable to a fine or to imprisonment for a period not exceeding one year, or to both the
fine and imprisonment: s 441(1)(e). See S v Shaik and Others [2005] 3 All SA 211 (D) where the defendant
was charged in the alternative with a contravention of s 226(4)(b), in that he had caused the companies under
his control to make certain loans to Mr Jacob Zuma. The alternative charge was that the defendant had
contravened s 424 of the Companies Act.
2136 S v Pouroulis 1993 (4) SA 575 (W) 604.
2137 S v Pouroulis 1993 (4) SA 575 (W) 604.
2138 S v Pouroulis 1993 (4) SA 575 (W) 604.
2139 Loans in terms of s 226(2)(a) require the consent of all the members or a special resolution relating to
the specific consent, and loans in terms of s 226(2)(b) and (e) merely require the consent of the company in
general meeting.


227 Payments to directors for loss of office or in connection with
arrangements and take-over schemes
(1) No company shall make any payment or grant any benefit or advantage to any director or past director
of the company or of its subsidiary company or holding company or of any subsidiary of its holding company
(a) by way of compensation for loss of office or as consideration for or in connection with his retirement from
office;
(b) by way of compensation, consideration or for any other reason, for loss or retention of office or otherwise, in
connection with any scheme referred to in section 313; or
(c) by way of such compensation, consideration or other reason in connection with any scheme or transaction
which constitutes an affected transaction as contemplated in Chapter XVA (hereinafter in this section referred
to as a take-over offer or take-over scheme),
[Para. (c) substituted by s. 17 of Act 37 of 1999.]
unless full particulars with respect to the proposed payment (including the amount thereof), benefit or
advantage have been disclosed to the members of the company and the making of the payment or the grant of
the benefit or advantage has been approved by special resolution of the company.
[Sub-s. (1) amended by s. 7 of Act 82 of 1992.]
(2) Any payment made or benefit or advantage granted contrary to the provisions of subsection (1) shall
(a) in the case of paragraphs (a) and (b) of that subsection, be deemed to have been received by the director or
past director concerned in trust for the company; and
(b) in the case of paragraph (c) of that subsection, be deemed to have been received by the director or past
director concerned in trust for any persons who have sold their shares as a result of the take-over offer
concerned.
(3) If in connection with any take-over scheme the price to be paid to a director or past director for any
shares of the company held by him is in excess of the price offered to other holders of such shares in terms of
the take-over scheme or any benefit or advantage is granted to such director or past director, the excess or
the money value of the benefit or advantage, as the case may be, shall for the purposes of this section, be
deemed to have been a payment made contrary to the provisions of subsection (1)(c).
(4) A director's expenses of distributing any sum among persons entitled thereto by virtue of subsection
(2)(b) shall be borne by him and shall not be retained out of that sum.
(5) Where in proceedings for the recovery of any payment, benefit or advantage deemed to have been
received in trust, it is shown that
(a) the payment was made or the benefit or advantage was granted in pursuance of any arrangement entered into
as part of an agreement in respect of any scheme or take-over scheme, or within one year before or two years
after that agreement or the take-over offer; and
(b) the company, or the transferee company under any scheme or the offeror in respect of any take-over scheme
was privy to that arrangement,
RS 5, 2008 ch8-p318
the payment, benefit or advantage shall be deemed, except in so far as the contrary is shown, to be one to
which this section applies.
(6) The provisions of this section shall not apply with reference to any bona fide payment made or benefit
or advantage granted by way of damages for breach of contract or by way of a pension, including any
superannuation allowance, gratuity or similar payment in respect of past services.
(7) Nothing in this section shall be taken to prejudice the operation of any rule of law requiring disclosure
to be made with respect to any such payments, benefits or advantages as are mentioned in this section or with
respect to any other payments, benefits or advantages made or granted or to be made or granted to the
directors or past directors of a company.
Notes
General
A provision governing these payments to directors was first introduced as s 150 of the
English Companies Act 1929 2140 and, in 1939, as s 70 quat of our Companies Act 46 of
1926. 2141 As originally enacted, s 70quat dealt with 'payment' (ie by any person) to
directors by way of compensation for loss of office: (1) when the company sold the
whole or any part of its undertaking or property (the director was deemed to be holding
the payment in trust for the company unless the payment was fully disclosed to and
authorised by the company in general meeting); and (2) when an offer was made to the
general body of shareholders to take over all or any of the shares in the company (the
director committed an offence and was deemed to have received the payment in trust
for the shareholders who had sold their shares as the result of the offer, unless the
payment was fully disclosed in the notice of the offer made for the shares). Excess
consideration paid a director for his shares was deemed to be have been made to him by
way of compensation for loss of office or consideration for his retirement.
Both in England and in South Africa the provision underwent a number of
amendments. First, it was made unlawful for a company to make any payment to a
director as consideration for, or in connection with, his loss of or retirement from office
without disclosure of the particulars to, and the approval of, the general meeting. If such
disclosure was not made and such approval not obtained, the director was deemed to
hold the amount in trust for the company (in England, this prohibition was then
extended to any such payments made to a director of the company's subsidiary or
holding company). Secondly, approval by the shareholders concerned was made
necessary for payments to a director made in connection with the transfer of all or any
of the company's shares to a person (as a result of an offer made to the general body of
RS 5, 2008 ch8-p319
shareholders). Finally, in England a special resolution was required for the approval of
the general meeting, and a corresponding majority was required in the case of a transfer
of shares. 2142
The Van Wyk de Vries Commission 2143 considered that payment for loss of office and
consideration for a retirement from office should be paid to directors only if sanctioned
by a special resolution. It also recommended that the section prohibit the making of such
payment to past directors, that is to say, persons who had ceased to be directors and
who were, after resignation, compensated for loss of office or given a consideration in
connection with their retirement; and prohibit a company from making such payments to
directors or past directors of its holding, subsidiary or associated company. 2144 These
suggested amendments were incorporated in the Act. However, the provisions of s 227
as enacted 2145 contained a number of departures from s 70 quat which were not
recommended by the Commission. One such amendment was the exclusion of the duty
(which was backed by criminal liability) on a director to secure disclosure of
payments. 2146
Section 227(1)(c) prohibited a company from making any such payment etc by way of
compensation, consideration or other reason in connection with any 'take-over scheme
referred to in section 314'. In 1989 ss 314-321 the Companies Act were
repealed, 2147 and Chapter XVA was added to the Act, which chapter includes, in s
440A(1), a definition of an 'affected transaction'. 2148 This raised difficulties in connection
with s 227(1)(c) which continued to refer to 'any take-over scheme referred to in section
314'. In 1999 s 227(1)(c) was at last amended to take into account this change.
RS 5, 2008 ch8-p320
Prohibition of payments to directors for loss of office
Section 227(1) requires disclosure of full particulars with respect to the proposed
payment (including the amount), benefit or advantage to the members of the company
and approval by special resolution of the company of the making of the payment or the
grant of the benefit or advantage. It has been held that this disclosure must be to all the
members, and that approval must be obtained before the payment is made.2149 It has
also been held that a payment or grant made by directors in contravention of the section
is ultra vires their powers and the directors responsible are liable in respect of it on the
grounds of misapplication of the company's funds, 2150 unless they ought to be
excused. 2151
It has been pointed out 2152 that the terminology used in s 227(a), (b) and (c) is
confusing. It is impossible to establish from s 227(1)(c) whether the words 'such
compensation' refer to compensation for loss of office or retirement as described in s
277(1)(a), or compensation etc for loss or retention of office as described in s 277(1)(b).
Presumably, they refer to both, ie loss of office or retirement or retention of office.
In Peens & Swart v MKTV Beleggings Beherend BK & Another2153 the question arose
as to whether certain resignation packages were regulated by s 227(1)(a). Peens and
Swart were employees of MKTV Tobacco (Pty) Ltd with Peens employed as the managing
director and Swart as the product development director. They were also directors of the
company. In January 2001, a board resolution was passed approving the application by
Peens and Swart for voluntary resignation packages which would be offered to them in
writing. MKTV offered each of them a package and both signed an extract from the
minutes of the meeting accepting the resolution of the board. The packages were to be
paid provided they resigned and returned all company property and it was common
cause that this had been done. Peens and Swart, according to the evidence, received no
honorarium for their work as directors but they received salaries and benefits in terms of
their service contracts with MKTV. The resignation packages were worked out according
to a formula that applied to all salaried personnel whether or not they were directors. In
terms of the articles of MKTV the services of persons in their capacity as managing and
executive directors could not be unilaterally terminated without exposing MKTV to a
claim for damages. MKTV subsequently refused to pay the agreed packages and Peens
and Swart brought an action against it for payment thereof.
The issue in the case was whether the packages fell within the ambit of s 227(1) of
the Act and more specifically whether the payments to Peens and Swart were
compensation 'in connection with' their resignation as directors.
The court (Smit J) relied heavily on the Australian case of Lincoln Mills (Aust) Ltd v
Gough. 2154 In this case Gough was both a director and employee of a company and his
employment contract provided that he would be entitled to receive a lump-sum payment
if he resigned after the company had been taken over. After such a takeover, Gough
resigned from his employment with the company and was paid the lump sum. It was
subsequently argued that the payment was unlawful because it had not been disclosed
RS 5, 2008 ch8-p320-1
and had not received the required approval as required by the Companies Act
(Victoria). 2155 The issue was whether the payment was 'compensation for loss of office
as a director or as consideration for or in connection with his retirement from such
office'. Gough contended that the payment was made in relation to the termination of his
office as an employee and not as compensation for his loss of office or retirement from
office as a director. The court decided that Gough held two offices in the company and
that the true character of the payment and the intention of the parties was that the
payment was for the loss of his office as an employee of the company and not as a
director of it and that the payment was made in terms of an express agreement.
MKTV asserted that the court in the Lincoln Mills case had not given proper
consideration to whether the payment was 'in connection with' loss of or retirement from
office as a director, but Smit J disagreed with this assertion, holding that the court had
considered the provision in its entirety and had concluded that the payment was not 'in
connection with' loss of or retirement from office as a director.
RS 3, 2006 ch8-p321
Smit J also referred in his judgment to The Taupo Totara Timber Co Ltd v Rowe. 2156
The issue in this case was whether a lump-sum payment was unlawful in terms of s 191
of the New Zealand Act, which made it unlawful for a company to make any payment to
any director by way of compensation for loss of office, or as consideration for or in
connection with retirement from office, unless the proposed payment was disclosed to
the members and approved by the company in general meeting.
The Privy Council adopted the approach in Lincoln Mills despite its recognition that the
wording of the sections was different in that there was no clear indication in the section
with which the Privy Council was dealing that the payments covered were payments
made to a person 'as director'. The Privy Council pointed out that the respondent, as well
as being a director, was also an employee who had a service contract with the company
and that on the happening of certain events, such as the company being taken over, he
would be contractually entitled to a sum of money (which was not fixed by the
agreement) on his resignation or dismissal. Bearing in mind that there was no obligation
to seek the approval of the agreement itself by the company in general meeting, the
Privy Council considered whether it was necessary for the general meeting to consent to
the payment of the sum. It held that there was no such obligation as the section 'as a
whole' and the words 'proposed payment' and 'proposal' pointed to a prohibition of
uncovenanted payments as contrasted with payments which the company is legally
obliged to make.
Having looked at Lincoln Mills and Taupo Totara Timber, Smit J considered the facts
before him. He held that no compensation was ever paid to Peens and Swart in their
capacity as directors. He pointed out that the payment that the company had agreed to
make was calculated according to a formula that was applicable to salaried personnel
and that the specific offer made to and accepted by Peens and Swart was headed
'Kennisgewing aan alle salarispersoneel bo die ouderdom van 50' and that in the body of
the offer reference was made to 'personeel' and 'werknemers' and that there was no
indication that the resignation package was also being paid for vacating the office of
director.
Having dismissed other minor arguments and after looking at the real nature of the
payment and taking into account the nature and the circumstances of the payment, Smit
J concluded that the payment to Peens was owing as a result of the termination of his
service relationship as the managing director of MKTV, and that the payment to S was
owing as a result of the termination of his service relationship as product development
director, and thus s 227 was not applicable.
As has been pointed out: 2157
'[t]he approach followed by the court in the case under discussion makes it unnecessary to get
shareholder approval for payments made to a person in their capacity as an executive or employee
of the company for loss of or retirement from that position, even though that person may also
retire from or lose their office of director of the company at the same time. The desirability of
excluding from the application of the section payments made to directors in their capacity as
executive employees of the company is debatable . . .
The decision in the Peens case also raises the question of the meaning of the exemption
provided for in s 227(6), which states that the provisions do not apply to any bona fide
RS 3, 2006 ch8-p322
payment made, or benefit or advantage granted, as damages for breach of contract or by way of a
pension which includes any superannuation allowance, gratuity or similar payment in respect of
past services. If the prohibition in s 227(1) does not apply to payments to directors for loss of their
position as executives or employees, then clearly the exemption in s 227(6) would also have no
application in that context. It would seem that the exemption would only apply to payments of
damages that a director is entitled to in his capacity as a director where, for example, he agreed to
serve as a non-executive director for a specific period for a specified amount per year . . .'
Section 227(1)(b) refers to payments, benefits or advantages made or granted to a
director 'in connection with any scheme referred to in section 313'. Section 313 contains
provisions for facilitating reconstructions and amalgamations. A scheme referred to in s
313 is 'a scheme for the reconstruction of any company or companies or the
amalgamation of any two or more companies', which is effected by a compromise or
arrangement under s 311, and under which 'the whole or any part of the undertaking or
the property of any company concerned in the scheme . . . is to be transferred to
another company'. Compromises or arrangement which do not involve a scheme which
complies with that description, thus fall outside the scope of s 227(1)(b). 2158
Previously, such compromises and arrangements also fell outside the scope of s
227(1)(c), which applied only in the case of a takeover scheme referred to in s 314 (and
not to schemes of arrangement under ss 311 to 313). Consequently, payments, benefits
or advantages made or granted to a director in connection with comprises or
arrangements which did not involve schemes for reconstruction or amalgamations and
the transfer of the undertaking or property of any company to another company, were
not prohibited in terms of s 277, except insofar as they fell within the ambit of s
227(1)(a). However, the definition of 'affected transaction' includes 'any transaction
(including a transaction which forms part of a series of transactions) or scheme,
whatever form it may take'. Thus takeovers affected by a scheme of arrangement under
s 311 fall squarely within the ambit of s 227(1)(c). Indeed, so too do all takeovers,
however effected, eg takeovers affected by the redemption of preference shares.
(However, so too, depending on the circumstances, may a 'scheme referred to in section
313' as provided for in s 226(1)(b).)
Section 70quat of the 1926 Act covered the situation where 'the whole or any part of
the undertaking or property of a company' was transferred. 2159 As originally enacted, s
277 made no mention of payments made to a director in connection with such a transfer
- unless that transfer was effected under 'any scheme referred to in section 313', when s
277(1)(b) would apply. 2160 This remained the position until 1999. However, payments
to directors made in connection with the disposal of the whole or substantially the whole
of the undertaking of the company, or the whole or the greater part of its assets, are
now covered by s 227(1)(c). This is because s 14(a) of Act 35 of 1998 amended the
definition of 'affected transaction' in s 440A so as to include 'a disposal as contemplated
in section 228'.
A 'take-over scheme' (as originally referred to in s 227(1)(c)) as defined in s 314 did
not include 'any offer made in the course of or in connection with any individual
RS 3, 2006 ch8-p323
negotiation with any shareholder for the acquisition of any such shares'. The definition of
'affected transaction' in s 440A(1) contains no such limitation.
The substitution in s 227(1)(c) of 'affected transaction' for 'any take-over scheme
referred to in section 314' has however resulted in certain anomalies.
First, s 227(2)(b) provides that in the case of s 227(1)(c) any payment made or
benefit or advantage granted shall 'be deemed to have been received by the director or
past director concerned in trust for any persons who have sold their shares as a result of
the take-over offer concerned'. In 'affected transactions' accomplished by means of
schemes of arrangement under s 311 there may be no sale of shares, eg where the
shares in question are redeemed. This, of course, is also the case where a takeover is
accomplished by means of a share exchange. What is more, in the case of 'a disposal as
contemplated in section 228', not only will there be no acquisition of shares, but also the
payment or benefit or advantage received ought to be deemed to be received in trust for
the company (that was the position under s 70quat(1)bisof the 1926 Companies Act), ie
the payments should be governed by s 226(2)(a) and not 226(2)(b).
Secondly, s 227(3) refers only to sales of shares ('the price to be paid to a director . .
. for any shares . . . is in excess of the price offered to other holders of such shares').
Thus, although s 227(1)(c)provides that 'an affected transaction as contemplated in
Chapter XVA' is 'hereinafter in this section referred to as a take-over offer or take-over
scheme', it would seem that s 227(3) does not cover excess payments made in
connection with a share redemption.
Payments deemed to have been received in trust for any persons who have sold
their shares
Section 227(2)(b) as enacted to deal with the problem met with in Regal (Hastings) Ltd
v Gulliver 2161 of providing for restoration to those truly prejudiced, and not to the
company, thus giving what has been thought to be an undeserved reduction of price to
the bidder. To this extent, therefore, it recognises an exception to the general rule that
directors are not trustees for individual shareholders. They become trustee for the
shareholders. But not for all. Only for those who have sold. It has been argued that
persons who have retained their shares have just as much claim to participate in the
distribution of the improper payment as the persons who have sold their shares. All
persons who were shareholders at the date of the takeover should be beneficiaries, with
one exception, viz, a shareholder who was a party to such an improper payment. 2162
As noted above, s 227(2)(b) ought to have been redrafted. In the case of takeover
accomplished by means of a scheme of arrangement involving a redemption of shares,
the benefit or advantage will have to be held in trust for the shareholders whose shares
have been redeemed. And in the case of 'a disposal as contemplated in section 228' the
benefit or advantage received ought to be held in trust for the company.
Payments to directors by outsiders
An unsatisfactory feature of s 227 is that, unlike s 70quat of the 1926 Act, payments to
directors by third parties, ie persons other than the company, in connection with a
RS 3, 2006 ch8-p324
takeover are dealt with only by implication in s 227(3). 2163 Section 227(3) is, in
essence, s 70quat(5) of the 1926. That subsection deemed such an excess payment 'to
have been a payment made to [the director] by way of compensation for loss of office or
as consideration for or in connection with his retirement from office'. However, if s
227(3) is to be interpreted as covering payments by third parties - and it would make
little sense if it were not so interpreted - it must be understood as also deeming
payments by such persons to be payments 'by the company'. This is because such
payments are 'deemed to have been payments made contrary to the provisions of
subsection (1)(c)'; and s 227(1)(c) provides that 'no company' shall make the payment
etc to which it refers without the required disclosure and approval.
As pointed out above, a further difficulty here is that s 277(3) appears to refer only to
excess payments made in connection with the purchase of the director's shares.
Excluded payments, benefits and advantages
Section 227(6) provides that none of these provisions applies with reference to any bona
fide payment made or benefit or advantage granted by way of damages for breach of
contract or by way of a pension, including any superannuation allowance, gratuity or
similar payment in respect of past services. 2164 It has been held that the provisions
apply only to payments which the company is not legally obliged to make
('unconnvented payments as contrasted with payments which the company is legally
obliged to make'), and only to such payments made to a director in connection with his
loss of office as director. 2165
Nothing to be taken to prejudice the operation of any rule of law requiring
disclosure to be made
Section 227(7) provides that nothing in s 227 is to be taken to prejudice the operation of
any rule of law requiring disclosure to be made with respect to any payments, benefits
or advantages as are there mentioned, or with respect to any other payments, benefits
or advantage made or granted or to be made or granted to the directors or past
directors of a company. Unless, after full disclosure, he obtains the consent of the
company to retain them, a director is accountable to his company for all profits made by
him by use of or by reason of his office. 2166
RS 9, 2012 ch8-p325


2140 But not on any recommendation of the Greene Committee (Company Law Amendment Committee Cmd
2657 (1925-26)).
2141 It was introduced on the recommendation of the Lansdown Commission (Report of the Company Law
Commission 1935-1936 UG No 45 1936). The Commission said (para 133): 'There should . . . be a provision,
on the lines of section 150 of the British Companies Act, 1929, prohibiting payments to directors on retirement
from office, save under authority of the shareholders in general meeting'.
2142 See Report of the Committee on Company Law Amendment Cmd 6659 (1945) para 92 (Cohen
Committee), which recommended amendments embodied in s 191, 192 and 193 of the 1948 Act; Final Report
of the Company Law Amendment Enquiry Commission 1947-1948 UG No 69-1948 paras 137-138 (Millin
Committee), which said that the section 'seeks to deal with the possibilities of evil in the payment to directors
of compensation for loss of office' and that '[i]t is obvious that payments made on such conditions to directors,
unless fully disclosed and authorised, may well be regarded in the same light as a secret commission given to
an agent'; Report of the Company Law Committee Cmnd 1749 (1962) para 93 (Jenkins Committee).
2143 Commission of Enquiry into the Companies Act Main Report RP 45/1970 para 44.36.
2144 The Commission originally intended to deal with payments to directors for loss of office under the
provisions of the Act dealing with arrangements, amalgamations and reconstructions (Main Report para 44.36).
Apart from the few suggested amendments to s 70 quat of the Act contained in recommendation 99, the Main
Report consequently had little to say on the subject. In the Supplementary Report (Commission of Enquiry into
the Companies Act Supplementary Report and Draft Bill RP 31/1972 para 86.09), however, the Commission
stated that s 70 quat would, except for the already recommended amendments, remain as it stood and that it
had proved impractical to deal with the topic under the chapters of the Draft Companies Bill on arrangements
and takeovers.
2145 On s 227, see S W L de Villiers 'Payment to Directors for Loss of Office etc - A Critical Glance at s 227 of
the Draft Companies Bill' (1970) CILSA 339; Bernard J Cartoon 'Compensatory Payments to Directors for Loss
of Office' 1978TSAR 155; S M Luiz 'Payments to directors as compensationfor loss of office' (2005) 17 (1) SA
Merc LJ 115.
2146 Contained in s 70quat(3) of the 1926 Act. S W L de Villiers considered that this was to be welcomed as
the offence with its penalty in no way added to the efficacy of the section: 'Payment to Directors for Loss of
Office etc - A Critical Glance at s 227 of the Draft Companies Bill' (1970) CILSA 339 345.
2147 s 6 of Act 78 of 1989.
2148 The concept of 'affected transaction' is far wider than that of 'take-over scheme' referred to in the now
repealed 314. A 'take-over scheme' as defined in s 314 was solely concerned with a take-over accomplished by
the 'acquisition of shares'. Section 314 defined a 'take-over scheme' as a scheme involving the making of an
offer by the offeror for acquiring shares of the offeree company which together with any shares of that
company already held by the offeror at the time of the making of the offer, would have the effect of (a) vesting
the control of the offeree company directly or indirectly in the offeror; or (b) the offeror acquiring all the shares
(or all the shares of a particular class) of the offeree company. However, it did not include 'any offer made in
the course of or in connection with any individual negotiation with any shareholder for the acquisition of any
such shares'.
2149 Re Duomatic Ltd [1969] 2 Ch 365 374; [1969] 1 All ER 161 169.
2150 Re Duomatic Ltd [1969] 2 Ch 365 374; [1969] 1 All ER 161 169.
2151 As to when directors may be excused, see s 248 and notes thereon.
2152 S W L de Villiers 'Payment to Directors for Loss of Office etc - A Critical Glance at s 227 of the Draft
Companies Bill' (1970) CILSA 339 345.
2153 [2003] 3 All SA 426 (T).
2154 [1964] VR 193 (SC, Vict).
2155 Section 129(1)(a) of Act 6839 of 1929.
2156 [1978] AC 337 (PC), a decision on appeal from the Court of Appeal of New Zealand.
2157 See S M Luiz 'Payments to Directors as Compensation for Loss of Office' (2005) 17 SA Merc LJ 115 at
120.
2158 S W L De Villiers 'Payment to Directors for Loss of Office etc - A Critical Glance at s 227 of the Draft
Companies Bill' (1970) CILSA 339.
2159 s 70quat(1)bis of Act 46 of 1926.
2160 S W L de Villiers 'Payment to Directors for Loss of Office etc - A Critical Glance at s 227 of the Draft
Companies Bill' (1970) CILSA 339 342 pointed out that this was a substantial departure from the principles
established in s 70quatand one for which no explanation was offered by the Commission.
2161 [1967] 2 AC 134n; [1942] 1 All ER 378 (HL).
2162 S W L de Villiers 'Payment to Directors for Loss of Office etc - A Critical Glance at s 227 of the Draft
Companies Bill' (1970) CILSA 339 345-346.
2163 S W L de Villiers 'Payment to Directors for Loss of Office etc - A Critical Glance at s 227 of the Draft
Companies Bill' (1970) CILSA 339 343-344.
2164 See the comment made regarding s 227(6) made by S M Luiz 'Payments to Directors as Compensation
for Loss of Office' (2005) 17 SA Merc LJ 115 at 120, referred to above under the heading Prohibition of
payments to directors for loss of office.
2165 Lincoln Mills (Aust) Ltd v Gough [1964] VR 193; Taupo Totara Timber Co Ltd v Rowe [1978] AC 537
545-546; [1977] 3 All ER 123 127-128 (PC). In Taupo Totara Timber supra the managing director's contract, in
which he was described as the 'employee', provided that in the event of the company being taken over by the
acquisition of its share capital he would be entitled 'at any time within a period of twelve months after the date
of the acquisition of capital to resign his office upon giving to the company not less than three months' notice
in writing of his desire to do so'. In the event of his resignation pursuant to that right, he was to be entitled to
receive from the company a lump sum payment equivalent to five times his gross annual salary. The company
was taken over by another company and the managing director resigned. It was held that payment under this
contract was not governed by the corresponding provisions in s 191 of the New Zealand Companies Act 1955.
On Taupo Totara Timber, see Ralph Instone 'Compensating Ex-directors' (1978) 12 New LJ 54.
2166 See notes on SECRET OR INCIDENTAL PROFITS in note on FIDUCIARY DUTIES in notes on s 208.


228 Disposal of undertaking or greater part of assets of company
(1) Notwithstanding anything contained in it's memorandum or articles, the directors of a company shall
not have the power, save by a special resolution of its members, to dispose of
(a) the whole or the greater part of the undertaking of the company; or
(b) the whole or the greater part of the assets of the company.
(2) If in relation to the consolidated financial statements of a holding company, a disposal by any of its
subsidiaries would constitute a disposal by the holding company in terms of subsection (1)(a) or (b), such
disposal requires a special resolution of the shareholders of the holding company.
(3) A special resolution of a company shall not be effective in approving a disposal described in subsection
(1) or (2) unless it authorizes or ratifies in terms the [sic] specific transaction.
(4) An undertaking or assets of a company, and the part to be disposed of, shall be calculated for purposes
of subsections (1) and (2) according to the fair value of the undertaking or assets as described in financial
reporting standards.
(5) Subsections (1) to (4) shall not apply to a disposal between a wholly owned subsidiary and its holding
company, or between two wholly owned subsidiaries of the same holding company.
[S. 228 amended by s. 10 of Act 35 of 1998 and substituted by s. 21 of Act 24 of 2006.]
Notes 2167
The provision in s 228(1) and (2) was first introduced as s 70 dec (2) in the 1926 Act on
the recommendation of the Millin Commission 2168 by s 39 of Act 46 of 1952. The
Commission said 2169 that the provision 'is to prevent directors from disposing of the
whole or the greater portion of the assets of the company without the consent of the
company in general meeting to the specific transaction proposed'. It pointed out that this
was 'a provision upon which the Johannesburg Stock Exchange had for many years
insisted as a necessary article for companies seeking a quotation'. 2170 Substantial
amendments were made to s 228 in 2007. 2171 One of the motivations for the
change 2172 was that s 228 was being used more and more for the purpose of effecting a
takeover, as an
RS 9, 2012 ch8-p326
alternative to s 440K of the Act which has more stringent requirements. 2173 This has
resulted in s 228 now requiring a special resolution to authorise a s 228 disposal.
Previously an ordinary resolution was sufficient. It is to be noted that the definition of
'affected transaction' in s 440A includes 'a disposal as contemplated in s 228'. 2174
It has been held that 'dispose' means permanently depriving the company of its rights
to the ownership of the assets involved, and the prohibition therefore applies, not to the
conclusion of an agreement of disposal, but to implementation of the agreement. The
judge said that, if it had been intended to relate to the agreement itself, he would have
'difficulty in understanding how such an agreement could be regarded as void if it is
capable of ratification'. 2175 But of course an unauthorised contract is not binding and is,
in that sense at least, void; and a binding contract needs no ratification. What is more,
this reasoning, if it had any force, would apply equally to disposals made in
implementation of the agreement. Merely to prevent the implementation of an otherwise
binding agreement would be to allow the purchaser an action for damages against the
company, leaving the shareholders with little option but to ratify.
Thus, it would seem certain that 'disposal' here means a transaction of
disposal. 2176 That is to say, the directors cannot without the authority of a special
resolution enter into a binding agreement to make a s 228 disposal. If, however, they
purport to do so, the general meeting may, by special resolution, ratify that agreement.
It is not clear whether art 59 of Table A (art 60 of Table B) does in fact empower the
directors to make a s 228 disposal. This is because it can be, and has been, interpreted
merely to empower the directors to manage 'the business of the company'. So
interpreted, it would not include the power to dispose of the company's business. If this
is correct, s 228 applies only when the memorandum or articles contain a provision
actually empowering the directors to dispose of the company's business etc.
Subsection (3) provides that no resolution of the company approving any such
disposal shall have effect unless it authorises or ratifies in terms the specific transaction.
RS 8, 2011 ch8-p326-1
In Ally and Others NNO v Courtesy Wholesalers (Pty) Ltd2177 it was held that 'specific'
includes 'capable of being exactly named or indicated'. On this interpretation, the court
took the view that an agreement entered into by all the shareholders concerned to abide
by the decision of a third party as to what assets, if any, of the companies concerned
were to be disposed of was sufficiently specific. However, even if it is accepted that the
doctrine of unanimous assent applied, ie if all agree no formal resolution of the general
meeting is necessary, it is difficult to accept that an agreement to abide by the decision
of a third party as to what assets, if any, are to be disposed can be said to authorise 'in
terms the specific transaction'. 2178
The test applied to determine whether the assets disposed of constitute the greater
part of the company's assets or undertaking is the test of value and value means 'fair
value of the undertaking or assets as described in financial reporting'. 2179
This restriction on the directors' powers does not prevent them from granting a right
of pre-emption in respect of the company's assets, and the grantee will be able to
prevent the company from disposing of its assets to a third person in breach of his right.
He will not, however, be able to compel the company to dispose of its assets to him
without the sanction of the shareholders. 2180 A pledge of shares in securitatem debiti is
not, so long as the revisionary rights lasts, a disposal of such shares in terms of the
section. 2181
In Standard Bank of South Africa Ltd v Hunkydory Investments 188 (Pty) Ltd and
Others (No 2), 2182 the plaintiff bank sought summary judgment against the defendant
based on four mortgage bonds passed by it. The defendant contended that the mortgage
bonds were not binding on it as the mortgage bonds constituted a disposition as
contemplated in s 228 of the Companies Act and the prescribed members' resolution
approving the disposition, as required by s 228, had not been passed. The mortgage
bond had been passed before the amendment of s 228 by s 21 of the Corporate Laws
Amendment Act of 2006 to require a special resolution. The decision of the court was
that to 'dispose' of an asset within the meaning of s 228 means the act of transferring
ownership (per Grobler v Trustee Estate De Beer). 2183 A transaction under which a
debtor agrees to the hypothecation of his property is not one that 'disposes' of the
property to the creditor or to anyone else (at para 12). To construe s 228 as applying to
mortgages is to extend its operation beyond what was the intention of the legislature.
The court proclaimed (para 19) that the intention of the legislature was to restrain
disposals by directors in the narrower (and ordinary) sense
RS 8, 2011 ch8-p326-2
(para 19). Section 228 is directed as a disposal in the form of a transfer of ownership
rather than a transaction which exposes the company's assets to the risk of a forced
disposal because of borrowing (para 21).
The view adopted in this case is in accordance with the judgment of the court
in Alexander and another NNO v Standard Merchant Bank Ltd. 2184 The fact that the
word 'disposition' is used in its extended sense in s 1 of the Insolvency Act 24 of 1936 or
in ss 340 and 341 of the Companies Act made no impression on the court as s 228
applied in a very different context.
The court will not inquire into the commercial wisdom of a particular transaction. If it
is established that such a disposal of its assets by a company will be unfairly prejudicial,
unjust or inequitable to the minority, the appropriate remedy is not for the court to
interdict the holding of the general meeting and thereby the approval of the
shareholders, but to order 2185 the purchase of the minority's shares either by the
majority or by the company. 2186
Where the approval required by s 228 has not been obtained and the third party to
whom the disposal has been made is unaware of the lack thereof, can the third party
enforce the transaction on the basis of the rule in Royal British Bank v Turquand? 2187
This question arose in Levy & Others v Zalrut Investments (Pty) Ltd2188 where, in
an obiter dictum, Van Zyl J supported the view that the Turquand rule could apply. He
said: 2189
There is likewise no indication that the public interest or public policy played any part in the
intention of the Legislature when it enacted the said s 228. A third party involved in a transaction
relating to the said disposal will hence undoubtedly be able to enforce such transaction, provided
he is not aware thereof that the company in general meeting has in fact not approved of the
transaction. This is in accordance with the rule in the well-known case of Royal British Bank v
Turquand.
The judgment of Van Zyl J in Levy and Others v Zalrut Investments (Pty) Ltd led to
numerous academic writings. In a note on the case 2190 P E Brooks raised the question
as to whether the application of the rule in the context of s 228 is reconcilable with the
conclusion reached by Van Zyl that the section 'is clearly directed at protecting the
interests of shareholders'. After all, a decision to enforce a contract concluded without
the approval of or ratification by any shareholders in general meeting can hardly be said
to be in the interests of those shareholders who did not approve it. This was followed by
an article 2191 by M von Willich which contains a valuable summary of the law in England,
Canada, France, the Netherlands and Germany and highlights the fact that only Canada
has a statutory provision similar to our s 228. She also sketches the background to the
introduction of s 228 in the statute. Section 70dec(2) of the Companies Act 46 of 1926
contained provisions almost identical to s 228 and a note by B Wunsh, 2192 written prior
to his elevation to the Bench, expresses the following view:
RS 9, 2012 ch8-p326-2A
'The approval of a general meeting of a company required by s 70dec(2) is an "act of internal
management" and the case of directors disposing of the undertaking of a company without such
approval is indistinguishable from the position in Turquand's case, save that the limitations on the
directors' powers are derived from the statute.'
His view was, therefore, that an innocent party contracting with a company would be
entitled to invoke the provisions of the rule notwithstanding s 228. A similar view was
expressed by M J Oosthuizen in a note2193 on Novick and Another v Comair Holdings Ltd
and Others. 2194 Von Willich concludes her article by returning to the cardinal issue to
which regard must be had when interpreting statues, namely the intention of the
Legislature. She points out that transactions which are forbidden by statute are prima
facie considered to be void (in accordance with the maxim quid fit contra legem est ipso
iure nullum) but accepts that the intention of the Legislature could also be that, although
the transaction may be forbidden, it is not necessarily visited with voidness. In this
connection, she refers to the interpretation given to s 141 of the Companies Act, namely
that an offer of shares to the public for purchase without being accompanied by a written
statement containing certain prescribed information will not be void. Since the
contravention of s 141 is also an offence, she argues that contravention of s 228, which
is not an offence, should also not be regarded as being void. In attempting to establish
the intention of the Legislature, she submits that, since the Turquand rule had become
firmly established in our law, the Legislature would have made it clear that an innocent
third party would not be entitled to rely on the rule had that been the intention of the
Legislature. She concludes by submitting that, in weighing the interests of the innocent
third party against those of the shareholders, the interests of the former should prevail
since the wronged shareholders would be entitled to claim damages from the errant
organ or agent of the company for breach of fiduciary duty. In her view s 228 should be
repealed. In Stand 242 Hendrik Potgieter Road Ruimsig (Pty) Ltd and Another v Gbel
NO and Others, 2195Farren v Sun Service SA Photo Trip Management (Pty) Ltd was
approved and the dictum in Levy v Zalrut Investment (Pty) Ltd (at 487B) overruled.
RS 9, 2012 ch8-p326-3
In Farren v Sun Service SA Photo Trip Management (Pty) Ltd2196 Cleaver J after
reviewing Van Zyl J's judgment in Levy & Others v Zalrut and the literature as set out
above 2197 decided that theTurquand rule could not apply in a situation where the
approval of the shareholders had not been obtained as required by s 228.
Cleaver J said that the issue
'is not so much whether a transaction entered into in contravention of s 228 is void or voidable. It
is clearly unlawful in the sense that it is concluded in contravention of the section; it also has no
legal effect, but that can be cured by subsequent ratification by the shareholders in general
meeting'. 2198
He said that if the objective was to protect the shareholders
'then surely that intention should be given effect to, for otherwise "admitting the application of
the Turquand rule may resolve the dilemma, but will nullify the efficacy of s 228 and will defeat
the object of the Legislature" '. 2199
The view that there should be no difference whether the internal requirement in question
was in the articles or in a statute was rejected as being too simplistic: 2200
' "For reasons which the Legislature considered sound," Cleaver J said, "it was decided that the
provisions in question should be embodied in a statute, thus giving them far more weight." ' 2201
In an article 2202 subsequent to the one referred to above, Wunsh submitted that the
following factors reinforced his view that the Turquand rule was applicable in the s 228
situation:
The absence of a penalty.
The ratio of the Turquand rule and the general application of the presumption omnia
praesumuntur rite ac solemniter esse acta as a rule of substantive law.
That there are no considerations of policy or public interest involved.
RS 9, 2012 ch8-p326-4
Cleaver J disagreed with Wunsh. He said that
'the absence of a prescribed penalty in the event of a statutory contravention is often taken to be
an indication that no public interests are involved, but to my mind that fact does not tip the scales
in favour of theTurquand rule in the circumstances under discussion'. 2203
He also rejected Wunsh's view on the application of the omnia presumption on the basis
that it disregarded the intention of the legislature. 2204 Also rejected was the view that
the rule should apply since there were no public interests involved. In this regard
Cleaver J pointed out that the Turquand rule was not relied on in Neugarten & Others v
Standard Bank of South Africa2205 in which the court held that s 226(1) and (2) were
introduced solely for the protection and benefit of the members of a company. The
section prohibits a company directly or indirectly from making certain loans or providing
security to or for a director or manager of itself or of its holding company or of another
subsidiary of the holding company without the consent of all the members or the passing
of a special resolution. Wunsh seeks to distinguish the judgment from the situation when
it is attempted to invoke the Turquand rule so as to override s 228 for the following
reasons:
s 226(4) of the Act makes the errant director or officer guilty of an offence;
without the prescribed consent or special resolution the transaction is ultra vires the
company;
the mischief aimed at is far more serious than that at which s 228 aims;
the validating formality is the written consent of all the members which can easily be
called for and produced; or a special resolution which is registered and, as such, is a
public document.
Cleaver J held that
'[w]hatever value the points put forward by Wunsh may have, they are not, in my view, a
sufficient indication that it was the intention of the Legislature to permit the Turquand rule to
prevail over the provisions of the section'.
In this regard he considered that the following passage from the judgment of E M
Grosskopf JA who delivered the majority judgment in Bevray Investments (Edms) Bpk
v Boland Bank Bpk en Andere2206 to be particularly instructive:
'Die rel dat die Wetgewer se bedoeling in eerste instansie in die letterlike betekenis van sy
woorde gesoek word is so geyk, en die redes daarvoor so klaarblyklik, dat dit skaars beklemtoning
verg. Die Wetgewer bepaal wat veroorloof word en wat verbied word. Die onderdaan kan alleen die
Wetgewer se wil vasstel uit die woorde wat gebruik word. In 'n geval soos die onderhawige, as 'n
direkteur of 'n maatskappy-sekretaris of 'n ouditeur wil weet of 'n bepaalde lening 'n oortreding
van art 226 is, behoort hy die antwoord te kan vind in die woorde van die Wet, en, indien hulle
duidelik is, behoort dit nie vir hom nodig te wees om te bespiegel of the Wetgewer nie miskien iets
anders bedoel het nie, of om rond te krap
RS 6, 2009 ch8-p326-5
in die wetgewende geskiedenis van die bepaling nie. Daar word gevolglik dikwels beklemtoon dat
dit net in uitsonderlike gevalle is waar afgewyk mag word van die letterlike betekenis van die
woorde van wetsbepalings "(s)legs 'n duidelike en onbetwyfelbare bepaalde bedoeling van die
Wetgewer, en nie 'n bloot veronderstelde bedoeling nie, kan 'n afwyking van die gewone betekenis
van woorde regverdig . . ." (perBotha AR in Du Plessis v Joubert 1968 (1) SA 585 (A) op 595A).
Sien ook S v Tieties (supra op 464A): ". . . a court . . . may only do so where this is necessary to
give effect to what can with certainty be said to be the true intention of the Legislature" en op
464E "provided it can be indisputably established that the Legislature intended something different
from the ordinary meaning conveyed by the words used . . ." '
Cleaver J concluded by saying that in his view it could not be established indisputably
that the legislature intended something different from the ordinary meaning conveyed by
the words. 2207 In his view the legislature intended the provisions of s 228 to
prevail. 2208 Cleaver J also held that there is clearly no room for the application of
estoppel. He referred 2209 to The Law of South Africa where the general principle is
stated:
'Estoppel is not allowed to operate in circumstances where it would have a result which is not
permitted by law. A defence of estoppel will therefore not be upheld if its effect would be to render
enforceable that what the law, be it the common law or statute law, has in the public interest
declared to be illegal or invalid.'
The reason for the introduction of s 228(3) 2210 was the misuse relating to the fact
that the Securities Regulation Code on Takeovers and Mergers applies only to public
companies and private companies that have more than ten beneficial shareholders.
Therefore a s 228 disposal which takes place in relation to a wholly-owned subsidiary
does not technically fall within the jurisdiction of the Securities Regulation Panel (SRP)
no matter how significant the disposal is in terms of value in relation to the group and
thus the interest of the minority shareholders in the holding company as a whole. The
effect of this is that minority shareholders in the holding company do not enjoy the
protection of the SRP in these cases. To cure this defect, the new s 228(2) provides that
if, in relation to the consolidated financial statements of a holding company, a disposal
by any of its subsidiaries would constitute a disposal by the holding company (in the
sense that it constitutes the disposal of the whole or the greater part of the undertaking
or assets of the company), such a disposal requires a special resolution by the members
of the holding company.
However, as Yeats says, 2211 it is doubtful whether the amendment has achieved its
stated objective as regards protection of minority shareholders by the SRP where a s 228
disposal takes place in a company group context. She says:
'The involvement of the SRP at the subsidiary level requires two things: that an "affected
transaction" as defined in s 440A of the Companies Act (which specifically includes a disposal as
contemplated in s 228) will take place and that the entity or entities involved are subject to the
jurisdiction of the SRP by virtue of their nature and the number of shareholders. The amendments
in the Bill do not, it seems, put paid to the argument that the subsidiary (and
RS 6, 2009 ch8-p326-6
thus the transaction) is not subject to SRP jurisdiction or approval where the subsidiary is a private
company with less than ten beneficial shareholders, because it does not fall under the SRP's
jurisdiction. The amendment does, in these circumstances, give the shareholders of the holding
company the additional protection that a special resolution is required at the holding company
level if the effect of the disposal in the subsidiary in relation to the consolidated financial
statements of the holding company is that it constitutes the disposal of the whole or the greater
part of the undertaking or assets of the company. The question that arises is whether this actually
means that the disposal is a s 228 disposal at the level of a holding company also. I would argue
that this is not the case. There is only one disposal, and that disposal is taking place at the
subsidiary level; the fact that the legislature has introduced a group valuation mechanism of the
disposal by having regard to the consolidated financial statements and attached legal
consequences (namely the special resolution requirement) does not, legally speaking, make it a
second s 228 disposal within the group context. If this is so, it means that the minority
shareholders of the group company (which may now meet the SRP's jurisdictional requirement of a
private company having more than ten beneficial shareholders) still do not enjoy the protection of
the SRP because no "affected transaction" (ie no s 228 disposal) has taken place in that
company.' 2212
Amending s 228 also presented the legislature with an ideal opportunity to put paid to
the problems arising out of the interaction between the protection provided to
shareholders by the section and the Turquandrule. Does the Turquand rule apply to an
internal requirement laid down by statute? 2213 This question came to the fore
in Levy & others v Zalrut Investments (Pty) Ltd2214 and in Farren v Sun Service SA Photo
Trip Management (Pty) Ltd. 2215 In the Levy case the defendant company had granted to
the plaintiffs an option to purchase property. The defendant ultimately refused to grant
transfer and, in an action instituted by the plaintiffs to compel it to do so, pleaded that
the granting of the option amounted to a disposal of the whole or substantially the whole
of the defendant's undertaking, alternatively, of the whole or the greater part of its
assets as contemplated by s 228, and that the requisite consent of the majority of the
shareholders had not been obtained. The plaintiffs replicated, alleging that the
defendant, on the facts, was estopped from relying on the absence of the approval. The
defendant applied for the striking out of, alternatively excepted to, this replication on the
basis that it did not found an estoppel. Examining the question whether unanimous
consent of the members of the company to the granting of the option was sufficient to
avoid the provisions of s 228, the Court held that the intention of the legislature in
enacting the provision was to limit the powers of the directors; that it was clearly
designed for the benefit of shareholders; and that the unanimous consent had the same
effect and validity as the approval of such transactions by a general meeting. 2216 The
Court held further that there was no question that the disposal was in fact intra vires the
company and could not be considered illegal, void and unenforceable.2217 Accordingly
the plaintiffs were entitled to raise estoppel in the circumstances.
RS 6, 2009 ch8-p326-7
Farren is controversial and has been criticised by various academic writers. However,
it has been pointed out that the issue may not be that important, in the context of s 228
anyway, because of
'the fact that the amended s 228 now requires a special resolution by the company to effect a
transaction which will qualify as a s 228 disposal. By way of explanation, in circumstances where
the special resolution is passed prior to the entering into of the agreement regulating the s 228
disposal, a copy of that special resolution must in terms of s 200(3) of the Companies Act be
embodied in or annexed to every copy of the articles issued after the registration of the resolution.
Section 9 of the Act provides that any person may, on payment of the prescribed fee, inspect the
documents lodged under the Act with the Registrar of Companies. It appears, then, that this public
access to a special resolution authorizing a disposal in terms of s 228 will, in terms of the doctrine
of constructive notice, mean that a prospective purchaser will be deemed to have knowledge of the
special resolution where it has been passed; but of course this would then present no problem, as
the disposal will have been properly authorized. If, however, there is no special resolution on file,
the question arises whether the third party would be deemed to have knowledge of this fact (in
terms of the doctrine of constructive notice) and, if so, whether this would mean that he is no
longer bona fide and that the possible application of the Turquand rule therefore falls away
altogether. One could possibly argue not, because the Bill permits a company to ratify a disposal
as provided in s 228(2) and thus it may, in due course, pass a ratifying resolution; but the further
question which then arises is whether the absence of a resolution at the time of the transaction
places some obligation on a bona fide third party to make enquiries from the company in this
regard, failing which he will no longer be regarded as bona fide.' 2218
Section 228(3) provides that the requirements contained in s 228 are in addition to any
other requirements, including the limitation of voting rights, relating to such transactions
that may be imposed by the Securities Regulation Panel in terms of s 440C or in terms of
any other law. The requirements of the Securities Regulation Code on Take-overs and
Mergers (the Code) in regard to information to be given to the offeree company and its
shareholders will apply mutatis mutandis. More significant, rule 29(d) of the Code
provides that, where the directors of a company will require the authority of a general
meeting of shareholders of the company pursuant to the provisions of s 228 in order to
enter into an affected transaction, the Panel has 'the right in its sole and absolute
discretion, to direct that any shareholder, whose vote may as a result of any direct or
indirect conflict of interest result in an inequity to any other shareholder, shall not vote
or cause its votes to be exercised in whole or in part at the said meeting or any
adjournment thereof'.
This is an inroad on the common law rule entitling shareholders to vote on matters in
which they have an interest conflicting with the interests of the company, or with the
interests of other shareholders. Presumably, a conflicting interest in the context of s 228
will usually be an interest in the offeror, ie in the purchasing company. Of course, where
the price is unfair, the minority shareholder has his remedies at common law and under
the Act. But the Panel can intervene to ensure that a price is not simply foisted on the
minority shareholders by an interested majority. Such intervention, however, could in
itself result in considerable unfairness, and even in an unjustified inroad on property
rights. Everything turns on the question whether the offer price is fair. But, it would
RS 6, 2009 ch8-p326-8
seem, the Panel is not permitted to judge that question; for s 440(C)(2) provides that
'[i]t shall not be the function of the panel to judge the commercial advantages and
disadvantages of affected transactions'. It may be noted that before the amendment to s
228 in 2006, 2219 s 228 referred to a disposal of 'the whole or substantially the whole of
the undertaking of the company'. 2220 It is now 'the whole or the greater part of the
undertaking'. This change came about because there had been 'a certain liberal
interpretation of the term "substantially the whole" in relation to the disposal of a
business undertaking, in order to avoid the application of section 228(1).' 2221 The
purpose of the change was 'to apply the more objective test already used in respect of
assets, namely, "the greater part", also to the disposal of a business undertaking.' 2222
Section 228(5) was introduced by the Corporate Laws Amendment Act 24 of
2006. 2223 It had no counterpart in the old s 228. The motivation for the introduction of s
228(5) was as follows:
'8.7 Certain legal opinions hold that a disposal by a wholly owned subsidiary does not fall within
the jurisdiction of the SRP, no matter how material it is in relation to the consolidated balance
sheet of the holding company. This is because the Securities Regulation Code applies only to public
companies and private companies of which shareholder capital exceeds R5 million and which have
more than ten beneficial shareholders. (A wholly owned subsidiary only has one beneficial
shareholder.)
8.8 The objective to protect minority shareholders in the holding company is thus defeated in such
circumstances. The new section seeks to remedy the current anomaly.' 2224
Interests of and Dealings by Directors and Others in Shares of Company (ss 229-233)


2167 On s 228, see Basil Wunch 'Disposing of the Undertaking or Assets of a Company' (1971) 88 SALJ 351;
D S Ribbens 'Disposal of the Undertaking or the Whole or Greater Part of Assets of a Company' (1976)
39 THRHR 162; Lionel Hodes 'Disposal of Assets s 228' (1978) South African Company LJ F-6; P E J Brooks
'Section 228 of the Companies Act Levy v Zalrut Investments (Pty) Ltd ' (1987) 50 THRHR 226; Michele von
Willich 'Die Uitwerking van a 228 van die Maatskappywet 61 of 1973' (1988) 10 MBL 7.
2168 Final Report of the Company Law Amendment Enquiry Commission 1947-1948 UG No 69-1948.
2169 Final Report of the Company Law Amendment Enquiry Commission 1947-1948 UG No 69-1948 para
156.
2170 Section 228 has been equated to the ultra vires doctrine as a trap for the unwary third party (see the
Van Wyk de Vries Commission of Enquiry into the Companies Act RP 45/1970 of 15 April 1970 44.40 at 83).
This has been criticised in 2004 Annual Survey of South African Law 505.
2171 By the Corporate Laws Amendment Act 24 of 2006, which came into force on 14 December 2007.
2172 See Memorandum on the Objects of the Corporate Laws Amendment Bill, 2006 34-35.
2173 According to the Memorandum (supra), for the year ended February 2003, the Securities Regulation
Panel authorised 27 transactions in terms of s 228 and 33 in terms of s 440K. For the year ended February
2004, 17 transactions were authorised in terms of s 228 and 16 in terms of s 440K.
2174 See s 440A(1)(c). Prior to the 2007 amendment to s 228, s 228(3) provided:
'(3) The requirements contained in this section in respect of transactions falling within the provisions of
subsection (1), shall be in addition to any other requirements, including the limitation of voting rights, relating
to such transactions that may be imposed by the Securities Regulation Panel in terms of section 440C or in
terms of any other law.'
The memorandum on the objects of the Companies Amendment Bill 1998 explained this amendment as
follows:
'A company may by ordinary resolution dispose of the whole or substantially the whole of its undertaking or the
whole or the greater part of its assets. This leaves the door wide open to abuse in those cases where control
(50 plus of shareholding) as well as the voting power is vested in a single shareholder or a small group of
shareholders working in concert. The majority shareholders merely outvote the minorities and very often buy
the undertaking or assets themselves at a price determined by them. In these cases there are [sic] no minority
protection. In the case of share transactions where control of the company changes hands, the Securities
Regulation Panel affords the necessary protection to minorities by applying its rules and the Code on Take-over
and Mergers'.
This is nonsense, of course. Company law does, and always has, protected minorities from this kind of
oppression. Nevertheless, it is perhaps arguable that additional protection is needed. See John Jarvis 'The
Protection of Minority Shareholders' (1993) 1 Juta's Business Law 92.
2175 Ally and Others NNO v Courtesy Wholesalers (Pty) Ltd 1996 (3) SA 134 (N) 145.
2176 See D S Ribbens 'Disposal of the Undertaking or the Whole or Greater Part of Assets of a Company'
(1976) 39 THRHR 162.
2177 1996 (3) SA 134 (N) 145-147.
2178 It is to be noted that the doctrine of unanimous assent has no application to special resolutions, in other
words, the unanimous assent to a resolution is not sufficient to pass a special resolution. See Notes on s 199
under the heading Principle of unanimous assent.
2179 Section 228(4). So value is not the price which they would fetch in a bona fide sale between a willing
buyer and a willing seller, both of whom are reasonably well informed about the transaction and neither of
whom is under extraordinary pressure to buy or sell. This is how value was determined for the purposes of s
228 before it was amended (Novick v Comair Holdings 1979 (2) SA 116 (W) 145).
2180 Linder v National Bakery (Pty) Ltd 1961 (1) SA 372 (O).
2181 Alexander v Standard Merchant Bank Ltd 1978 (4) SA 730 (W).
2182 2010 (1) SA 634 (WCC).
2183 1915 AD 265 at 274.
2184 1978 (4) SA 730 (W).
2185 Under s 252.
2186 Investors Mutual Funds Ltd v Empisal (South Africa) Ltd 1979 (3) SA 170 (W).
2187 6 E&B 327; 119 ER 886.
2188 1986 (4) SA 479 (W).
2189 At 487B-D.
2190 (1987) 50 THRHR at 226.
2191 Michele von Willich 'Die Uitwerking van artikel 228 van die Maatskappywet 61 van 1973 op
die Turquand rel' (1998) Modern Business Law 7.
2192 (1971) 88 SALJ at 351.
2193 1979 TSAR at 169.
2194 1979 (2) SA 116 (W).
2195 2011 (5) SA 1 (SCA).
2196 2004 (2) SA 146 (C). See also FPW Engineering Solution (Pty) Ltd v Technikor Pretoria [2004] 1 All SA
204 (T); Mathebula t/a Nxolwane Bottle Store v University of the North [1998] 3 All SA 477 (T).
2197 At 153-155.
2198 At 155B.
2199 At 155C. He quoted here from Hodes 'Disposal of Assets s 228' 1978 The South African Company Law
Journal F-6, F-13.
2200 At 155E-F.
2201 At 155E-F. In this regard Cleaver J referred to Lindner v National Bakery (Pty) Ltd and Another 1961 (1)
SA 372 (O) in which the court expressed itself as follows in regard to s 70dec(2) of the previous Act:
'On the other hand it is difficult to escape the argument that where the Legislature, in order to achieve its
object that the directors shall not sell without the consent of the shareholders, has laid down in clear terms the
procedure to be followed when a company seeks to sell its undertaking or the greater part of its assets, that
procedure must be followed, even though the consequences of giving effect to the prescribed procedure may
be such as to justify the surmise that Parliament did not appreciate the full effect of its pronouncement. See R
v Bennett and Co (Pty) Ltd and Another 1941 TPD 194 at 200.' (At 380A-B.)
2202 1992 TSAR at 545.
2203 At 156B.
2204 At 156B.
2205 1989 (1) SA 797 (A).
2206 1993 (3) SA 597 (A) at 622 in fine 623D.
2207 At 157D.
2208 At 157D.
2209 At 157G-H.
2210 See JL Yeats 'The Drafters' Dilemma: Some Comments on the Corporate Laws Amendment Bill'
(2006) SALJ 601.
2211 At 610.
2212 Yeats, at 611.
2213 See the Notes on s 36 under the heading '(g) Is the Turquand rule applicable to a statutory internal
requirement?'
2214 1986 (4) SA 479 (W).
2215 2004 (2) SA 146 (C).
2216 At 485F.
2217 At 486-487.
2218 Yeats, supra, 613.
2219 See above.
2220 Section 228(1).
2221 Memorandum on the Objects of the Corporate Laws Amendment Bill, 2006, page 35.
2222 Ibid.
2223 See above.
2224 Memorandum on the Objects of the Corporate Laws Amendment Bill, 2006, page 36.

229 . . .
[S. 229 amended by s. 22 of Act 64 of 1977 and repealed by s. 6 of Act 78 of 1989.]


230 to 233 inclusive . . .
[Ss. 230 to 233 inclusive repealed by s. 6 of Act 78 of 1989.]
RS 5, 2008 ch8-p326-9
Interests of Directors and Officers in Contracts (ss 234-241)


234 Duty of director or officer to disclose interest in contracts
(1) A director of a company who is in any way, whether directly or indirectly, materially interested in a
contract or proposed contract referred to in subsection (2), which has been or is to be entered into by the
company or who so becomes interested in any such contract after it has been entered into, shall declare his
interest and full particulars thereof as provided in this Act.
(2) The provisions of subsection (1) shall apply to any contract or proposed contract which is of significance
in relation to a company's business and which is entered into or to be entered into
(a) in pursuance of a resolution taken or to be taken at a meeting of directors of a company; or
RS 8, 2011 ch8-p327
(b) by a director or officer of the company who either alone or together with others has been authorized by the
directors of the company to enter into such contract or any contract of a similar nature.
(3) (a) For the purposes of subsection (1) a general notice in writing given to the directors of a company by
a director thereof to the effect that he is a member of a specified company or firm and is to be regarded as
interested in any contract which may after the date of the notice and before the date of its expiry be made with
that company or firm, shall be deemed to be a sufficient declaration of interest in relation to any contract or
proposed contract so made or to be made, if
(i) the nature and extent of the interest of the said director in such company or firm is indicated in the said notice;
and
(ii) at the time the question of confirming or entering into the contract in question is first considered or at the time
such director becomes interested in a contract after it has been entered into, the extent of his interest in such
company or firm is not greater than is stated in the notice.
(b) A general notice under paragraph (a) may from time to time be amended and shall not be effective
beyond the end of the financial year of the company but may from time to time be renewed.
(3A) For the purposes of subsection (3) 'firm' means a corporation as defined in section 1 of the Close
Corporations Act, 1984 (Act 69 of 1984), or any other body corporate, association, syndicate, partnership or
trust that has as its object the acquisition of gain.
[Sub-s. (3A) inserted by s. 11 of Act 35 of 1998.]
(4) Any director or officer of a company who fails to comply with any provision of this section, shall be
guilty of an offence.
(5) Nothing in this section shall be taken to prejudice the operation of any rule of law restricting directors of
a company from having any interest in contracts with the company.
Notes
General
At common law, a director's fiduciary duties require him to disclose his interest in a
proposed company contract to the members in general meeting. The general meeting
may then permit the board of directors to enter into the contract. It may also permit the
interested director to be counted in the quorum and may even permit the him to vote on
the matter. If the interested director does not disclose his interest and the directors
enter into the contract, the contract is voidable at the instance of the company as
against the interested director and, where the other party to the contract is a third
party, against the third party if the third party had knowledge of the director's breach of
duty. This consequence follows even where the interested director did not vote on the
matter or attend the meeting of the board. 2225
RS 8, 2011 ch8-p328
However, at common law the company may, in its articles of association, alter this
duty. For example, it may permit disclosure to the board of directors rather than to the
general meeting; and it may even permit the interested director to vote on the
contract. 2226 Because of the inconvenience involved in making disclosure to the general
meeting, the articles of companies usually contain some such provision. 2227Section s
149 of the English Companies Act 1929 introduced the statutory requirement of
disclosure in order to ensure that at least the prescribed disclosure is made, ie
regardless of the extent to which the company's articles relieved the directors of the
company of their common law duties. The section rendered a director who failed to
comply with its provisions liable to a fine. It expressly left untouched the common law by
providing that nothing in the section was to be taken to prejudice the operation of any
rule of law restricting directors of the company from having any interest in contract with
the company (the corresponding provisions in our Act are ss 245(5) and 237(4)). This
remains the position under s 317 of the English Companies Act 1985.
In 1939 a similar provision was inserted as s 70 quin in our 1926 Companies Act, on
the recommendation of the Lansdown Commission. 2228 The Commission said 2229 that
instances had been brought to its notice in which memoranda or articles of association
contained provisions expressly permitting any director to be interested in a contract with
a company otherwise than as a member of the company, and purporting expressly to
relieve such director of any obligation to disclose any such interest or to account for
same in any way to the company and disentitling any member of the company from
impugning the conduct of any such director in that regard. The Committee recognised
that it would not be practical to prohibit a director absolutely from having any interest in
a contract or proposed contract with his company. But it considered that there should be
an explicit provision forbidding any such freedom from disclosure as the memoranda and
articles, to which it had referred, had purported to convey. It considered that, as in
England, the disclosure of the interest should be made to a meeting of directors, but
that, in addition, where any contract was to be brought up at a meeting of the company
for authorisation or confirmation, the notice convening the meeting should include
information as to the extent and nature of the interest of any director in the
contract. 2230
Generally, ss 234-241 show the importance that the legislature attaches to the
principle that a company should be protected against a director who has a conflict of
interest and duty. 2231 Their object is to ensure that the interest of any director in any
actual
RS 9, 2012 ch8-p329
or proposed contract is made an item of business at a meeting of the directors. 2232 But
because a breach of these provisions carries with it penal consequences, they must not
be read in a sense which lays down more strict or onerous requirements than are
necessarily imposed by the language. 2233
Overview of ss 234-241
Section 234(1) requires that a director who is in any way, whether directly or indirectly,
materially interested in a contract or proposed contract referred to in s 234(2), 'shall
declare his interest and full particulars thereof as provided in this Act'. This provision,
then, applies to all directors regardless of whether or not they act (or acted) on behalf of
the company in connection with the contract. Section 234(3)(a) provides for a manner of
disclosure where the director is a member of a specified company or firm and is to be
regarded as interested in any contract to be made with that company or firm. All other
declarations of interest must be made in the manner and at the time prescribed in s 235.
Section 234(3A) provides that for the purposes sub-s (3) 'firm' means a corporation
as defined in s 1 of the Close Corporations Act 69 of 1984, or any other body corporate,
association, syndicate, partnership or trust that has as its object the acquisition of gain.
As to the meaning of 'body corporate' see notes on s 337. As to a body corporate,
association, syndicate, partnership or trust that 'has for its object the acquisition of gain'
see notes on s 30.
Section 236 provides that, notwithstanding that the articles permit resolutions of the
directors to take the form of written resolutions signed by each director, any such
resolution concerning a contract referred to in s 234 is invalid unless the provisions of ss
234 and 235 are complied with.
Section 237(1) provides that an officer who is materially interested in any proposed
contract which he has been authorised by the board to enter into on behalf of the
company must (as must a director who is so authorised) declare his interest in terms of
s 235; and that such a director or officer must make that disclosure before entering into
the contract. And s 237(2) provides for disclosure by such officer who becomes
interested in such a contract after he has entered into it on behalf of the company (such
disclosure by a director is covered by the disclosure requirements of s 234).
Section 238 requires full particulars of director's material interest in a contract to be
contained in the notice convening a general meeting of the company where the contract
in question is to be placed before the general meeting for its confirmation or
authorisation.
Section 239 provides for the minuting of declarations of interest. Section 240 imposes
a duty on the company to keep a register of declared interests in contracts, and s 241
imposes a duty on the company's auditor to satisfy himself that that register is being
kept as required by s 240.
Failure to comply with the declaration of interest provisions is an offence. The
offences in ss 234(4) and 237(4) are punishable by a fine or imprisonment for a period
not exceeding one year, or both such fine and such imprisonment. 2234
RS 9, 2012 ch8-p330
Sections 234(5) and 237(4) both provide that nothing in ss 234 and 237 respectively
is to be taken to prejudice the operation of any rule of law restricting directors (s 234) or
an officer (s 237) of a company from having an interest in contracts with the company.
In S v Gardener and Another 2011 (4) SA 79 (SCA), two chief executive officers of a
company had failed to disclose their financial interests, contrary to the requirements of s
234. Failure to comply with the section constituted a criminal offence. They were
convicted of criminal fraud, on the basis that by deliberately withholding information that
is material to the company with intent to deceive the board of directors of the company
they had caused prejujdice to the company. They had also secured substantial financial
benefits for themselves from their deliberate failure to disclose their interests.
Operation of rules of law restricting directors from having interest in contracts
not prejudiced
Section 234(5) provides that nothing in s 234 is to be taken to prejudice the operation of
any rule of law restricting directors from having any interest in contracts with the
company. Thus compliance with these statutory provisions has no validating effect; and
therefore, notwithstanding compliance with the provisions, in the absence of an
exclusion clause in the articles, 2235 the common law rules as to voidability
apply.2236 What is more, non-compliance with the provisions does not as such render the
contract void or voidable at the instance of the company. 2237 Again, the question
whether the contract is
RS 9, 2012 ch8-p330-1
voidable at the instance of the company depends upon the common law rules as to
voidability or any exclusion clause in the company's articles. 2238 Thus where disclosure
is
OS, 2002 ch8-p331
made to the general meeting (as is required at common law), 2239 the contract will not
be void, even though there has been no statutory disclosure. So, too, where (what would
be unusual) 2240 an article makes exclusion of the general equitable principle
independent of the statutory requirements of disclosure to the board, the contract will
not be voidable if the articles is observed, despite failure to make the statutory
disclosure.


2225 See note CONFLICT OF INTEREST AND DUTY in note on FIDUCIARY DUTIES under s 208.
2226 Where the articles permit a director to have an interest subject to the directors' approval, he cannot
vote as a director on a resolution to approve the contract unless the articles permit him to do so.
See Gundelfinger v African Textile Manufacturers Ltd 1939 AD 314 323; Trek Tyres Ltd v Beukes 1957 (3) SA
306 (W) 310; Ben-Tovim v Ben-Tovim 2001 (3) SA 1074 (C) 1089.
2227 See art 76 of Table A and art 74 of Table B.
2228 Report of the Company Law Commission 19325-1936 UG No 45 1936.
2229 Report of the Company Law Commission 19325-1936 UG No 45 1936 para 137.
2230 In 1952 (s 48 of Act 46 of 1952) a recast and strengthened s 70 quin was substituted for the section as
originally enacted. The present provisions in ss 234-241 where enacted on the recommendation of the Van
Wyk de Vries Commission (Commission of Enquiry into the Companies Act Main Report RP 45/1970 para
44.29-44.35).
2231 Per Lord Templeman in Guinness plc v Saunders [1990] 2 AC 663 694; [1990] 1 All ER 652 662
(HL); Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald [1995] 3 All ER 811 817.
On the statutory duty of disclosure, see: S J Naud 'Kontraksluiting tussen Direkteur en Maatskappy' (1970)
33 THRHR 142; M J Oosthuizen 'Novick and Another Ltd v Comair Holdings Ltd' 1979 TSAR 169; Gerard
McCormack 'The Guinness Saga: In Tom We Trust' (1991) 12 Company Lawyer 90; Richard Nolan 'Disclosure
of Directors' Interests' (1995) 16 Company Lawyer 216.
2232 Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald [1995] 3 All ER 811 817.
2233 Novick v Comair Holdings Ltd 1979 (2) SA 116 (W) 139.
2234 s 441(1)(e).
2235 Article 76 of Table A and art 74 of Table B provide that subject to the provisions of ss 234-241 (ie all the
provisions relating to statutory disclosure) a director may not vote in respect of any contract with the company
in which he is interested and, if he does so vote, his vote is not to be counted.
2236 As to the common law rules, see notes on s 208.
2237 Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549; [1967] 2 All ER 14; affd [1968] 1 QB 549; [1967] 3
All ER 98 (CA). In the Court of Appeal ([1968] 1 QB 549 594; [1967] 3 All ER 98 109 (CA)) Lord Pearson said:
'It is not contended that [the section] in itself affects the contract. The section merely creates a statutory duty
of disclosure and imposes a fine for non-compliance.' See also the judgment of Lord Wilberforce (at 589; at
106). In Guinness plc v Saunders [1990] 2 Ch 663 694; [1990] 1 All ER 652 662 (HL) Lord Templeman said in
an obiter dictum that: 'In Hely-Hutchinson v Brayhead Ltd the Court of Appeal held that [the section] renders
the contract voidable by a company if the director does not declare his interest.' But that is not what the Court
of Appeal held in Hely-Hutchinson v Brayhead Ltd supra: see Woolworths Ltd v Kelly (1991) 4 ACSR 432 440-
441 CA(NSW). In Guinness plc v Saunders supra Lord Goff held that of itself the section merely has criminal
consequences. Referring to Hely-Hutchinson v Brayhead, he said (at 697; at 664): 'It gradually became clear
that counsel's criticisms of the decision of the courts below [see Guinness v Saunders [1988] 2 All ER 940
(CA)] were well founded, and that (quite apart from very serious difficulties arising on the construction of [the
section]) they were inconsistent with Hely-Hutchinson v Brayhead, a decision of an exceptional Court of Appeal
consisting of Lord Denning MR, Lord Wilberforce and Lord Pearson. The decision in that case proceeded on the
basis that the statutory duty of disclosure (then embodied in s 199 of the Companies Act 1948) did not of itself
affect the validity of the contract. The section had however to be read with the provisions in the articles of
association, imposing a duty of disclosure on directors of the company. If a director enters into, or is interested
in, a contract with the company, but fails to declare his interest, the effect is that, under the ordinary principles
of law and equity, the contract may be voidable at the instance of the company, and in certain cases a director
may be called on to account for profits made from the transaction.' In Lee Panavision Ltd v Lee Lighting
Ltd [1992] BCLC 22 (CA) the Court of Appeal referred to the divergent views, but declined to express an
opinion of the matter. And see also Runciman v Walter Runciman plc [1992] BCLC 1084; MacPherson v
European Strategic Bureau Ltd [1999] 2 BCLC 203 216-219. However, in Cowan de Groot Properties Ltd v
Eagle Trust plc [1992] 4 All ER 700 762 Knox J held: 'It is in my judgment clear on the authority of Hely-
Hutchinson v Brayhead Ltd as approved by Lord Goff in Guinness plc v Saunders that the statutory duty of
disclosure under s 317 of the Companies Act 1985 or under its predecessor s 199 of the Companies Act 1948,
does not affect the validity of a contract. That however leaves the ordinary principles of law and equity which,
unless excluded by the relevant articles of association, have the result that, if the director enters into or is
interested in a contract, the contract may be voidable at the instance of the company.'
2238 Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549; [1967] 2 All ER 14; affd [1968] 1 QB 549; [1967] 3
All ER 98 (CA); Guinness plc v Saunders [1990] 2 Ch 663; [1990] 1 All ER 652 (HL).
2239 See notes Self-Dealing and Disclosure of Interest in note CONFLICT OF INTEREST AND DUTY in
notes on s 208.
2240 See art 76 of Table A and art 74 of Table B.


235 Manner of and time for declaration of interest
(1) No declaration of interest by a director under section 234 shall be of any effect unless it is made at or
before the meeting of directors at which the question of confirming or entering into the contract is first taken
into consideration and, if in writing, is read out to the meeting or each director present states in writing that he
has read such declaration.
(2) If for any reason it is not possible for a director to make any such declaration at or before a particular
meeting of directors, he may make it at the first meeting of directors held thereafter at which it is possible for
him to do so and shall in that event state the reason why it was not possible to make it at such particular
meeting.
Notes
Where disclosure must be made to a meeting of directors, it must be made to a meeting
of the board of directors, and therefore the requirements of the legislation cannot be
satisfied by a disclosure to a sub-committee of the directors.2241 Nothing in the articles
can alter this requirement, for it is a statutory requirement and its provisions are
mandatory.2242 Such declaration does not have to be in any particular form, and where
not in writing an audible utterance by the director or officer concerned of the relevant
facts is not the only way in which the disclosure may be made.2243 Thus disclosure may
be made by an agent.2244 One of the ways in which it may be made is by tacit assent to
and adoption of the assertions made at the meeting by others; and therefore, where the
meeting is informed by others of all the facts that it needs to know about the director's
interest, the director's silence may effectively furnish his confirmation of those facts.2245
But a specific declaration of interest must be made; it is not enough that all the other
directors know of the interest.2246
OS, 2002 ch8-p332
However self-evident the director's interest in such contract may be, the mere
obviousness of a director's interest in a particular contract is no reason for non-
compliance with the requirements of the section.2247 Thus the required declaration must
be made in regard to service contracts, 2248 and to variations of such contracts 2249 (a
variation of a contract being itself a contract).2250
A duty 'to declare the nature of his interest' imposes on a director the duty to disclose
full information about the nature of any transaction which it is proposed to enter into,
which disclosure must be such that the other director or directors can see what this
interest is and how far it goes.2251 The requirement is for full and frank declaration by
the director, not of 'an interest', but of the precise nature of the interest he holds; and
when his claim to the validity of a contract or arrangement depends upon it (ie where
the articles require disclosure in terms of the sections), he must show that he has in
letter and in spirit complied with the section and any article to like effect.2252
It has been held that where a director is interested in a contract, the statutory
disclosure provisions secure that three things happen at a directors meeting. First, all
the directors should know or be reminded of the interest; second, the making of the
declaration should be the occasion for a statutory pause for thought about the existence
of the conflict of interest and of their duty to prefer the interests of the company to their
own; third, the disclosure or reminder must be a distinct happening at the meeting
which therefore must be recorded in the minutes of the meeting. The existence of this
record operates as a necessary caution to directors who might otherwise think that their
interest might pass unnoticed if the contract falls to be scrutinised at some later date;
and it affords valuable information as to the existence of any interest and its disclosure
and, thereby, protection for shareholders and creditors alike in case they later wish to
investigate a contract.2253
It has been held that, in the context of legislation which specifically authorises sole
directorships, the legislature cannot have intended by use of the word 'meeting' in the
sections to exclude sole directors from their ambit, and hence from the achievement of
the statutory object; and that this conclusion is reinforced by the consideration that the
concept of the holding of a director's meeting in case of a sole directorship is familiar to
RS 6, 2009 ch8-p333
company lawyers. 2254 Indeed, both the fact that the making of the declaration should
be the occasion at the meeting for a statutory pause for thought by the directors (about
the existence of the conflict of interest and their duty to prefer the interests of the
company to their own) and the requirement that the declaration be recorded, must have
enhanced value and importance in case of a sole director, where there are no other
directors to witness or police his actions. 2255 In the case of a sole director, two different
situations may arise. The sole director may hold a meeting attended by himself alone or
he may hold a meeting attended by someone else, normally the company secretary.
When holding the meeting on his own, he must still make the declaration to himself and
have the statutory pause for thought, though it may be that the declaration does not
have to be made out loud, and he must record that he made the declaration in the
minutes. The court may well find it difficult to accept that the declaration has been made
if it is not so recorded. If the meeting is attended by anyone else, the declaration must
be made out loud and in the hearing of those attending, and again should be recorded.
In this case, if it is proved that the declaration was made, the fact that the minutes do
not record the making of the declaration will not preclude proof of its making. In either
situation the language of the section must be given full effect: there must be the
required declaration of the interest. 2256
Since the sections neither permit or prohibit a director from voting on the
matter, 2257 it follows that the interested director cannot himself vote on the
contract, 2258 unless permitted to do so by the company's articles. 2259 Table A art 76
and Table B art 74 (art 74 does not apply where the company has only one director)
provide that subject to the provisions of ss 234-241 (ie all the provisions relating to
statutory disclosure) a director may not vote in respect of any contract with the
company in which he is interested and, if he does so vote, his vote is not to be counted.
These articles accordingly permit disclosure of interests in contracts to the board, as
provided for by s 235-241, and so alter the common law rule requiring disclosure to the
general meeting. 2260 But they expressly provide that the interested director may not
vote on the matter.
RS 6, 2009 ch8-p334


2241 Guinness plc v Saunders [1988] 2 All ER 940 944 (CA); affd on other grounds, [1990] 2 Ch 663; [1990]
1 All ER 652 (HL).
2242 Guinness plc v Saunders [1988] 2 All ER 940 994 (CA); affd on other grounds, [1990] 2 Ch 663; [1990]
1 All ER 652 (HL).
2243 Novick v Comair Holdings Ltd 1979 (2) SA 116 (W) 138.
2244 Novick v Comair Holdings Ltd 1979 (2) SA 116 (W) 139, where it was also said that disclosure can be
conveyed to a responsible officer of the company who can be expected in the discharge of his duties to pass it
on to the board; and that substantial, if not literal, compliance with the requirements of ss 234-235 will suffice.
2245 Novick v Comair Holdings Ltd 1979 (2) SA 116 (W) 138.
2246 Guinness plc v Saunders [1988] 2 All ER 940 944 (CA); Runciman v Walter Runciman plc [1992] BCLC
1084 1094-1096. And see Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald [1995] 3 All ER 811 819. But
see Lee Panavision Ltd v Lee Lighting Ltd [1992] BCLC 22 32-33 (CA), where the directors had failed to
disclose formally at a board meeting an interest common to all of them (and which, ex hypothesi, was already
known to all the directors), and where Dillon LJ said that he would 'hesitate' to hold that such an apparently
technical non-declaration of interest in breach of s 317 of the English Companies Act 1985 had the inevitable
results that the agreement in question was fundamentally flawed (he however left open the question whether
non-disclosure under the section does affect the validity of the transaction).
2247 Runciman v Walter Runciman plc [1992] BCLC 1084 1093-1094. The legislation does not require
'disclosure' of interest (which presupposes that the persons to whom the disclosure is made do not already
know the facts), but a 'declaration' of interest. Cf judgments of Samuels and Mahoney JJA in Woolworths Ltd v
Kelly (1991) 4 ACSR 431 CA(NSW), who held that no formal declaration of a director's interest is required, and
that the section does not require disclosure of facts to those who are fully aware of them. But see judgment of
Kirby P (at 434-432) where the learned judge set out what he considered to be the 'rationale of formality in the
declaration'.
2248 Foster v Foster [1916] 1 Ch 532; [1916-1917] All ER Rep 856; Runciman v Walter Runciman plc [1992]
BCLC 1084 1093-1094, where it was pointed out that to exclude service contracts from the ambit of the
legislation would involve ridiculous and pointless distinctions being drawn, (a) between the employed and self-
employed director, and (b) between benefits given to a director as part of his contract of employment and
those given separately.
2249 Runciman v Walter Runciman plc [1992] BCLC 1084 1094.
2250 Runciman v Walter Runciman plc [1992] BCLC 1084 1094. See also Woolworths Ltd v Kelly (1991) 4
ACSR 431 CA(NSW).
2251 Movitex Ltd v Bulfield [1988] BCLC 104 121.
2252 Liquidator of Imperial Mercantile Credit Association v Coleman (1873) LR 6 HL 189 205; Neptune
(Vehicle Washing Equipment) Ltd v Fitzgerald [1995] 3 All ER 811 817.
2253 Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald [1995] 3 All ER 811 817-818.
2254 Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald [1995] 3 All ER 811 816-817, where Lightman J
rejected the argument that 'meeting' prima facie means 'a coming together of more than one person' ( East v
Bennett Bros Ltd[1911] 1 Ch 163 and Re London Flats Ltd [1969] 2 All ER 744) and that, accordingly, in the
case of a sole director there can be no meeting of directors at which the sole director can declare his interest in
a proposed contract and therefore the decision whether the company should enter into the contract must be
left to the shareholders.
2255 Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald [1995] 3 All ER 811 817-818.
2256 Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald [1995] 3 All ER 811 818-819.
2257 In England, the Cohen Committee considered whether directors should be prohibited from voting at
board meetings on contracts in which they are interested. It concluded that a general prohibition would be
impracticable. Instead, it recommend that directors should as a general rule disclose to their shareholders in
the directors' report, contracts of any magnitude in which any of the board have a substantial interest. Report
of the Committee on Company Law Amendment Cmnd 6659 (1945) para 95.
2258 The rule against self-dealing; as to which see notes Self-Dealing and Disclosure of interest in
note CONFLICT OF INTEREST AND DUTY in notes on s 208.
2259 eg in Rolled Steel Products Ltd v British Steel Products [1982] Ch 478; [1982] 3 All ER 1060 1061;
[1986] Ch 246; [1985] 3 All ER 52 57 (CA) the articles provided that: 'Provided the director declares his
interest in a contract or arrangement or proposed contract or arrangement with the company in manner
provided by section 199 of the [Companies Act 1948] he shall be counted in the quorum at any meeting of
directors at which the same is considered and shall be entitled to vote as a director in respect thereof'.
2260 See Transcash SWD (Pty) Ltd v Smith 1994 (2) SA 295 (C) 306. See notes Self-
Dealing and Disclosure of interest in note CONFLICT OF INTEREST AND DUTY in notes on s 208.

236 Written resolution where director interested
Subject to the provisions of section 36 and notwithstanding any provision in the articles of a company
permitting the taking of a resolution by way of a written resolution signed by directors, no such resolution
which concerns contracts or proposed contracts referred to in section 234 shall be valid unless the provisions of
that section and section 235 are complied with.
Notes
Section 236 renders invalid a 'resolution by way of a written resolution signed by
directors' unless the provisions of s 234 and 235 are complied with. The articles of
companies frequently dispense with the need to hold a meeting by providing that a
resolution in writing, signed by all the directors, will be valid and effectual as if it had
been passed at a meeting of the directors duly convened and held. 2261 As to such
provisions, see notes on s 242. Where the interest arises only after a contract has been
entered into, the resolution authorising it will be a dead letter, and hence the question of
possible retrospective invalidity will not arise.
Section 36 operates only to save acts of a company that are beyond its objects and
powers from being rendered void by reason of the company's lack of capacity or power,
or the directors' lack of authority in so far as they lack authority by reason of the
company's lack the capacity or power to perform such acts. Therefore s 36 has no
relevance in so far as s 226 is concerned, and hence there is no reason why s 236 should
be made 'subject to the provisions of s 36'. The protection afforded third parties in the
case of invalidity under s 236 is that afforded by the rule in Royal British Bank v
Turquand, 2262 and the rules in regard to estoppel.


2261 See art 76 of Table B, which provides that '[s]ubject to the provisions of the Act, a resolution in writing
signed by all the directors shall be as valid and effectual as if it had been passed at a meeting of directors duly
convened and held'. Table A contains no such provision.
2262 (1855) 5 E & B 248; affd (1856) 6 E & B 327; [1843-60] All ER Rep 435.


237 Disclosure by interested director or officer acting for company
(1) A director or officer referred to in section 234(2)(b) who is in any way, whether directly or indirectly,
materially interested in any proposed contract to be entered into by him on behalf of the company, shall,
before entering into such contract, declare his interest and the full particulars thereof at a meeting of directors
as prescribed by section 235, and shall not enter into such contract unless and until a resolution has been
passed by the directors approving thereof.
(2) Any such officer who becomes materially interested in any contract entered into by him on behalf of the
company after it was entered into, shall forthwith declare his interest and the full particulars thereof by a
written notice given to the directors.
(3) A notice referred to in subsection (2) may be delivered to the secretary of the company, if the company
has a secretary, and the secretary shall forthwith transmit it to the directors for whom it is intended.
(4) Nothing in this section shall be taken to prejudice the operation of any rule of law restricting an officer
of a company from having an interest in contracts with the company.
RS 6, 2009 ch8-p335
(5) Any director or officer of a company who fails to comply with any provision of this section, shall be
guilty of an offence.
Notes
A director or officer referred to in s 234(2)(b) is 'a director or officer of the company who
either alone or together with others has been authorised by the directors of the company
to enter into such contract or any contract of a similar nature'. 'Such contract' is 'any
contract or proposed contract which is of significance in relation to a company's
business'. In it is unclear what 'any contract of a similar nature' is.
In terms of s 234(1), a director of the company who is in any way, whether directly or
indirectly, materially interested in such a contract or proposed contract, or who so
becomes interested in it after it has been entered into, is required to declare his interest
and full particulars thereof as provided in the Act, and s 235 provides for the manner
and time for such a declaration of interest. Thus, as far as a director is concerned, s
237(1) does not impose a duty of disclosure it merely refers to his duty to disclose
under s 234. But it does impose a duty upon him to declare his interest before entering
into the contract and a duty not to enter into the contract 'unless and until a resolution
has been passed by the directors approving thereof'.
Section 237 does however impose a duty to disclose interests in contracts on the
officer of a company (s 234(1) deals only with directors). An officer who either alone or
together with others has been authorised by the directors of the company to enter into
such a contract at a meeting of directors as prescribed by s 235 must, before entering
into the contract, declare his interest at a meeting of directors; and he may not enter
into the contract unless and until a resolution has been passed by the directors
approving it. If he subsequently becomes interested in a contract entered into by him,
he must forthwith declare his interest and the full particulars thereof by a written notice
given to the directors.
Section 237(4) provides that nothing in s 237 is to be taken to prejudice the operation
of any rule of law 'restricting an officer of a company' from having an interest in
contracts with the company. Section 234(5) contains identical provisions in regard to the
operation of s 234 in regard to directors, as to which see notes on s 234. An officer of a
company stands in a fiduciary relationship to his company. 2263 In any event, an officer
of a company who is authorised to enter into a contract on behalf of the company is an
agent of the company, and, for that reason alone, stands in a fiduciary relationship to it.
As a fiduciary, an officer is under a duty at common law to disclose to the company his
interest in any contract that he enters into on behalf of the company. Such disclosure
must be made to the board of directors. Failure to make such disclosure will render the
contract voidable as against the officer and as against a third party who had knowledge
of the officer's breach of duty, ie his failure to disclose his interest.
The offence in s 237(5) is punishable by a fine or imprisonment for a period not
exceeding one year or both such fine and such imprisonment. 2264
RS 6, 2009 ch8-p336


2263 See note FIDUCIARYDUTIES in notes on s 208.
2264 Section 441(1)(e).

238 When particulars of interest to be stated in notice of meeting
(1) If a director of a company is in any way, whether directly or indirectly, materially interested in a
contract or proposed contract which is placed before the company at any meeting thereof for confirmation or
authorisation, the notice convening any such meeting shall state the full particulars of the interest in such
contract of the director concerned.
(2) A company which fails to comply with the provisions of subsection (1) and any director who is a party to
such failure, shall be guilty of an offence.
Notes
Section 238 requires disclosure of a director's interest in contracts of the company to be
stated in the notice convening a general meeting where the contract is placed before the
company in general meeting for confirmation or authorisation. This disclosure is in
addition to the disclosure to the board required by s 234 and (where applicable)
fulfilment of the requirements of s 337.
The articles of the company may require certain contracts to be placed before the
general meeting for confirmation or authorisation. In addition, a number of provisions of
the Act require this, for example, s 228. At common law, a director must disclose his
interest to the members in general meeting, and the members may then authorise the
directors to enter into the contract. Therefore, it would seem the provisions of s 238
apply where such a disclosure is made, although of course it will in any event be
necessary for the notice convening the general meeting to contain this information.
Failure to comply with s 238 is a criminal offence. Where the articles of the company do
not permit disclosure to the board, and the common law therefore applies, failure to
make disclosure to the general meeting will render the contracts voidable at the instance
of the company as against the director concerned and against a third party with
knowledge of the director's breach of duty. Unlike s 234, s 238 does not require that the
contract be of 'significance in relation to a company's business'. The common law duty of
disclosure has no such limitation.
The offence in s 238(2) is punishable by a fine or imprisonment not exceeding one
year, or both the fine and imprisonment. 2265


2265 Section 441(1)(e).


239 Minuting of declarations of interest
(1) Every declaration of interest made under section 234, 235 or 237 (1) shall be recorded in the minutes
of the meeting of directors at which the declaration is made, and any declaration of interest by an officer under
section 237 (2) shall be recorded in the minutes of the first meeting of directors held after the date of that
declaration.
(2) Where any such declaration is made in writing, the company shall, unless copies of the minutes are
circulated to the directors, cause the minute recording the declaration to be read out at the first meeting of
directors held after the meeting in the minutes of which the declaration was recorded.
OS, 2002 ch8-p337
(3) Any company which fails to comply with any provision of this section, shall be guilty of an offence.
Notes
The declaration of interest under s 234 is the general notice given by a director under s
234(3); under s 235 it is the declaration of interest of the director to meetings of
directors; and under s 237(1) it is the declaration of interests by a director or officer (as
prescribed in s 235) before entering into a contract on behalf of the company. The
declaration of interests under s 237(2) is the written declaration of interests given by an
officer who, after entering into a contract on behalf of the company, becomes materially
interested in the contract.
Any company which fails to comply with any of these provisions is, in terms of s
239(3) guilty of an offence, which offence is punishable by a fine.2266 But failure to
record the declaration (if made) does not preclude proof that the declaration was made
and that the statutory provisions were complied with.2267


2266 s 441(1)(i).
2267 See Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald [1995] 3 All ER 811 817 818-819. And see s
242(4).


240 Register of interests in contracts of directors and officers and
inspection thereof
(1) Every company shall keep at its registered office or at the office where it is made up a register of
interests in contracts in one of the official languages of the Republic, and shall enter therein the particulars of
any declarations of interest made under section 234, 235 or 237, including any amendments under section
234(3)(b).
(2) The provisions of section 110 as to the place where the register of members of a company shall be kept
and of section 113 as to the inspection of and copies of or extracts from that register, shall apply mutatis
mutandis to the register to be kept under this section.
Notes
Section 110 requires the company's register of members to be kept either at its
registered office or (on notification to the Registrar in the prescribed form) at any office
of the company within the Republic where the work of making it up is done.
Section 70 quin2268 of the Companies Act 46 of 1926 required that, unless the
members decided otherwise by special resolution, a return had to be placed before every
annual general meeting specifying the contracts entered into by the company since the
previous general meeting in respect of which a declaration of interest had been made.
The Van Wyk de Vries Commission considered this to be unsatisfactory: inspection of the
return at the general meeting as impracticable, and it had become the general practice
to waive the requirement by passing a special resolution. Believing that there should be
a 'full accounting to the members of these matters', the Commission recommend that,
instead,
OS, 2002 ch8-p338
every company should be required to keep an up to date register of contracts in respect
of which a declaration of interest had been made by any director.2269


2268 As substituted by s 48 of Act 46 of 1952.
2269 Commission of Enquiry into the Companies Act Main Report RP 45/1970 para 44.29-44.35


241 Duty of auditor as to register of interests in contracts
The auditor of any company shall satisfy himself that the register of interests in contracts has been kept as
required by section 240 and that every declaration of interest recorded therein has been minuted as required
by section 239.
Notes
See also s 300(d), which provides that it is the duty of the auditor to satisfy himself that
a register of interests in contracts as required by s 240 has been kept and that the
entries therein are in accord with the minutes of the directors' meetings.
Proceedings at Meetings of Directors (ss 242-246)


242 Keeping of minutes of directors' and managers' meetings
(1) The directors of a company shall cause minutes in one of the official languages of the Republic of all
proceedings of meetings of directors or managers to be entered in one or more books to be kept for that
purpose at the registered office of the company or at the office where such minutes are made up.
(2) Any resolution of directors or managers of a company in the form of a written resolution signed by the
directors or managers shall be deemed to be a minute of a meeting and shall be entered in the book or books
provided for in subsection (1) and be noted by the next following meeting of directors or managers.
(3) For the purposes of this section loose leaves of paper shall not be deemed to constitute a minute book
unless they are bound together permanently without means provided for the withdrawal or insertion of leaves,
and the pages or leaves are consecutively numbered.
(4) The minutes of any meeting of the directors or managers of a company purporting to be signed by the
chairman of that meeting or by the chairman of the next succeeding meeting shall be evidence of the
proceedings at that meeting.
(5) If default is made in complying with any requirement of subsection (1), (2) or (3), the company, and
any director, manager or officer of the company who knowingly is a party to the default, shall be guilty of an
offence.
Notes
Minutes of meetings
It is the duty of the secretary to ensure that minutes of all directors' meetings and
meetings of committees of the directors are properly recorded in accordance with s
242.2270
OS, 2002 ch8-p339
Section 246 imposes a duty on the auditor of a company to satisfy himself that a minute
book or books are kept by the company in the prescribed form.
The offence in s 242(5) is punishable by a fine or imprisonment not exceeding three
months, or both the fine and imprisonment.2271
Section 243 provides that where minutes are kept in accordance with s 242, the
meeting is deemed to have be duly held and convened and all proceedings at it 'duly
had', until the contrary is proved. Failure to record a resolution does not render it
invalid, and an unrecorded resolution may always be proved aliunde.2272
In Re Portuguese Consolidated Copper Mines Ltd2273 a meeting of directors of the
company purported to allot shares. The allotment was void, as notice had not been sent
to all directors. One of the grounds on which it was held that the allotment had been
ratified was that the minutes of the invalid meeting had been subsequently signed at an
indisputably valid meeting, ie the signing of the minutes of the invalidly convened
meeting of the board amounted to a ratification of the resolution. In Municipal Mutual
Insurance Ltd v Harrop, 2274 Rimer J held accordingly, that is to say, he held that the
signing of the minutes of an invalid meeting at a later validly convened board meeting
amounted to a ratification of resolutions passed at the invalid meeting; by authorising
the minutes to be signed, the directors impliedly resolved to lend the authority of the
board to the resolutions whether or not they had been validly passed at the earlier
meeting. He, however, went on to say: 'If I had been required to rule on that submission
unaided by authority, I think my inclination would have been against it. For example, I
should have thought that there was much to be said for the view that, when a board
meeting approves the minutes of a prior board meeting and authorises the chairman to
sign them, all that it is doing is providing the board's confirmation that the minutes
represent a true record of what happened at the prior meeting. Resolutions purportedly
passed at that meeting will be valid or void, depending on the facts surrounding them;
but assuming them to be invalid, I find it in principle quite difficult to see that the
board's subsequent approval of the minutes purporting to record such void resolutions
could somehow impliedly validate them. My inclination would be that any such
ratification would have to be subject to an express resolution to that effect.' 2275
Meetings of directors
Unless the company's articles otherwise provide, and save in the case of a private
company with only one director 2276 or where all the directors consent to what is
done, 2277
OS, 2002 ch8-p340
directors can act only by means of a properly passed resolution at a properly
convened 2278 meeting of the board of directors from which no director has been
excluded 2279 and at which a quorum is present.2280 Failure so to act renders their
decision invalid, 2281 except as regards strangers who contract with the company
without notice of the defect.2282
Unless the articles otherwise provide, the members of the board must meet in person;
proxy attendance is not recognised.2283 In art 75 of Table A and art 73 of Table B it is
provided that the directors 'may meet together' for the despatch of business. Whether
this permits directors' meetings to take place telephonically is a matter of interpretation
of these words. While orthodox rules of construction require that the words of the
articles be given the meaning they had when adopted, the courts are entitled to
recognise that articles of association are instruments of company governance intended
to endure and to be capable of operating with flexibility in changing circumstances.2284
The purpose of the requirement that directors meet together is to ensure that they are
able to deliberate together concerning the affairs of the company and resolve upon
action to be taken. Deliberation in this sense involves that each director: (a) is able to
know of the matters of fact and opinion articulated by all other directors participating in
the meeting; and (b) is free to seek to persuade those other directors to particular views
in regard to the matters properly before the meeting.2285 Cases may arise in which
physical presence in the same room will not necessarily satisfy this purpose and when
other arrangements may do so, eg where a large number of directors meet in a room
with poor acoustics, a director with a limited hearing capacity may, without the
assistance of some electronic device, find it difficult or impossible to take part in
directors' deliberations.2286 The words 'meeting together' when ordinarily used in regard
to a meeting of directors connote a meeting of minds made possible either by physical
proximity or by technology. Thus, provided that each participating director is able to be
aware of the contributions to the meeting made by each other director and to contribute
himself to the meeting without significant
RS 6, 2009 ch8-p341
impediment, directors can, generally speaking, meet together by video links or by using
telephone conference connections. 2287 Generally, reasoning by analogy, a meeting of
two directors can be held using an ordinary telephone connection. 2288
The articles usually provide that the directors may regulate their meetings as they
think fit. 2289 They usually also provide for the election of a chairman; 2290 empower the
directors to determine the period for which the chairman is to hold office; and provide
that, if no chairman is elected or if at any meeting the chairman is not present within
five minutes after the appointed time for holding the meeting, the directors may elect
one of their number to be chairman of the meeting. 2291 Questions arising at any
meeting must be decided by resolutions 2292 passed by a majority of votes. 2293 The
articles usually provide that in the event of an equality of votes the chairman will have a
second or casting vote. 2294 There is, however, no right to a casting vote at common
law. 2295 Directors each have one vote, unless the articles otherwise provide. 2296
RS 6, 2009 ch8-p342
Although it is usual to follow the order of the agenda, directors can deal with matters
on the agenda in such order as they deem fit. 2297 When entitled to vote on a matter, a
director may not be prevented from doing so by his co-directors. 2298 In Choudhury v
Bhattar2299 the court, following Pulbrook v Richmond Consolidated Mining Co2300 ruled
that a director is entitled to bring an action in his own name against the other directors if
he was wrongfully excluded from acting as director, and that included an injunction or an
interdict to restrain his exclusion. Furthermore, a director is entitled to all relevant
information, time to consider the matter, and an opportunity of stating his views, even
though he may ultimately have to submit to a majority decision. 2301 If he is prevented
from voting or his claim to be heard is brushed aside, the resolution is invalid. 2302 But a
resolution of the board is not invalid merely because every director did not make himself
aware of all the details of the matter. 2303 Concurrence with a resolution must, however,
be expressed by a director in that capacity and for the purpose of resolving, as a
director, upon the affairs of the company. 2304
Unless permitted to do so by the articles, a director may not vote on any contract in
which he has an interest. 2305 The articles usually specifically provide that a director may
not vote on such a contract and that, if he does, his vote shall not be
counted. 2306 Where the articles do not permit a director to vote on such a contract, the
remaining directors, unless authorised to do so by the articles or the general meeting,
cannot act in the matter, ie it must be dealt with by the members in general
meeting. 2307
Although in the case of closely held companies much latitude is given to directors in
regard to the formalities that should attend their meetings, 2308 there must be an
intention that the occasion be a directors' meeting, an awareness by the persons present
that they
RS 6, 2009 ch8-p342-1
are concurring, in their capacity as directors in the management of the affairs of the
company, and a demonstrable expression of will approving a resolution. 2309
The articles invariably of a private company frequently dispense with the need to hold
a meeting by providing that a resolution in writing, signed by all the directors, will be
RS 7, 2010 ch8-p343
valid and effectual as if it had been passed at a meeting of the directors duly convened
and held. 2310 In Southern Witwatersrand Exploration Co Ltd v Bisichi Mining plc 2311 the
company's articles contained this provision. Cameron J said 2312 that the provision
'creates a "round robin" procedure for directors' decisions', and pointed out the
procedure is well-known, and is accommodated by s 242(2). He held that the provision
stipulates three conditions for its operation: (i) there must be a written resolution; (ii) it
must be signed by the directors; and (iii) their signification of assent must be
unanimous. Thus, '[a]t the price of unanimity, evidenced in writing, the provision . . .
creates a facility for eliminating the formality of a duly convened meeting'; but the
provision 'exacts its warrant', for it 'renders dispensable the "interchange and reciprocal
influences" that usually characterise decision-making'. 2313 Although a 'round robin'
usually refers to a document in which the names of subscribers arranged in a circle so as
to disguise the order in which they have signed, in corporate decision-making the term is
more generally applied, 2314 and 'signifies the immateriality not only of the sequence in
which assent is signified, but the places and dates where it occurs'. The learned judge
held that, although a 'round robin' resolution will usually comprise a single piece of paper
containing a resolution and all the directors' signatures, there is no reason in principle
why this should be so, nor does any provision of Act or the standard articles require that
it should. 2315
Where not dispensed with by the articles, a formal meeting may nevertheless be
dispensed with if all the directors consent to what is done. 2316 Even when applied to
shareholders, the doctrine of unanimous assent ought to be applied with caution, for it
leaves the issue undebated, raises questions as to what exactly each member believed
RS 7, 2010 ch8-p344
himself to be consenting to, and is open to abuse. 2317 When applied to directors, a
further problem arises, namely, that the directors, unlike the shareholders, owe the
company a duty to give their full consideration to matters that come before them. Thus,
bearing in mind that the doctrine is not necessary in order to protect third parties, the
doctrine should be applied with even greater caution in regard directors' decision, if
indeed it should be applied at all. 2318
This, however, has not been the attitude of our courts. In Southern Witwatersrand
Exploration Co Ltd v Bisichi Mining plc 2319 art 76 of the company's articles of association
provided that '[s]ubject to the provisions of the Act, a resolution in writing signed by all
the directors shall be as valid and effectual as if it had been passed at a meeting of
directors duly convened and held'. A shareholders agreement, to which all the
shareholders, but not the company, were parties, provided that '[a] resolution signed by
the majority of [the company's] directors shall be as effective as if it had been passed at
a meeting of the majority of its directors properly constituted and held'. Cameron J held
that, while it was 'true that art 76 stipulates an alternative decision-making method in
the form of a resolution "signed by all the directors", the company's members had in
their members' agreement expressly agreed to create a further alternative'. He said that
'[t]he articles themselves did not purport to be exhaustive of the ways, outside
meetings, in which the directors' assent can be signified. Specially, neither art 76 nor
any other provision in the articles or the memorandum of association purports to exclude
the creation or adoption of any other method of decision-making or the manner in which
it may be evidenced. Article 76 . . . thus defines one method of obtaining and recording
assent, without excluding others.' 2320 Cameron J, while accepting that 'the only way in
which [the company's] articles could be altered was by means of a special resolution in
terms of s 62', 2321 held 2322 that the principle of unanimous assent was applicable. He
said 2323 that, although the members' agreement did not authorise a specific
appointment or transaction, 'in effect, it sought to create a further general means of
obtaining and recording a directors' decision', and he was 'unable to see any reason why
the doctrine should not apply, at least as between the assenting members'.
But, of course, there is a vast difference between a resolution arrived at informally by
unanimous assent, and unanimous assent about what will constitute a binding
resolution. Whether a resolution is binding on the company is, ultimately, a question of
legal principle; it is not something that can be decided by the members or the directors.
True, the members can, by determining what goes into the company's articles,
determine the
RS 8, 2011 ch8-p345
procedures. But resolutions passed in terms of the procedures specified in the articles
are binding on the company because company law renders them binding. The doctrine of
unanimous assent was developed by the courts on the theory that where all the
shareholders or directors agree, the need for the protection afforded by the holding of
meetings of the members or the directors could be relaxed in favour of flexibility. A
resolution passed by unanimous assent is binding, not because the members or directors
agree that it shall be binding, but because the courts have laid down a rule that it shall
be binding. And it is binding, not on the members, but on the company; and therefore
the doctrine cannot apply 'at least as between the assenting members'. The question
was not whether art 76 or any other provision in the articles or the memorandum of
association purported 'to exclude the creation or adoption of any other method of
decision-making'. The question was whether the law permits any further method of
decision-making.
In Randcoal Services Ltd v Randgold and Exploration Co Ltd, 2324 the company's
articles contained two relevant provisions. Article 107 of the company's articles of
association provided that '[r]esolutions shall be determined by a majority of votes of the
directors present at a meeting of directors and in the event of the equality of votes the
chairman shall only have a second or casting vote if more than three directors are
present at the meeting'. And art 109 provided that '[a] resolution in writing signed by a
quorum of directors who may at the time be present in the town where the office of the
company is situate shall be as valid as if it had been passed at a meeting of the directors
duly held and constituted'. Neither of these articles had been complied with.
Nevertheless, the court, accepting as sufficient that two of the directors 'must have
known' that the company was acting in terms of a 'substitution agreement' agreed upon
by the other directors, found that all the directors had agreed to the decision. And,
applying the doctrine of unanimous assent, held that the decision was binding on the
company. Van Heerden DJC held: 2325
'It may be that some provisions in the articles of association of a company relating to directors
may not be altered by their unanimous asset. The test, I would suggest, is whether a particular
provision is capable of waiver, and that is the case if the provision enures for the benefit of the
directors as opposed to the company. In my view the above quoted clause 107 clearly is such a
provision. Its purpose is to give all the directors an opportunity to partake in a decision of the
board. Hence there is no reason why the doctrine of unanimous asset could not have governed the
conclusion of the substitution agreement(s).'
The proposition that the directors can alter provisions of the articles is, obviously, wrong.
What is more, provisions of articles such as art 107 do not enure 'for the benefit of the
directors as opposed to the company'. Their purpose is not 'to give all the directors an
opportunity to partake in a decision of the board'. Directors owe their company a duty to
partake in the decisions of the board. They are fiduciary agents of the company, not its
'owners'.
In Municipal Mutual Insurance Ltd v Harrop2326 Rimer J, stating that the essence of
the principle of unanimous assent is unanimity, rejected the argument that the same
principle should also apply where the directors act on the basis of an informal assent of
all the
RS 8, 2011 ch8-p346
directors other than those who choose to abstain on the grounds of personal interest,
even though the abstainers are in fact permitted by the articles to vote on the matter.
Convening and notice of meetings
The articles usually provide that a director may at any time, and the secretary on the
requisition of a director must, convene a meeting of directors. 2327 Where the articles do
not prescribe any form of notice, directors may meet even on verbal notice. 2328 Where
no specific time limits are prescribed in the articles for calling a meeting of directors, fair
and reasonable 2329 notice must be given of meetings to every director who is within
reach, 2330 and where such notice is not given the meeting is invalid. 2331 What is fair
and reasonable notice depends on the circumstances of each case in the context of the
company's structure, practice and affairs. 2332 The question whether a director is within
reach depends upon the circumstances, including the nature of the business to be
transacted. 2333 Directors who are overseas, severely ill, or cannot reasonably be
contacted, usually cannot complain of lack of notice. 2334 If that business is contentious,
the degree of inaccessibility would have to be very great; if the business is non-
contentious but requires immediate action, the degree of inaccessibility would be very
much less, 2335 particularly where the absent director knew and approved of the formal
business to be transacted. 2336 The notice requirement can be expressly or impliedly
waived. 2337 A director who objects to the lack
RS 1, 2004 ch8-p347
of notice should complain immediately, and should even refrain from taking part in any
meeting that may eventuate, for participation may be read as acquiescence to the lack
of or shortness of notice.2338
Although as a general rule it is not strictly necessary to give notice of the business to
be transacted at the meeting, 2339 '[a]s a matter of prudence it is a very often done,
and it is very wise thing to do it'.2340
A duly convened meeting may always be adjourned. But a meeting cannot be
adjourned to a date which is known only to the quorum who happen to be present, and
consequently no business can be validly conducted at such an adjourned meeting.2341
Quorum
The articles usually provide that the directors may themselves fix the quorum for their
meetings and that if they do not do so it will be three, unless there are three or less
directors, in which case it will be two.2342 In the absence of any provision in the articles,
a majority of the directors must attend, 2343 unless the number to form a quorum is
established by the practice of the board.2344 Unless the articles otherwise provide, a
quorum must consist of directors 'capable of voting on the business before the board;
otherwise it is idle', ie otherwise there is no quorum.2345 A quorum can be formed only
from a properly constituted board, and therefore if the articles specify a minimum
number of directors, 2346 a quorum cannot be formed if there are fewer than that
minimum number unless the articles permit the directors in office to act.2347
Where the articles permit or the general meeting authorises the directors to act in a
matter in which one of their number has an interest that conflicts with his duties to the
RS 1, 2004 ch8-p348
company, the director who has the interest must not, unless the articles so provide, be
counted in reckoning a quorum.2348 A resolution reducing the quorum for the purpose of
enabling those not interested to pass the resolution is invalid.2349 If two directors are
interested in a matter, the objection cannot be avoided by splitting up the resolution
with each voting only on the part that concerns the other.2350
A decision taken at an inquorate meeting is invalid, 2351 although the company may
be bound as against a bona fide third party.2352 The articles, however, usually provide
that if the number of directors falls below the quorum the continuing directors may act
for the purpose of increasing the number of directors to make up the quorum or of
convening a general meeting, but for no other purpose.2353 A subsequent meeting of
directors cannot ratify the proceeding of a meeting invalid for want of a quorum.2354
If a quorum of directors is able and willing to hold board meetings they may do so
under any circumstances.2355 But they would have to intend to hold a meeting of the
board; a casual discussion of the company's affairs would not suffice, and a quorum
cannot be obtained by forcing a director into a meeting against his will, eg by simply
declaring that he is attending a meeting.2356


2270 s 268G(c).
2271 s 441(1)(g).
2272 Re North Hallenbeagle Mining Co (Knight's Case) (1867) LR 2 Ch App 321; Re Fireproof Doors
Ltd [1916] 2 Ch 142; Marshall Industrials Ltd v Khan 1959 (4) SA 684 (D) 688; Sugden v Beaconhurst Dairies
(Pty) Ltd 1963 (2) SA 174 (E)182; Poolquip Industries Pty Ltd v Griffin 1978 (4) SA 353 (W) 356.
2273 (1890) 45 ChD 16 (CA).
2274 [1998] 2 BCLC 541.
2275 [1998] 2 BCLC 541 551.
2276 African Diamond Distributors (Pty) Ltd v Van der Westhuizen 1988 (4) SA 726 (T) 729, where it was
said that when a company has only one director the concept of a meeting of directors is unrealistic: the
requirements laid down by the articles of most companies and endorsed by law relating to meetings of
directors and formalities in regard to them are only apposite in the case of companies having more than one
director, and hence a sole director can perform all the juridical acts of the company without the constraints of a
meeting, his position being that of a full meeting of directors. But see Neptune (Vehicle Washing Equipment)
Ltd v Fitzgerald [1995] 1 BCLC 352.
2277 See below.
2278 See eg Majola Investments (Pty) Ltd v Uitzigt Properties (Pty) Ltd 1961 (4) SA 705 (T); Van Tonder v
Pienaar 1982 (2) SA 336 (SE) 341; James North (Zimbabwe) (Pvt) Ltd v Mattinson 1990 (2) SA 228
(ZHC) 236-237; Engling v Bosielo 1994 (2) SA 388 (BGD) 393.
2279 Robinson v Imroth 1917 WLD 159 171; James North (Zimbabwe) (Pvt) Ltd v Mattinson 1990 (2) SA 228
(ZHC) 236-237. And see Van Tonder v Pienaar 1982 (2) SA 336 (SE) 341.
2280 Re Haycraft Gold Reduction & Mining Co [1900] 2 Ch 230; Legg & Co v Premier Tobacco Co 1926 AD
132 139; Silver Garbus & Co (Pty) Ltd v Teichert 1954 (2) SA 98 (N) 102; Trek Tyres Ltd v Beukes 1957 (3)
SA 306 (W); Burnstein v Yale 1958 (1) SA 768 (W) 771; S v Heller 1971 (2) SA 29 (A) 51; Southern
Witwatersrand Exploration Co Ltd v Bisichi Mining plc 1998 (4) SA 767 (W) 773. 'The members are entitled to
expect that their board shall perform its functions as a board, and that the proceedings of the directors shall be
carried out in a normal and orthodox manner', per Romer LJ in Re HL Harmer Ltd [1958] 3 All ER 689 706
(CA).
2281 Re Haycraft Gold Reduction & Mining Co [1900] 2 Ch 230; Blythe v The Phoenix Foundry Ltd, Wilson &
Muir 1922 WLD 87 91-92; Legg & Co v Premier Tobacco Co 1926 AD 132 139; Silver Garbus & Co (Pty) Ltd v
Teichert 1954 (2) SA 98 (N) 102; Trek Tyres Ltd v Beukes 1957 (3) SA 306 (W); Burnstein v Yale 1958 (1) SA
768 (W) 771; Van Tonder v Pienaar 1982 (2) SA 336 (SE) 341; James North (Zimbabwe) (Pvt) Ltd v
Mattinson 1990 (2) SA 228 (ZHC) 236-237;Transcash SWD (Pty) Ltd v Smith 1994 (2) SA 295 (C) 299.
2282 Re Bonelli's Telegraph Co (Collie's Claim) (1871) LR 12 Eq 246; Silver Garbus & Co (Pty) Ltd v
Teichert 1954 (2) SA 98 (N) 102; Sugden v Beaconhurst Dairies (Pty) Ltd 1963 (2) SA 174 (E) 182.
2283 Harris v English Canadian Co (1906) 3 WLR 5 (Can); Re Portuguese Consolidated Copper Mines
Ltd (1889) 42 ChD 160 165. The articles of companies do, however, usually provide that a director may, with
the approval of the board, appoint an 'alternate director' to stand in for him and exercise his powers: see arts
57 and 58 of Table A and arts 58 and 59 of Table B.
2284 Re Giga Investments Pty Ltd (1995) 17 ACSR 472 476 (FC of A).
2285 Re Giga Investments Pty Ltd (1995) 17 ACSR 472 477 (FC of A).
2286 Re Giga Investments Pty Ltd (1995) 17 ACSR 472 477 (FC of A).
2287 Bell v Burton (1993) 12 ACSR 325 328-329 SC(Vic); Wagner v International Health Promotions (1994)
15 ACSR 411 421-422 SC(NSW); Re Giga Investments Pty Ltd (1995) 17 ACSR 472 477 (FC of A). In Bell v
Burton supra 328-329 Tadgell J said (in the context of articles that provided that 'directors may meet together
for the dispatch of the business'): 'No doubt there is no necessity nowadays if there ever was that
directors should gather physically together at a directors' meeting. In appropriate circumstances they may
meet by assenting to a document, or by telephone, video link, or other electronic means which caters for a
meeting of their minds.' In Wagner v International Health Promotions supra 421-422 Santow J said:
'Essentially, what [Tadgell J in Burton v Bell supra ] held was that, under articles not materially different to
those before me [which referred to directors 'meeting together'], that there is no necessity for the directors to
gather physically together at a directors' meeting. I agree that the words "meeting together" connote a
meeting of minds made possible by modern technology and not of bodies. There is evidence that there was a
telephone conference call so that the conversations took place with everyone hearing everyone else.'
Cf Higgins v Nicol (1971) 18 FLR 343 357; Re Southern Resources Ltd (1989) 15 ACLR 770 792 SC(SA).
2288 Re Giga Investments Pty Ltd (1995) 17 ACSR 472 476 (FC of A). In Magnacrete Ltd v Douglas-
Hill (1988) 48 SASR 565 603 Perry J said: 'The law has not yet advanced to the position whereby meetings of
directors may lawfully be held by separate phone calls to directors . . . . It may be that a meeting of directors
could be held on a conference telephone but that is not the position here.' But where the directors act by
unanimous assent, that can be achieved by way of telephonic consensus: see Blue Estates (Pty) Ltd v Minister
van Landbou 1992 (4) SA 406 (A) 424.
2289 See art 75 of Table A and art 73 of Table B. Thus the proceedings at meetings of directors are governed
by the company's articles and by any rules made by the directors themselves by virtue of the powers given
them by the articles:Eastern Resources of Australia Ltd v Glass Reinforced Products (GRP) Pty Ltd (1986) 10
ACLR 496 SC(Qld); Wilson v Permasnow (A'Asia) Ltd (1988) 14 ACLR 129 152 SC(Qld).
2290 See art 79 of Table A and art 78 of Table B. In Rentekor (Pty) Ltd v Rheeder and Berman 1988 (4) SA
469 (T) the meeting was led and controlled by a person who not only was not a duly authorised chairman but
also had no right to attend the meeting. The court however declined to hold that his presence, and the fact
that he de facto held sway, vitiated the majority votes exercised at the meeting, the majority being determined
in any event to exercise those votes in way they did. Where the power to appoint a chairman is vested in the
board, the members cannot appoint a chairman: Clark v Workman 1920 IR 107.
2291 See art 79 of Table A and art 78 of Table B. But a person who claims to have been chosen by
acquiescence must have acted as such: Kelly v Wolstenholme (1991) 4 ACSR 709 SC(NSW).
2292 In African Diamond Distributors (Pty) Ltd v Van der Westhuizen 1988 (4) SA 726 (T) it was said that the
court a quo had taken too strict a view of the wording of a directors' resolution, and it should be emphasised
that a resolution is not a contract and that the rules of contractual construction are not apposite.
2293 See art 75 of Table A and art 73 of Table B.
2294 See art 75 of Table A and art 73 of Table B.
2295 See Nell v Longbottom [1894] 1 QB 767 771.
2296 There may, however, be limits to way in which articles can alter the general rule. In Sage Holdings Ltd v
The Unisec Group Ltd 1982 (1) SA 337 (W) 354 Goldstone J said that the stratagem adopted in the articles of
the company whereby the 'A' directors and the 'B' directors each exercised a collective vote was 'foreign to the
basic concepts of our law and subversive of the proper exercise of their fiduciary duties'. And it would seem
that a 'director' who has no right to vote at all, is not a director: Whitehouse v Carlton Hotel (1987) 11 ACLR
715 735 (HC of A).
2297 Re Cawley & Co (1889) 42 ChD 209 216 (CA).
2298 Pulbrook v Richmond Consolidated Mining Co (1878) 9 ChD 610 612; Robinson v Imroth 1917 WLD 159
169-173.
2299 [2009] 2 BCLC 108 (Ch D).
2300 (1878) 9 Ch D 610.
2301 Robinson v Imroth 1917 WLD 159 169-173; Novick v Comair Holdings Ltd 1979 (2) SA 116
(W) 128; Van Tonder v Pienaar 1982 (2) SA 336 (SE) 341.
2302 Robinson v Imroth 1917 WLD 159 169-173; Novick v Comair Holdings Ltd 1979 (2) SA 116 (W) 128.
In Re HR Harmer Ltd [1958] 3 All ER 689 706 (CA) Romer LJ said: '[S]hareholders are entitled to have the
affairs of a company conducted in the way laid down by the company's constitution. Members are . . . entitled
to the benefit of the collective experience of the directors, and to expect that the directors and each of them
can freely express their views at board meetings and that regard shall be had to what they say and to
resolutions properly passed. If the board is browbeaten and either ignored or overruled by one of its number . .
. in reliance on his superior voting power, the proprietary interests of the minority shareholders cannot fail to
be affected and a case of oppression within s 210 [of the Companies Act 1948, s 252 of our 1973 Act] is, in my
judgment, made out.' See also South African Broadcasting Corporation Ltd v Mpofu and another [2009] 4 All
SA 169 (GSJ).
2303 Novick v Comair Holdings Ltd 1979 (2) SA 116 (W) 128.
2304 Polikwa v Heven Holdings Pty Ltd (1992) 8 ACSR 747 786 SC(WA), where it was said that this holds true
even though it 'may not be necessary for a director consciously to apply his or her mind to the fact that the
decision is being taken at a meeting of directors'.
2305 See Gundelfinger v African Textile Manufacturers Ltd 1939 AD 314 323.
2306 See art 76 of Table A and art 74 of Table B. Section s 234, which requires a director to declare his
interest, contains no such prohibitions; hence the common law prohibitions apply.
2307 See Imperial Mercantile Credit Association v Coleman (1871) 6 Ch App 558 567-568. And see notes on s
208, note CONFLICT OF INTEREST AND DUTY .
2308 See Re Bonelli's Telegraph Co (Collie's Claim) (1871) LR 12 Eq 246; Petsch v Kennedy [1971] 1 NSWLR
494; Swiss Screens (Australia) Pty Ltd v Burgess (1987) 11 ACLR 756 758 SC(NSW); Versteeg v R (1988) 14
ACLR 1 14 SC(WA);Benjamin v Harding Corp Pty Ltd (1995) 16 ACSR 376 SC(NSW); Roden v International Gas
Applications (1995) 18 ACSR 454 456 SC(NSW).
2309 Swiss Screens (Australia) Pty Ltd v Burgess (1987) 11 ACLR 756 758 SC(NSW); Poliwka v Heven
Holdings Pty Ltd (1992) 7 ACSR 85 90-91 SC(WA); (1992) 8 ACSR 744 785 SC(WA); and see UK Safety Group
Ltd v Heane [1998] 2 BCLC 208. But even this proposition ought not to be applied so as to impose unnecessary
2310 Thus art 76 of Table B provides that, '[s]ubject to the provisions of the Act, a resolution in writing
signed by all the directors shall be as valid and effectual as if it had been passed at a meeting of directors duly
convened and held'. Table A contains no such provision. Notwithstanding anything in the articles, no such
written resolution is permitted which concerns a contract or proposed contract with the company in which a
director is materially interested if such contract is of a kind referred to in s 234: s 236.
2311 1998 (4) SA 767 (W).
2312 1998 (4) SA 767 (W) 776-777.
2313 referring here to the remarks of E M Grosskopf JA, in a comparable context, in Blue Grass (Pty) Ltd v
Minister van Landbou 1992 (4) SA 406 (A) 424.
2314 referring here to Basil Wunsh 'Companies: Authority of Representatives and Minutes' 1975 De
Rebus 315 320-321.
2315 The learned judge pointed out (at 777) that if 'a company secretary faxes each of the directors,
diversely located, a copy of a resolution and asks for it to be signed and restransmitted, it would . . . be grossly
formalistic to deny the cumulated returned signed copies constitute a ''resolution'' as envisaged by art 76 and s
242(2)'. He held (at 778) that in the case before him 'there was such a resolution, though it existed in two
parts and in different locations'.
2316 Re Bonneilli's Telegraph Co (Collie's Claim) (1871) LR 12 Eq 246; Silver Garbus & Co (Pty) Ltd v
Teichert 1954 (2) SA 98 (N) 102; Burnstein v Yale 1958 (1) SA 768 (W) 771; Marshall Industrials Ltd v
Khan 1959 (4) SA 684 (D) 688;Majola Investments (Pty) Ltd v Uitzigt Properties (Pty) Ltd 1961 (4) SA 705
(T) 711-712; Levitan NO v Petrol Conservation (Pty) Ltd 1962 (3) SA 233 (W) 235; Sugden v Beaconhurst
Dairies (Pty) Ltd 1963 (2) SA 174 (E); S v Heller 1971 (2) SA 29 (A) 51-52; Chaterhouse Investments Trust
Ltd v Tempest Diesels Ltd [1986] BCLC 1; Molotlegi v President of Bophuthatswana 1989 (3) SA 119
(BGD) 128; Runciman v Walter Runciman [1992] BCLC 1084 1092; Blue Estates (Pty) Ltd v Minister van
Landbou 1992 (4) SA 406 (A) 424; Alpha Bank Bpk v Registrateur van Banke 1996 (1) SA 330
(A) 348; Southern Witwatersrand Exploration Co Ltd v Bisichi Mining plc 1998 (4) SA 767 (W) 774; Randcoal
Services Ltd v Randgold and Exploration Co Ltd 1998 (4) SA 825 (A) 840.
2317 See R C Beuthin 'The Principle of Unanimous Assent' (1974) 91 SALJ 2.
2318 Thus it has been held that 'obtaining separate informal approval without the conduct of an actual
meeting . . . is generally invalid': per Olsson J in R v Brynes (1996) 20 ACSR 260 270 SC(SA); and
see Magnacrete Ltd v Douglas-Hill(1988) 48 SASR 565 603; (1988) 15 ACLR 325 333 SC(SA). In R v Brynes
supra Olsson J said (at 270-271) that '[t]his is of course, not to deny that the capacity of a corporation to
include in its articles a provision that a resolution in writing agreed by all directors may be deemed to have
been passed at a duly constituted board meeting'. But '[t]o the extent that, absent such a provision, this may
still be done, as seems to be suggested by McGarvie J in J W Broomhead (Vic) Pty Ltd v J W Broomhead Pty
Ltd [1985] VR 891, (1985) 9 ACLR 593, is, with respect, contrary to both authority and principle'.
2319 1998 (4) SA 767 (W).
2320 1998 (4) SA 767 (W) 774-775.
2321 1998 (4) SA 767 (W) 776.
2322 1998 (4) SA 767 (W) 774-775.
2323 1998 (4) SA 767 (W) 776.
2324 1998 (4) SA 825 (SCA)
2325 1998 (4) SA 825 (SCA) 840-841.
2326 [1998] 2 BCLC 541 551.
2327 See art 75 of Table A and art 73 of Table B.
2328 Majola Investments (Pty) Ltd v Uitzigt Properties (Pty) Ltd 1961 (4) SA 705 (T) 711.
2329 In Browne v La Trinidad (1887) 37 Ch 1 17-18 (CA) it was held that in the circumstances notice of a few
minutes to a director was not such an irregularity as to vitiate the action of the board where the director could
have attended the meeting and objected to the shortness of the notice. In Rentekor (Pty) Ltd v Rheeder and
Berman 1988 (4) SA 469 (T) 493-496 it was said that, otherwise than with shareholders' meetings, if directors'
meetings are called without any previous notice being given either of the day or of what they are going to do,
this does not necessarily vitiate resolutions passed at the meeting.
2330 Re Homer District Consolidated Gold Mines (1888) 39 ChD 546 (CA); Re Portuguese Consolidated
Copper Mines Ltd (1889) 42 Ch 160 (CA); Young v Ladies' Imperial Club Ltd [1920] 2 KB 523 (CA); African
Organic Fertilizers & Associated Industries Ltd v Premier Fertilizers Ltd 1948 (3) SA 233 (N); Burnstein v
Yale 1958 (1) SA 769 (W) 771; Majola Investments (Pty) Ltd v Uitzigt Properties (Pty) Ltd 1961 (4) SA 705
(T) 710; Toole v Flexihire Pty Ltd (1991) 6 ACSR 455 461 SC(Qld). In John Shaw & Sons (Salford) Ltd v
Shaw [1935] 2 KB 113; [1935] All ER Rep 456 (CA) Greer LJ expressed the view that a director who is not
entitled to vote at a board meeting is not entitled to notice of the meeting, but Slesser LJ considered that such
a director is nevertheless entitled to notice.
2331 Re Portuguese Consolidated Copper Mines Ltd (1889) 42 Ch 160 (CA); Barron v Potter [1914] 1 Ch
895; African Organic Fertilizers and Associated Industries Ltd v Premier Fertilizers Ltd 1948 (3) SA 233
(N); Burnstein v Yale 1958 (1) SA 769 (W) 771; Majola Investments (Pty) Ltd v Uitzigt Properties (Pty)
Ltd 1961 (4) SA 705 (T) 710; Rentekor Ltd v Rheeder and Berman 1988 (4) SA 469 (T) 494; James North
(Zimbabwe) (Pvt) Ltd v Mattinson 1990 (2) SA 228 (ZHC) 242-243; Engling v Bosielo 1994 (2) SA 388
(BGD) 393; Toole v Flexihire Pty Ltd (1991) 6 ACSR 455 461 SC(Qld); Bell v Burton (1993) 12 ACSR 325 329
SC(Vic). See South African Broadcasting Corporation Ltd v Mpofu [2009] 4 All SA 169 (GSJ) and notes on s
208 (on p 8-16-10).
2332 Toole v Flexihire Pty Ltd (1991) 6 ACSR 455 461 SC(Qld). South African Broadcasting Corporation Ltd v
Mpofu and another [2009] 4 All SA 169 (GSJ).
2333 Re Portuguese Consolidated Copper Mines Ltd (1889) 42 ChD 160 (CA); African Organic Fertilizers and
Associated Industries Ltd v Premier Fertilizers Ltd 1948 (3) SA 233 (N); Burnstein v Yale 1958 (1) SA 769 (W)
771; Majola Investments (Pty) Ltd v Uitzigt Properties (Pty) Ltd 1961 (4) SA 705 (T) 710.
2334 Halifax Sugar Refining Co Ltd v Francklyn (189) 62 LT 563 565; Re Homer District Consolidated Gold
Mines (1888) 39 ChD 546 (CA); Young v Ladies' Imperial Club Ltd [1920] 2 KB 523 528 (CA); Eastern
Resource of Australia Ltd v Glass Reinforced Products (GRP) Pty Ltd (1986) 10 ACLR 496 499-500 SC(Qld).
2335 African Organic Fertilizers and Associated Industries Ltd v Premier Fertilizers Ltd 1948 (3) SA 233
(N); Burnstein v Yale 1958 (1) SA 769 (W) 771; Majola Investments (Pty) Ltd v Uitzigt Properties (Pty)
Ltd 1961 (4) SA 705 (T) 710.
2336 African Organic Fertilizers and Associated Industries Ltd v Premier Fertilizers Ltd 1948 (3) SA 233
(N); Burnstein v Yale 1958 (1) SA 769 (W) 771.
2337 See Petsch v Kennedy [1971] 1 NSWLR 494.
2338 Spicer v Mytrent Pty Ltd (1984) 8 ACLR 711 720 SC(NSW).
2339 La Campagnie De Mayville v Whitely [1896] 1 Ch 788 797 805; Eastern Resources of Australia Ltd v
Glass Reinforced Products (GRP) Pty Ltd (1986) 10 ACLR 496 SC(Qld); Rentekor (Pty) Ltd v Rheeder and
Berman 1988 (4) SA 469 (T) 493-494. And see Robinson v Imroth 1917 WLD 159 171-172.
2340 See La Compagnie de Mayville v Whitley [1896] 1 Ch 788 797ff 805, per Lindley and Kay LJJ
respectively; see also Eastern Resources of Australia Ltd v Glass Reinforced Products (GRP) Pty Ltd (1986) 10
ACLR 496 500-501 SC(Qld);Rentekor (Pty) Ltd v Rheeder and Berman 1988 (4) SA 469 (T) 495-496. And
see Toole v Flexible Pty Ltd (1991) 6 ACSR 455 461 SC(Qld), where it was said: 'For almost 100 years, it has
been the law that, at a properly convened meeting, directors may transact all business within their powers
though no notice has been given to the members of the board that special business is to be transacted.'
2341 Eastern Resources of Australia Ltd v Glass Reinforced Products (GRP) Pty Ltd (1986) 10 ACLR 496 501
SC(Qld).
2342 See art 77 of Table A. See also art 75 of Table B, the provisions of which are only applicable where the
company has more than one director. Because the Act requires a private company to have at least one
director, it by implication permits the quorum of one in the case of a private company with only one director.
But where a company has more than one director, it is doubtful whether the board may resolve to have a
quorum of one, because the common law rule is that one person cannot constitute a meeting: see Sharp v
Dawes (1876) 2 QBD 2 Ch 26 29.
2343 York Tramways Co v Willows (1882) 8 QBD 685 (CA).
2344 Re Tavistock Iron Works Co (Lyster's Case) (1867) LR 4 Eq 233.
2345 Per Farwell J in Re Greymouth Point Elizabeth Railway & Coal Co Ltd [1904] 1 Ch 32 34; Cox v Dublin
City Distillery (No 2) [1915] 1 IR 345; A M Spicer & Son Pty Ltd v Spicer and Howie (1931) 47 CLR 151 186-
187 (HC of A); Wilson v Permasnow (A'Asia) Ltd (1988) 14 ACLR 129 SC(Qld).
2346 Faure Electric Accumulator Co Ltd v Phillipart (1888) 58 LT 325; British Empire Match Co Ltd (1888) 59
Ltd 291.
2347 Re Scottish Petroleum Co (1883) 23 Ch 413 (CA).
2348 Re Greymouth Point Elizabeth Railway & Coal Co Ltd [1904] 1 Ch 32; Re North Eastern Insurance Co
Ltd [1919] 1 Ch 198 Blythe v The Phoenix Foundry Ltd, Wilson & Muir 1922 WLD 87; Gundelfinger v African
Textile Manufacturers Ltd 1939 AD 314 323; Trek Tyres Ltd v Beukes 1957 (3) SA 306 (W) 310. See also Colin
Gwyer v London Wharf [2003] 2 BCLC 153 ChD.
2349 Re North Eastern Insurance Co Ltd [1919] 1 Ch 198.
2350 Re North Eastern Insurance Co Ltd [1919] 1 Ch 198; Blythe v The Phoenix Foundry Ltd, Wilson &
Muir 1922 WLD 87.
2351 See eg Re Greymouth Point Elizabeth Railway & Coal Co [1904] 1 Ch 32; Re North Eastern Insurance Co
Ltd [1919] 1 Ch 198.
2352 In terms of the rule in Royal British Bank v Turquand, as to which, see notes on s 36. See County of
Gloucester Bank v Rudry Merthyr Steam & House Coal Colliery Co [1895] 1 Ch 629 (CA); Re Bank of Syria
(Owen and Ashworth's Case) [1901] 1 Ch 115 (CA).
2353 See art 78 of Table A and art 77 of Table B. A continuing director or directors may act under this
provision even though the number of directors has fallen below the statutory minimum: Macson Development
Ltd v Gordon (1959) 19 DLR (2d) 465; APT Group Services Pty Ltd v Ferguson (1991) 6 ACSR 231 SC(Vic).
2354 Wessels & Smith v Vanugo Construction (Pty) Ltd 1964 (1) SA 635 (O) 638.
2355 Barron v Potter [1914] 1 Ch 895 901.
2356 See Barron v Potter [1914] 1 Ch 895, where an attempted directors' meeting on a railway station
platform was ineffective (one director met another alighting from a train and, with a few introductionary words,
tried to hold a meeting and elect additional directors while the pair were walking down the platform). And
see Harris v English Canadian Co (1906) 3 WLR 5 (Can), where Martin J said: 'To hold that certain directors
could form a quorum by coming upon another in a room, or in the street, and, despite the protest of the other,
could, by merely declaring the body of persons so gathered together to be a meeting, actually give it that
complexion, would be going . . . to unwarrantable lengths, and encourage the carrying on of business by a
trick or artifice. . . .'


243 Validity of proceedings at meetings of directors or managers
Where minutes have been kept in accordance with the provisions of section 242 of the proceedings at any
meeting of directors or managers of a company, the meeting shall be deemed to have been duly held and
convened and all proceedings had thereat to have been duly had, and all appointments of directors, managers,
officers or auditors of the company shall be deemed to be valid, until the contrary is proved.
Notes
This is a remedial provision which applies in the case of some failure to comply with
RS 8, 2011 ch8-p349
procedural provisions contained in the Act or the articles, and it does not to breathe life
into something which is a nullity by reason of some provision of the Act. 2357 As to
meetings of directors, see notes on s 242.


2357 See Harman v Energy Research Group Ltd (1985) 39 ACLR 897 900 SC(WA).


244 When resolution at adjourned directors' or managers' meeting
effective
Any resolution passed at an adjourned meeting of directors or managers of a company shall for all purposes be
treated as having been passed on the date on which it was in fact passed.
Notes
Article 75 of Table A and art 73 of Table B provide inter alia that the directors may
adjourn their meetings as they think fit. At common law an adjourned meeting is
deemed to be a resumption of the original meeting.2358 Section 244 removes, in regard
to directors' and managers' meetings, the difficulties of the decision in Neuchild v British
Equatorial Oil Co, 2359 where, applying the principle that an adjourned meeting is a
continuation of the original meeting, it was held that a resolution passed at an adjourned
general meeting was to be deemed to have been passed on the date of the original
meeting.


2358 Scadding v Lorant (1951) 3 HL Cas 418; 10 ER 164; McLaren v Thompson [1917] 2 Ch 261 (CA).
2359 [1925] 1 Ch 346.


245 Directors' and managers' meetings: attendance register
(1) Every director of a company present at any meeting of directors, and every manager thereof present at
any meeting of managers, shall at the meeting sign his name under the date of the meeting in a book
complying with the provisions of section 242(3) to be kept for that purpose.
(2) Such book shall be kept at the registered office of the company or at the office where it is made up and
shall during business hours be open to inspection by any member of the company without charge.
(3) Any company, director or manager who fails to comply with any provision of this section, shall be guilty
of an offence.
Notes
As to who is a director, see s 1(1) sv director and notes on s 208. As to who is a
manager, see s 1(1) sv manager and notes on s 211.
The member's right of inspection goes no further than the right to inspect this
attendance register. 2360 He has no right to inspect the minutes of directors' meetings.
The general rule is that the right to inspect includes a right to make copies. 2361
Regulation 4 of the Regulations for the Retention and Preservation of Company
records read with item 4 of the schedule to those regulations, requires that the directors'
attendance register be retained for a minimum of 15 years, which period runs from the
RS 8, 2011 ch8-p350
date of a particular record or the date of the last entry in it. However, the original
register which has be reproduced on microfilm in terms of reg 2(2) may be destroyed
after a period of three years from the date on which the record has so reproduced.
Section 246 imposed a duty on the auditor of a company to satisfy himself that an
attendance register is kept by the company in the prescribed form.
The offence is punishable by a fine for every meeting in respect of which the
contravention has taken place. The court convicting may order the accused to remedy
the default, insofar as is practicable, within a stated period.


2360 See Clutchco (Pty) Ltd v Davis 2005 (3) SA 486 (SCA) and the Promotion of Access to Information Act 2
of 2000.
2361 See Spoor & Fisher v Registrar of Patents 1961 (3) SA 476 (A) 480-482.


246 Duty of auditor as to minute books and attendance register
The auditor of a company shall satisfy himself that a minute book or books and an attendance register are kept
by the company in the form prescribed by sections 242 and 245.
Notes
See also s 300(c), which provides that it is the duty of the auditor to satisfy himself that
the minute books and attendance registers of meetings of the company and of the
directors and managers have been kept in proper form as required by the Act.
Indemnity and Relief of and Offences by Directors and Others (ss 247-251)


247 Exemption from or indemnity against liability of directors, officers
or auditors of a company
(1) Subject to the provisions of subsection (2), any provision, whether contained in the articles of a
company or in any contract with a company, and whether expressed or implied, which purports to exempt any
director or officer or the auditor of the company from any liability which by law would otherwise attach to him
in respect of any negligence, default, breach of duty or breach of trust of which he may be guilty in relation to
the company or to indemnify him against any such liability, shall be void. Provided that this subsection shall
not be applicable to insurance taken out and kept by the company as indemnification against any liability of
any director or officer towards the company in respect of any negligence, default, breach of duty or breach of
trust.
[Sub-s. (1) amended by s. 12 of Act 35 of 1998.]
(2) The provisions of subsection (1) shall not be construed as prohibiting a company from indemnifying any
director, officer or auditor in respect of any liability incurred by him in defending any proceedings, whether civil
or criminal, in which judgment is given in his favour or in which he is acquitted or in respect of any such
proceedings which are abandoned or in connection with any application under section 248 in which relief is
granted to him by the Court.
RS 3, 2006 ch8-p351
Notes
Introduction
In England, 2362 the decision in Re City Equitable Fire Insurance Co Ltd 2363 drew
attention to the practice of including in articles of association provisions exempting
directors from liability for loss except when due to 'their own wilful neglect or default', or
even in every case other than of actual dishonesty. 2364 Disturbed by the decision in Re
City Equitable Fire Insurance Co Ltd 2365 recognising the validity of such provisions, the
Greene Committee recommended 2366 the prohibition of 'articles and contracts relieving
directors and other officers from their liability under the general law of negligence and of
breach of duty or breach of trust'. The Committee 2367 considered 'that this type of
article gives a quite unjustified protection to directors'. It pointed out that under such an
article 'a director may with impunity be guilty of the grossest negligence provided that
he does not consciously do anything that he recognises to be improper'. Believing it to
be a 'hopeless task' to attempt 'by statute to define the duties of directors', it concluded
that the Companies Act should 'prohibit articles and contracts directed to relieving
directors and other officers of a company from their liability under the general law of
negligence and of breach of duty or breach of trust'. 2368 The Committee was:247-251)
'. . . satisfied that such an enactment would not cause any hardship to a conscientious director or
make his position more onerous and, [that] there is no foundation whatever for the suggestion
that it would discourage many otherwise desirable persons from accepting office. A director who
accepts office does not consciously do so upon the footing that he may be as negligent as he
pleases without incurring liability. It is only when he has been negligent and the company have
suffered a loss, that he is content to take shelter behind the article. It is, moreover, in our opinion
fallacious to say that the shareholders must be taken to have agreed that their directors should be
placed in this remarkable position. The articles are drafted on the instructions of those concerned
in the formation of the company, and it is obviously a matter of great difficulty and delicacy for
shareholders to attempt to alter such an article as that under consideration.' 2369
Following the recommendation by the Greene Committee, such a provision was
introduced as s 152 of the English 1929 Companies Act. It was contained in s 205 of the
RS 3, 2006 ch8-p352
1948 Act. The corresponding provision in the English 1985 Act is 310(1). 2370 Section
137(1) of the Companies Act 1989 substituted the present 310(3). This introduced a
provision excluding from the prohibition in s 310(1) contracts of insurance taken out by
the company which provide insurance for an officer or auditor of the company against
such liability. 2371
Our Lansdown Commission, noting that the articles of companies sometimes
purported to relieve directors 'of liability for negligence or other default committed in the
performance of anything done by them on behalf of the company', recommended the
adoption of the provisions contained in s 152 of the English 1929 Companies Act, adding
'but there should be a power in the court to grant relief in suitable cases'. 2372 In 1939
the provisions were inserted 2373 as s 70sext in the Companies Act 46 of 1926, which
provisions are now contained in s 247(1) of the present Act. But the exact wording of the
English section was not adopted. In particular, (i) while the English s 310(1) refers to
'any provision, whether contained in the articles of the company or in any contract with
the company or otherwise', s 247(1) omits the words 'or otherwise', and (ii), while the
English subsection refers to any provision 'for exempting' such persons from liability, s
247(1) refers to any provision 'which purports to exempt' them from liability. 2374
The proviso to s 247(1) was added by s 12 of Act 35 of 1998. Like s 310(3) of the
English 1985 Act, the proviso makes an extensive inroad on the prohibition. It goes
further than the provision that gave rise to concern in the Re City Equitable Fire
Insurance Co Ltd 2375 case. In effect, it enables the directors of companies to free
themselves - at the expense of their shareholders - from all liability to compensate their
company for losses caused to it as a consequence of their wrongdoing, provided they can
obtain the necessary insurance cover.
RS 7, 2010 ch8-p353
Any provision, whether contained in the articles of a company or in any
contract with the company
If the words 'any provision, whether contained in the articles of a company or in any
contract with a company' refer only to provisions in the articles of a company or in a
contract with the company, the subsection leaves unaffected provisions in the company's
memorandum and resolutions of its general meeting or board of directors. It is unlikely
that that was what the legislature intended, and therefore it would seem that the words
'any provision' ought to be emphasised, and that the words 'in the articles of a company
or in any contract with a company' ought to be understood as examples of the manner in
which any such provisions can be effected. On the other hand, it would seem clear that
all such provisions must be provisions binding the company, ie provisions to which the
company is a party. That is to say, the words 'any provision' must be read eiusdem
generis with 'articles' and 'any contract with the company', and therefore, for example,
they do not include a contract between a director and insurer in terms of which the
insurer undertakes to indemnify the director against his liability to the company.
Section 310 of the English Companies Act 1985 is worded differently. 2376 It refers to
'any provision, whether contained in the articles of a company or in any contract with a
company or otherwise'. It was argued that the words 'in any contract with the company
or otherwise' cover 'any insurance policy indemnifying a director or other officer against
his liability in negligence to the company whether the policy be in the name of the
director or the company, in other words whether he himself is the insured or whether the
company effected the insurance on his behalf'.2377 It was accepted that this is to argue
that the words 'or otherwise' should not be construed eiusdem generis . But, it was said,
that 'argument should fail on the grounds that there would be little for the words "or
otherwise" to bite upon if they did not cover provisions like those contained in an
insurance policy. In other words, if such insurance contracts and similar devices were
excluded from the scope of [the section], there would be no real room for the words "or
otherwise" to operate'. 2378
This rather surprising proposition has been rejected. 2379 Section 310 of the English
1985 Act applies only to exemptions and indemnities given by the company itself. This is
because, first, on the face of it, s 310(1) is primarily concerned with a 'provision . . .
exempting any officer', and 'given that the sort of claims contemplated by s 310 are
claims brought by the company, it could only be the company which granted any such
exemption'. 2380 Secondly, the phrase 'whether contained in a company's articles or in
any contract with the company or otherwise', while 'somewhat cumbersome', directs
attention 'to an arrangement with the company, and not anyone else'. Thirdly, in the
context of s 310 the words 'or otherwise' do not naturally mean 'or anyone else'. Rather,
RS 7, 2010 ch8-p354
they are 'directed more towards covering an arrangement with the company which may
not amount to a contract but which nonetheless might give rise to an argument that the
company had agreed to exempt the director, or to indemnify him, in respect of the
matters referred to at the end of s 310(1)', eg some sort of arrangement with the
company amounting to an estoppel. 2381 Fourthly, s 310(3)(a) provides that s 310 does
not prevent a company 'from purchasing and maintaining for any such officer or auditor
insurance against any such liability'. It would be 'somewhat surprising' if the company
could take out such insurance but a director could not take out such insurance himself.
In short, 'the words "or otherwise" in s 310(1) are to be construed eiusdem generis with
the proceeding words "whether contained in a company's articles or in any contract with
the company". After all, the company's articles of association are, at least in a sense,
contractual provisions between the company and its members. In those circumstances, it
can be said with force that there is a genus, namely, an arrangement to which the
company is a party, which restricts what might otherwise be said to be a very wide
meaning of the words "or otherwise".'
Finally, even if the words 'or otherwise' in the English s 310 were given the
improbable interpretation argued for above, that argument can have no relevance in
regard to our s 247; for it does not contain those words. See now ss 232-234 of the
Companies Act, 2006.
Which purports to exempt any director or officer or the auditor of the company
from . . . any liability which by law would otherwise attach to him
(1) Both exemptions from liability arising from breach of duty and exemptions
from duty are void
Section 247(1) renders invalid, not only all provisions that purport to exempt a director
from liability in the event of his acting in breach of duty,2382 but also all provisions that
purport to exempt a director from his duties.2383 This is because the section does not
merely render void a provision which, but for the provisions of s 247(1), would exempt a
director from any liability in respect of any negligence, default, breach of duty or breach
of trust (thus leaving it open for the articles to exempt a director from these duties, so
that he cannot incur such liability). Rather, it renders void a provision that has as its
purpose the exemption of a director from any such liability which, but for that
provision (ie the provision in the articles of a company or in any contract with a
company), would attach
OS, 2002 ch8-p355
to him for breach of duty.2384 Clearly that is the purpose, not only of a provision that
purports to exempt a director from liability resulting from a breach of duty, but also of a
provision that purports to exempt a director from a duty. Hence, s 247(1) renders void
both a provision that purports to exempt a director from liability arising from a breach of
duty and a provision that purports to release a director from a duty. In both cases the
provision purports to relieve a director from 'liability . . . which would otherwise attach to
him'.2385
From this it also follows that a provision is void, not only when it purports to abrogate
a duty, but also when it purports to narrow the extent of the duty or to lower the
standard of conduct required by the duty.2386
(2) Exemption distinguished from ratification
What is prohibited is the exemption from liability or duty - not the ratification of a breach
of duty or a prior release.2387 An exemption from liability is a blanket removal or
extinction of a duty, or of liability for its breach - so that the directors concerned are no
longer subject to the duty, or are no longer liable for any breach or breaches of it that
they may have committed, or will no longer incur liability if they breach it. A ratification,
on the other hand, merely relieves the director of liability incurred as a consequence of a
OS, 2002 ch8-p356
particular breach of duty; and a prior release merely relieves the director of the duty, or
liability for its breach, in regard to a particular act or transaction.2388 Thus the section is
does not cover ratifications 2389 or prior releases.2390
(3) What is permissible
The articles of companies may, and frequently do, relax the rule the requiring a director
to disclose to the members in general meeting his interests in company contracts, by
permitting such disclosure to be made to the board. Such provisions have been
recognised by the courts (not only before the introduction of the provisions now
contained in s 247(1), 2391 but also after their introduction) 2392 as valid. Indeed, their
validity
OS, 2002 ch8-p357
is implicitly recognised by the legislature, for art 76 of Table A and art 74 of Table B
permit disclosure in terms of the statutory disclosure provisions of ss 234-241, 2393
which provisions require disclosure to the board of directors.2394 It has been held that
such provisions are not rendered void by s 247(1), because the rule that requires
disclosure ought, on a proper analysis, to be understood as one imposing a disability
rather than a duty.2395 But it would seem that the reason why these provisions are not
void is that they merely determine the organ of the company to which disclosure must
be made: they neither purport to exempt the directors from their duty to disclose nor
purport to relieve them from liability for breach of it.2396
The articles may even permit the interested director to be counted in the quorum and
vote on the matter (provided of course that he makes full disclosure of his interest) 2397
and
OS, 2002 ch8-p358
to retain certain incidental profits.2398 Since the director's duty not to act for the
company in matters in which he has an interest is a duty not to act in such matters
without the consent of the company, it would seem that a provision in the articles of a
company permitting directors to act in such matters is valid, 2399 because the duty
exists only in the absence of consent.2400 For the same reason, it would seem, a
provision in the articles permitting the directors to retain incidental profits is valid, 2401
ie the duty to account for profits is also a duty that exists only in the absence of consent.
But, of course, no provision in a company's articles can relieve its directors of their duty
to act in the interests of the company, 2402 or of their duty to disclose.
Any negligence, default, breach of duty or breach of trust
A director is not a trustee, 2403 and therefore, although in England directors have always
been treated as trustees of the assets under their control 2404 and have been treated as
having committed 'breaches of trust' for the purposes of provisions in the Companies
Acts which refer to 'breaches of trust', 2405 they, strictly speaking, cannot commit
breaches of trust.2406 Thus it would seem clear that 'breach of trust' in the context of s
247(1) means
RS 7, 2010 ch8-p359
breach of fiduciary duty. However, since the subsection also refers to 'any breach of
duty', 'breach of trust' adds nothing to the provision. 2407
In Tito v Waddel (No 2) 2408 Megarry V-C was concerned with the question whether
failure to comply with the 'self-dealing' 2409 and the 'fair-dealing' 2410 rules constituted a
'breach of trust for the purposes of s 19(2) of the Limitations Act 1939. He held that
such failure does not constitute a 'breach of duty', and, ex hypothesi, is not a 'breach of
trust'. In this he was mistaken, for these rules do impose duties, and failure to comply
with them is a breach of fiduciary duty, and hence a 'breach of trust' for the purposes of
s 247(1). 2411
Or to indemnify him against any such liability
Section 247(1) renders void not only any provision in the articles or a contract with the
company which purport to exempt a director from the specified liability, but also all such
provisions which purport 'to indemnify him against any such liability'. The word
'indemnify' has at least two meanings. First, it means to keep free from, secure against
any hurt, harm or loss to give an indemnity to. Thus in Viscount of the Royal Court of
Jersey v Shelton 2412 Lord Brightman said that '[a] company has no cause of action
against a director in respect of a matter against which the company has agreed to
indemnify him'. Secondly it means to compensate for loss suffered, expense incurred
etc. 2413
The articles cannot relieve a director from the obligation to act in the interests of the
company as a whole. 2414
Section 247(1) refers to 'any contract with the company'. Thus it includes a contract
between the company and a third party in terms of which the third party undertakes to
RS 7, 2010 ch8-p360
compensate the director for damages that he is obliged to pay to the company as a
consequence of his breach of duty etc, eg a contract between the company and an
insurer in terms of which the insurer agrees to indemnify the director against his liability
to the company. In England the Companies Act 1989 2415 amended the provisions of s
310(3) so as to include a provision to the effect that s 310 does not prohibit a company
'from purchasing and maintaining for any such officer or auditor insurance against any
such liability'. 2416 A similar provision is now contained in the proviso to s 247(1) (as to
which, see below).
Section 247(1) renders void any provision purporting to indemnify a director against
any liability which by law would otherwise attach to him in respect of any negligence,
default, breach of duty or breach of trust of which he may be guilty 'in relation to the
company'. The words 'in relation to the company' could be understood to mean 'in
connection with', and so include wrongs committed against third parties by the director
when acting in connection with the company's affairs. But it would seem to be
reasonably clear that 'in relation to the company' means 'against the company', ie
liability arising from breach of duties owed to the company. 2417 Section 247(1) does not
apply in respect of any negligence, default, breach of duty or breach of trust in relation
to the company of which he may be guilty; rather, it applies 'in respect of any
negligence, default, breach of duty or breach of trust of which he may be guilty in
relation to the company'. It is not merely the wrongful conduct that must be 'in relation
to the company', but also, and in particular, the guilt. What is more, the company can
exempt its directors only from duties owed to it. It would seem that 'indemnify' must
also be interpreted to refer to duties owed to the company. For s 247(1) provides 'or to
indemnify him against any such liability', ie the same liability from which the director
may not be exempted. Hence, its operation is limited to duties owed to the
company. 2418
Thus, the section does not operate to prohibit indemnification against claims brought
against the directors by third parties, such as creditors. This means that a company can
obtain insurance or have an indemnification provision in its articles or in a contract with
its directors specifically providing coverage or indemnification for directors who are held
liable in damages to third parties. 2419
RS 7, 2010 ch8-p361
Not applicable to insurance taken out and kept by the company as
indemnification against any liability of any director or officer
The Companies Amendment Bill 2420 explained: 'On the recommendation of the King
Committee on Corporate Governance 2421 a proviso is now being added to the section to
allow a company to protect itself by taking out insurance against liability of a director or
officer towards the company in respect of negligence, default, breach of duty or breach
of trust.'
The purpose of the provision is, however, not to protect the company, but to protect
its directors and officers at its expense. The King Committee (a committee formed at the
instance of the Institute of Directors in Southern Africa) recommended that '[t]he
Companies Act should be amended to entitle a company to pay for additional insurance
cover for directors and officers to cover conduct on their part which may have
contributed to a failed audit, save for gross negligence or recklessness on their
part'. 2422 The Committee did not identify the persons to whom this liability is incurred,
but, presumably, it had in mind liability to third parties. The Committee also made the
rather more outrageous recommendation that '[b]ecause of the onerous duties placed on
directors the question of companies indemnifying directors, which is negated by Section
247 of the Companies Act, should be revisited'. 2423 The purpose of both these
recommendations was, then, to protect directors and officers, at expense of the
company, against their own wrongdoing.
A company would 'protect itself' by taking out insurance entitling it to be indemnified
against any loss it has suffered as a result of negligence, default, breach of duty or
breach of trust on the part of its directors and officers. 2424 It would then be able to
recover its losses even when its directors were unable to meet their liabilities. Having
paid the company, the insurer would be entitled to enforce the company's claims against
the wrongdoing directors. There has never been anything in s 247(1) to prevent a
company from taking out such insurance.
The proviso s 247(1), however, entitles a company (in truth, the directors
themselves) to take out and pay for 'insurance . . . as indemnification against any
liability of any director or officer towards the company in respect of any negligence,
default, breach of duty or breach of trust'. Only the director or officer concerned can be
indemnified against his liability to the company. That this is what was intended is made
clear by the fact that the proviso states that 'this subsection shall not be applicable' to
such insurance.
RS 7, 2010 ch8-p362
As noted above, there is no need to render the subsection inapplicable to an insurance
policy taken out by the company to indemnify itself against loss caused to it by its
directors' wrongdoing. If it was thought that this was not altogether clear, the words
'shall not be construed' would have been used. And, finally, if that had been intended,
there would have been no need for the words 'taken out and kept by the company'.
Section 310(3)(a) of the English 1985 Act provides that the section does not prevent a
company 'from purchasing and maintaining' for any officer 2425 of the company
insurance against any such liability. The word 'kept' in s 247(1) can only mean 'maintain'
or, more frankly, 'continue to pay for'. 2426
Section 247(2)
It would seem that the provisions of s 247(2) were inserted ex abundanti cautela (hence
the words, 'shall not be construed'). Section 247(1) does not prohibit the payment of
such indemnities. Where judgment has been given in his favour, the director, officer or
auditor is not guilty of breach of duty, and therefore s 247(1) does not apply. That, of
course, is not the case where he makes an application under s 248 for relief from
liability. But the costs that he incurs when making such an application do not constitute
a 'liability which by law would otherwise attach to him in respect of any negligence,
default, breach of duty or breach of trust of which he may be guilty in relation to the
company'.


2362 For the position in Australia, see Forge v ASIC (2005) 52 ACSR 1.
2363 [1925] Ch 407.
2364 Prior to the introduction of the provisions now contained in s 310 of the English 1985 Act and s 247(1)
of our 1973 Act, the articles of a company could provide that directors and other officers would not be liable for
losses caused by them unless caused by their dishonesty, or wilful neglect, act, or default: Re Brazilian Rubber
Plantations and Estates Ltd [1911] 1 Ch 425; Leeds City Brewery Ltd v Platts [1925] Ch 532 (CA); Re City
Equitable Fire Insurance Co Ltd [1925] Ch 407; [1924] All ER Rep 485. And see Re City of London Insurance
Co Ltd (1925) 41 TLR 521. In Re City Equitable Fire Insurance Co Ltd supra one of the company's articles
provided that none of the directors should 'be answerable . . . for any loss, misfortune, or damage which might
happen in the execution of their respective offices or trusts, or in relation thereto, unless the same should
happen by or through their own wilful neglect or default'.
2365 [1925] Ch 407; [1924] All ER Rep 485.
2366 Company Law Amendment Committee Cmd 2657 (1925-1926) paras 46 47.
2367 Company Law Amendment Committee Cmd 2657 (1925-1926) para 46.
2368 Company Law Amendment Committee Cmd 2657 (1925-1926) para 46, and see para 47.
2369 Company Law Amendment Committee Cmd 2657 (1925-1926) para 46.
2370 Section 310(1) of the English 1985 Act provides: 'This section applies to any provision, whether
contained in a company's articles or in any contract with the company or otherwise, for exempting any officer
of the company or any person (whether an officer or not) employed by the company as auditor from, or
indemnifying him against, any liability which by virtue of any law would otherwise attach to him in respect of
any negligence, default, breach of duty or breach of trust of which he may be guilty in relation to the
company.'
2371 Section 310(3) provides that s 310 'does not prevent a company (a) from purchasing and maintaining
for any such officer or auditor insurance against any such liability'.
2372 Report of the Company Law Commission 1935-1936 UG No 45 1936 para 135. Paragraph 136 contained
the following recommendation: 'That a provision be added to the Companies Act, 1926, voiding any stipulation
in any articles of or contract with a company, purporting to exempt any director or other officer of the
company from liability in respect of negligence, default, breach of duty or breach of trust.'
2373 By s 43 of the Companies Amendment Act 23 of 1939.
2374 On this provision, see: C D Baker 'Disclosure of Directors' Interests in Contracts' (1975) JBL 181; J Birds
'The Permissible Scope of Articles Excluding the Duties of Company Directors' (1976) MLR 394; E J Rule and H
S Brar 'Exempting Directors' (1979) New LJ 6; J Birds 'Directors' Duties of Care and Liability Insurance' in The
Regulation of the British Securities Industry (eg B A K Rider 1979) Chp 7 p 114; J E Parkinson 'The Modification
of Director's Duties' (1981) JBL 335; R Gregory 'The Scope of the Companies Act 1948, Section 205' (1982)
98 LQR 413; R Instone (1982) 98 LQR 548; R Gregory 'Section 205 of the Companies Act 1948 - A Reply'
(1983) 99 LQR 194; J Birds 'Excluding the Duties of Directors' (1987) 8 Company Lawyer 31; L S Sealy
'Company - Directors "Duties" and Exempting Articles' [1987] CLJ 217; D Prentice [1988] All ER Annual
Review 34; J Birds 'Reform of Section 310' (1988) 9 Company Lawyer 221; J Birds 'Directors Insurance and s
310' (1986) 7 Company Lawyer 209; R Cranston 'Limiting Directors' Liability: Ratification, Exemption and
Indemnification (1992) JBL 197; S Turnbull & V Edwards 'Companies Act 1989: Directors' and Officers' Liability'
(1990) 134 Solicitors Journal 768; M S Blackman 'Exemption of Directors from Liability and Section 247(1) of
the Companies Act' (1993) 56 THRHR 537.
2375 [1925] Ch 407; [1924] All ER Rep 485.
2376 As was s 205 of the English Companies Act 1948.
2377 Italics added.
2378 J Birds 'Directors' Duties of Care and Liability Insurance' in The Regulation of the British Securities
Industry (eg B A K Rider 1979) Chp 7 p 114 at 119. See also L S Sealy [1987] CLJ 217 at 217, who says that
'the probably unintended feature' is that the wording of the section seems wide enough to outlaw 'many
entirely acceptable practices (such as . . . even a professional liability indemnity insurance policy taken out by
a director)'; Ross Cranston 'Limiting Directors' Liability: Ratification, Exemption and Indemnification'
(1992) JBL 197 207.
2379 Burgoine v London Borough Council v Waltham Forest [1997] 2 BCLC 612 626-627.
2380 Neuberger J said (at 625) that, '[i]n these circumstances . . . it would require clearer words before a
provision relating to indemnification applied to persons other than the company'.
2381 Also, no doubt, provisions in the company's memorandum and resolutions of the general meeting.
2382 See Viscount of the Royal Court of Jersey v Shelton [1986] 1 WLR 985 992 (PC).
2383 Movitex v Bulfield [1988] BCLC 104. Before the decision in Movitex v Bulfield 1988 BCLC 104, it was
argued that the articles could still avoid a 'breach of duty' by ensuring that there was no duty to breach. This
was said to follow from the fact that the section refers only to provisions which exempt a director from liability
'which would otherwise attach to him' in respect of a breach of duty 'of which he may be guilty'. Since a
director who has been released from a duty cannot be guilty of a breach of that duty, it follows that the section
does not prohibit release from duties. That is to say, the words 'which would otherwise attach to him' refer to
liability which would attach to the director were it not for the provision exempting him. As to this debate, see:
K W Wedderburn 'Shareholders' Rights and the Rule in Foss v Harbottle' [1957] CLJ 194, [1958] CLJ 93 97; C
D Baker 'Disclosure of Directors' Interests in Contracts' (1975) JBL 181; J Birds 'The Permissible Scope of
Articles Excluding the Duties of Company Law Directors' (1976) MLR 394; E J Rule and H S Brar 'Exempting
Directors' (1979) New LJ 6; J E Parkinson 'The Modification of Director's Duties' (1981) JBL 335; R Gregory
'The Scope of the Companies Act 1948, Section 205' (1982) 98 LQR 413; R Instone (1982) 98 LQR 548; R
Gregory 'Section 205 of the Companies Act 1948 A Reply' (1983) 99 LQR 194; J Birds (1987) 8 Company
Lawyer 31; L S Sealy [1987] CLJ 217; D D Prentice [1988] All ER Annual Review 34; M S Blackman 'Exemption
of Directors from Liability and Section 247(1) of the Companies Act' (1993) 56 THRHR 537.
2384 The question to be asked is not 'Would the director have been liable for this breach of duty had s 247(1)
not been enacted?' Rather, it is, 'Would the director have been liable for breach of duty had not the provision in
question purported to exempt him from liability (either by purporting to waive the duty or by purporting to
exempt him from liability consequence upon its breach)?'
2385 Movitex v Bulfield [1988] BCLC 104. The English section refers to any provision 'for exempting' such
persons from liability. In effect, in Movitex Ltd v Bulfield supra 117 it was held that the words 'for exempting'
mean 'which has for its purpose the exemption'. This, then, is what our s 247 expressly states ('which purports
to exempt' and 'wat 'n direkteur . . . heet vry te stel van 'n aanspreeklikheid'). See C D Baker 'Disclosure of
Directors' Interests in Contracts' (1975) JBL181; J Birds 'The Permissible Scope of Articles Excluding the Duties
of Company Directors' (1976) 39 MLR 394; E J Rule and H S Brar 'Exempting the Directors' (1979) New LJ 6;
and especially Roger Gregory 'The Scope of the Companies Act 1948, Section 205' (1982) 98 LQR 413; R
Gregory 'Section 205 of the Companies Act 1948 - A Reply' (1983) 99 LQR 194. As Roger Gregory (at 414-
415) puts it, a director 'is exempted from liability just as effectively by a provision which says that the rules do
not apply to him, as by one which says that the consequences of a breach of the rules do not apply to him'.
The section requires one 'to compare the director's position under that provision with his position under the
general law, and not with his position under the general law as modified by that provision'. It is
'the consequence of the exemption rather than the type of exemption which is the dominant consideration
under the section'. Hence, as C D Baker ('Disclosure of Directors' Interests in Contracts' (1975) JBL 181 187)
says, it is not necessary 'to give a strained interpretation of the words of the section in order that the wishes of
the Greene Committee should prevail': the section avoids an articles which relieve a director from any liability
'which would otherwise attach to him', which words, on a literal interpretation, are 'capable of referring to an
article which, by excluding the duty, prevents the liability from attaching to the director, just as much as one
which excludes the liability itself'.
2386 In Movitex Ltd v Bulfield [1988] BCLC 104 117-118. In this case Vinelott J pointed out that the solution
that a provision may reduce or abrogate a duty so long it does not exempt the director from liability for breach
of it 'leads to the absurd result that an article could, without infringing [the section], modify a director's duty to
use reasonable skill and care in the conduct of the company's affairs and so avoid a liability for damages for
breach of duty which would otherwise arise, a conclusion which seems to me manifestly in conflict with the
purpose of the section.' Roger Gregory made the same point ('The Scope of the Companies Act 1948, Section
205' (1982) 98 LQR 413 415; and see (1983) 99 LQR 194), noting that a weakness in the construction which
gives validity to an article prescribing a standard of care lower than the legal standard, is that the section lays
it down that to test whether a provision is an exempting clause or not, one has to compare the director's
position under that provision with his position under the general law, and not with his position under the
general law as modified by that provision. But cf Ralph Instone (1982) 98 LQR 548 549-550.
2387 As to ratification and prior release, see note RATIFICATION OR CONDONATION OF DIRECTOR'S BREACH
OF DUTY AND PRIOR CONSENT OR RELEASE in notes on s 208.
2388 Miller v Miller (1995) 16 ACSR 73 87 SC(NSW); Gray v Eisdell Timms Pty Ltd v Combined Auctions Pty
Ltd (1995) 17 ACSR 303 312 SC(NSW). In Miller v Miller supra 87 Santow J said: 'The essential difference
between ratification, which has had a long history of co-existence with the various versions of s 241 [of the
Australian Corporation Law] . . . is this. Ratification can never be a blanket indemnification or exemption on a
prospective basis, clearly prohibited by [the section]. . . . Rather it is a specific absolution, afforded usually
though not always, retrospectively, but necessarily for specific and properly disclosed infractions of the
director's duties and subject to certain limitations . . . The essence of ratification is that the release so given
obviates the liability, so far as any right of action to enforce it by existing shareholders is concerned.' The
learned judge went on to say (at 88): 'The notion of "exempt" is to "free from an obligation or liability" . . . .
Section 241 is concerned with "blank cheque" indemnification and exemption, while ratification requires specific
release after all disclosure of the particular cause for claim.'
2389 It has been suggested that the section is wide enough to cover 'a shareholders' resolution granting
absolution for a breach of duty' (Ralph Instone (1982) 98 LQR 548 549), 'a contract compromising an action
brought against a director, a shareholders' resolution releasing a claim' (L S Sealy [1987] CLJ 217 at 217).
Instone argued ((1982) 98 LQR 548 549) that the courts have actually accepted that the section does not
prohibit release of duties. He says that if it were correct that s 205 of the English 1948 Act, on its true
construction, nullified exemptions from the scope of a director's duty as well as exemptions from the
consequences of a breach of his duty, no absolution could be effectually obtained by means of a shareholders'
resolution, because s 205 applies to 'any provision, whether contained in the articles of a company . . . or
otherwise', and these words plainly cover such a resolution. That absolution can be obtained in advance is, he
says, illustrated by Bamford v Bamford [1970] Ch 212 238 [1969] 1 All ER 969 972 (CA). So, Instone's
argument is that, since such absolution is permitted, and since if the argument that directors cannot be
released from their duties under s 205 were correct such a resolution would be hit by s 205, it follows that s
205 cannot prevent articles from waiving duties. But see R Gregory [1983] 99 LQR 194 195-196, who says
that this reasoning: '. . . involves not construing "or otherwise"eiusdem generis with "articles" and "contract" .
. . . In my view the eiusdem generis rule applies, and there is, therefore a line to be drawn between a
shareholders' resolution appointing a director to office on terms excusing him in advance for breach of duty by
denying the existence of duty, and a shareholders' resolution to absolve a director who confesses his sins
actual or contemplated.'
2390 See also Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134n; [1942] 1 All ER 378 (HL); Bamford v
Bamford [1970] Ch 212; [1969] 1 All ER 969 (CA); Winthrop Investments Ltd v Winns [1975] 2 NSWLR 666, in
all of which cases it was accepted that prior release is possible, and no mention was made of the English or
Australian section corresponding to our s 247(1). Steven Turnbull and Vanessa Edwards 'Companies Act 1989:
Directors' and Officers' Liability Insurance' (1990) 134 Solicitors Journal 768 say that it is reasonably clear that
the words in s 310 'of which [the director] may be guilty' refer to future rather than past or accrued liabilities,
'and thus to prohibit only an exemption or indemnity granted in advance of the event'. But it would seem that
the section is concerned with blanket releases, and the mere fact that a release from duty in regard to a
particular transaction is granted 'in advance' does not bring it within the section.
2391 See eg Imperial Mercantile Credit Association v Coleman (1871) 6 Ch 558 568-570; (1873) LR 6 HL 189
202; Costa Rica Railway Co Limited v Forwood [1900] 1 Ch 756; Robinson v Randfontein Estates GM Co
Ltd 1921 AD 168 197-198 215-216 260 265-266.
2392 See eg Gray v New Augarita Porcupine Mines (1952) 3 DLR 1 (PC); Boulting v Association of
Cinematograph Television and Allied Technicians [1963] QB 606 636-638; [1963] 1 All ER 716 729-730
(CA); Hely-Hutchinson v Brayhead[1967] 2 All ER 14; affd [1968] 1 QB 549; [1967] 3 All ER 98 (CA); Novick v
Comair Holdings Ltd 1979 (2) SA 116 (W) 137-140 152-153; Rolled Steel Products Ltd v British Steel
Corporation [1982] Ch 478; [1982] 3 All ER 1057; [1986] Ch 246; [1985] 3 All ER 52 (CA); Australian Growth
Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261 269 SC(SA); Movitex Ltd v Bulfield [1988]
BCLC 104; Joint Receivers and Managers of Niltan Carson Ltd v Hawthorne[1988] BCLC 298; Guinness plc v
Saunders [1990] 2 AC 663; [1990] 1 All ER 652 (HL); Woolworths Ltd v Kelly (1991) 4 ACSR 431
CA(NSW); Centofanti v Eekimitor Pty Ltd (1995) 14 ACSR 629 642 SC(SA). And see eg Cowan de Groot
Properties Ltd v Eagle Trust plc [1992] 4 All ER 700 762 ('the ordinary principles of law and equity which,
unless excluded by the relevant articles of association, have the result that, if a director enters into or is
interested in a contract, the contract may be voidable at the instance of the company'); Re Wallace Smith & Co
Ltd [1992] BCLC 970 987 ('[a]s the Boulting case shows, the [conflict of interest and duty] rule is one for the
protection of the person to whom the duty is owed, and that person may relax the rule, and this is not
infrequently done.')
2393 As to the legal status of provisions in the Tables to the Act, see Lock and Trotman v Queensland
Investment & Land Mortgage Co Ltd [1896] AC 461 (HL).
2394 Sections 234-241 make failure to disclose to the board a criminal offence, and art 76 of Table A and art
74 of Table B provide: 'Subject to the provisions of sections 234 and 241, inclusive, of the Act, a director shall
not vote in respect of any contract or proposed contract with the company in which he is interested, or any
matter arising therefrom, and if he does so vote, his vote shall not be counted.' In Transcash SWD (Pty) Ltd v
Smith 1994 (2) SA 295 (C) 306 it was accepted that such an article incorporates the provisions of ss 234-241,
thus permitting disclosure to the board (provided it is made in terms of these sections).
2395 Movitex v Bulfield [1988] BCLC 104. See also Tito v Waddel (No 2) [1977] Ch 106 248-249; [1977] 3 All
ER 129 247-248.
2396 In Movitex v Bulfield [1988] BCLC 104 118-119 Vinelott J rejected this explanation, but did so on the
doubtful assumption that directors are under a duty to participate in all decisions of the board, ie because a
director may not vote on a matter in which he has an interest, a provision permitting a director to disclose to
the board in effect amounts to a waiver of his duty to give the company 'his voice and advice' on all matters
brought before the board. But it would seem that the rule is merely that a director may not, without his
company's consent, act for his company in a matter in which he has an interest, and that he must disclose that
interest to it. In S v Heller 1964 (1) SA 524 (W) 538 Trollip J was concerned with articles in the companies
concerned which enabled a director to contract with the company and which provided that he was not 'liable to
account to the company for any profit . . . realised by any such contract or arrangement by reason only of such
director holding that office or the fiduciary relation thereby established but it is declared that the nature of his
interest must be disclosed by him . . . .' Trollip J said: 'That article does not lessen but entrenches the
director's duty to disclose the fact and extent of his profit for which, at common law, he would be liable to
account to the company because, being material facts, they would be included in "the nature of his interest"
(Robinson's case supra pp 197-8 215 and 260).' But see C D Baker [1975] 'Disclosure of Directors' Interests in
Contracts' JBL 181 and J Birds 'The Permissible Scope of Articles Excluding the Duties of Company Directors'
(1976) 39 MLR 394.
2397 The articles can waive the self-dealing rule, ie permit director to act in a matter in which he has an
interest. See Boulting v Association of Cinematograph Television and Allied Technicians [1963] QB 606 636-
638; [1963] 1 All ER 716 729-730 (CA), where Upjohn LJ said: 'But the person entitled to the benefit of rule
[that no one who has a duty to perform shall place himself in a situation where his interests conflict with his
duty] may relax it. . . . Thus, the company may in its articles of association permit directors to be interested in
contracts with the company. It may go further and articles may validly permit directors to be present at board
meetings and even to vote when proposed contracts in which they are interested are being discussed.' See eg
Table A art 84(2) of the English 1948 Act and art 94 of Table A of the English 1985 Act (permitting an
interested director to act in certain such matters). For articles expressly permitting a director to act, despite
having a conflict of interest: see eg Re Automative & General Industries Ltd [1975] VR 454; Rolled Steel
Products (Holdings) Ltd v British Steel Corp [1986] Ch 246; [1985] 3 All ER 52 (CA); Centofanti v Eekimitor
Pty Ltd (1995) 15 ACSR 629 SC(Qld). And see eg Gundelfinger v African Textile Manufacturers Ltd 1939 AD
314 323; Movitex Ltd v Bulfield [1988] BCLC 104; Neptune (Vehicle Washing Equipment) Ltd v
Fitzgerald [1995] 3 All ER 811 814.
2398 See arts 78 and 84(3) of Table A of the English 1948 Act and art 85(c) of Table A of the English 1985
Act (permitting a director to retain certain incidental profits).
2399 See eg Boulting v Association of Cinematograph Television and Allied Technicians [1963] QB 606 636;
[1963] 1 All ER 716 729 (CA); Movitex v Bulfield [1988] BCLC 104; Jackson v Invicta Plastics Ltd [1987] BCLC
329; Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald [1995] 3 All ER 811.
2400 See Jackson v Invicta Plastics Ltd [1987] BCLC 329 343, where it was pointed that the rule is that
directors may not 'without the consent of the company' place themselves in a position in which their interests
conflict with their duty; and it was held that the company had consented because its articles contained
provisions (i) requiring disclosure of interests to the board, (ii) providing that no contract in which a director
had an interests would be liable to be avoided, (iii) permitting directors to retain profits in certain
circumstances, and (iv) providing that a director was to be counted in the quorum and could vote at any
meeting at which he was appointed to any office under the company. And see Galipienzo v Solution 6 Holdings
Ltd (1998) 28 ACSR 139 144-145 SC(NSW).
2401 See eg Guinness plc v Saunders [1988] 2 All ER 940 (CA); [1990] 2 AC 663 692; [1990] 1 All ER 652
661 (HL).
2402 See Re Bright Pine Mills Pty Ltd [1969] VR 1002 1013; Australian Growth Resources Corporation Pty Ltd
v Van Reesema (1988) 13 ACLR 261 269 SC(SA); Galipienzo v Solution 6 Holdings Ltd (1998) 28 ACSR 139
144-145 SC(NSW).
2403 As Nourse LJ put it in Re Duckwari plc (No 2) [1998] 2 BCLC 315 321 (CA): 'The assets of a company
being vested in the company, the directors are not accurately described as trustees of those assets.'
2404 See eg Re Lands Allotment [1894] 1 Ch 616 631; [1891-94] All ER Rep 10332 1032 (CA); Belmont
Finance Corp v Williams Furniture Ltd (No 2) [1980] 1 All ER 393 405 (CA); Re Duckwari plc (No 2) [1998] 2
BCLC 315 321-332 (CA).
2405 See Re Claridges Patent Asphatle Company Ltd [1921] 1 ChD 543 548, where Astbury J held that s 279
of the English Companies (Consolidation) Act of 1908 (in terms of which a director could be relieved from
liability for 'negligence or breach of trust' - our corresponding section, s 248 of the 1973 Act, also
provides, inter alia, for relief from liability for 'breach of trust'), 'clearly applies to a case of ultra vires, for '[a]ll
applications of a company's money ultra vires the company are in fact breaches of trust on the part of the
directors'. He added that the language of s 279 was 'perfectly wide and general' and he could see 'no reason
for limiting the wide generality of that section to breaches of trust where no question of ultra vires comes in'.
2406 Even in the case of trustees the concept of a 'breach of trust' is not without its uncertainties. Tito v
Waddel (No 2) [1977] 3 All ER 129 246-247 Megarry V-C said that '[o]ne of the more unexpected curiosities' of
the case was that it 'became common ground between counsel that the term "breach of trust" had not been
defined in any case or textbook known to them'. Counsel for the Attorney-General argued that 'any breach of a
duty owed by a trustee as such to his beneficiary was a breach of trust'. Megarry J noted that there is a
substantial body of American authority on this question. He pointed out that two definitions, or descriptions,
are current in the America. The first is that 'every omission or violation by a trustee of duty which equity lays
on him' is a breach of trust. The second formulation is that 'a trustee commits a breach of trust if he violates
any duty which he owes as trustee to the beneficiaries'. Megarry V-C said that the second version seems to be
in substance close to the formulation by counsel of the Attorney-General; the first seems the wider, for unless
some expression such as the phrase 'as trustee' which appears in the second version is implied into the first
version, it seems that a breach by a trustee of some duty which equity imposes on him otherwise than under
the law of trusts would be a breach of trust. Megarry V-C said that he would not, however, pursue the point;
nor would he attempt any comprehensive definition of a breach of trust, for it was not necessary for him 'to
undertake this perilous task'.
2407 In Walsh v Permanent Trustee Australia Ltd (1996) 21 ACSR 213 215 SC(NSW) Brownie J said: 'A
breach of trust is a breach of fiduciary duty, and therefore a "breach of duty": Walker v Wimborne (1976) 137
CLR 1 at 14-15; 3 ACLR 529 at 538-9; it is apt to regard a breach of trust as answering any of the descriptions
"default", "breach of duty" or "misconduct"; and the general words of the statute ought not to be read down so
as to exclude from their reach an action based on breach of trust.'
2408 [1977] 3 All ER 129.
2409 By the 'self-dealing rule' he meant (at 228) the rule that 'if a trustee purchases property from himself,
any beneficiary may have the sale set aside ex debito justitiae, however fair the transaction'.
2410 By the 'fair-dealing rule' he meant (at 228) the rule that 'if a trustee purchases his beneficiary's
beneficial interest, the beneficiary may have the sale set aside unless the trustee can establish the propriety of
the transaction, showing that he had taken no advantage of his position and that the beneficiary was fully
informed and received full value'.
2411 In Tito v Waddel (No 2) [1973] 3 All ER 129 247 Megarry J did say that if a trustee could properly be
said to be 'under a "duty" not to purchase the trust property, and under a "duty" not to purchase a
beneficiary's interest in the trust property without making proper disclosure, and so on', then 'there is much
logical force in the contention that a breach of these duties is a breach of trust within the Limitation Act 1939,
s 19(2)'.
2412 [1986] 1 WLR 985 991 (PC).
2413 'Indemnity' also has two meanings. First, it means 'security or protection against contingent hurt,
damage or loss' and thus, 'a legal exemption from the penalties or liabilities incurred by any course of action'.
Secondly, it means 'compensation for loss'.
2414 Forve v ASIC (2005) 52 ACSR 1.
2415 s 137(1).
2416 See Ross Cranston 'Limiting Directors' Liability: Ratification, Exemption and Indemnification'
(1992) JBL 197 207 says that, in the absence of the new s 310(3), 'there is a good argument that section 310
would invalidate such an insurance. For a consideration of the arguments in favour of such insurance, see
Vanessa Finch 'Company Directors: Who Cares About Skill and Care?' (1992) 55 MLR 179; Ross Cranston
'Limiting Directors' Liability: Ratification, Exemption and Indemnification' (1992) JBL 197 209.
2417 See Burgoine v London Borough Council v Waltham Forest [1997] 2 BCLC 612.
2418 Ian M Ramsay 'Liability of Directors for Breach of Duty and the Scope of Indemnification and Insurance'
(1986) 5 C&SLJ 129 133. This interpretation is adopted by a number of commentators. See eg J Birds 'The
Permissible Scope of Articles Excluding the Duties of Company Directors' (1976) 39 MLR 394 394-395.
2419 Ian M Ramsay 'Liability of Directors for Breach of Duty and the Scope of Indemnification and Insurance'
(1986) 5 C&SLJ 129 133. Cf Steven Turnbull and Vanessa Edwards 'Companies Act 1989: Directors' and
Officers' Liability Insurance' (1990) 134 Solicitors Journal 768 who list the following as the prohibited
indemnities: '(a) Liability of a director to the company itself (including those arising as a result of derivative
actions brought on behalf of the company by its shareholders). (b) Liabilities of a director for fines arising from
acts committed in relation to the company in breach of penal provisions of the Companies Act and related
legislation. (c) Liabilities of a director to third parties under any provision of the Companies Acts and related
legislation by which personal liability is imposed on the directors. (d) Liabilities of a director to third parties not
falling within paragraph (c) above where the act or omission giving rise to the claim also amounts to
negligence, default etc as against the company. (e) Liabilities incurred by a director (including his own and
third party costs) in defending proceedings (whether civil or criminal) where judgment is not given in his
favour or he is not acquitted, or in connection with any application under . . . s 727 [s 248 of our 1973 Act]
where relief is not granted by the court.' They say that indemnity in respect of the liabilities mentioned
in (a) and (b) is prohibited because they clearly include liability 'in relation to the company' and are therefore
within the section. Although (c) and (d) concern liabilities to third parties, 'such liabilities arise out of situations
where the director would incur liability to the company arising out of the same matter and are accordingly
prohibited'.
2420 B 32D-98.
2421 The King Report on Corporate Governance 29 November 1994.
2422 para 20.6. See also para 24.3: 'There should be a provision for additional insurance cover for directors
and officers at the company's expense to cover any conduct on their part which contributed to a failed audit,
save gross negligence or recklessness'.
2423 para 24.7.
2424 Nor has it ever been suggested that s 205 of the English 1948 Act prohibited such an insurance. See J
Birds 'Directors' Duties of Care and Liability Insurance' in The Regulation of the British Securities Industry (eg
B A K Rider 1979) Chp 7 p 114 at 119, where he says that it should 'be pointed out that there is nothing in s
205 to prohibit an insurance effected by a company to indemnify it against any damages in case it might suffer
by reason of a director's breach of duty, in other words a type of first party insurance . . . .'
2425 'Officer' includes a director, manager or secretary: s 744.
2426 The same result could have been achieved more brazenly by a provision to the effect that, if a company
insures itself against harm caused to it as a consequence of the wrongdoing of its directors and officers, its
directors and officers shall be exempted from liability.


248 Relief of directors and others by Court in certain cases
(1) If in any proceedings for negligence, default, breach of duty or breach of trust against any director,
officer or auditor of a company it appears to the Court that the person concerned is or may be liable in respect
of the negligence, default, breach of duty or breach of trust, but that he has acted honestly and reasonably,
and that, having regard to all the circumstances of the case, including those connected with his appointment,
he ought fairly to be excused for the negligence, default, breach of duty or breach of trust, the Court may
relieve him, either wholly or partly, from his liability on such terms as the Court may think fit.
(2) Any such director, officer or auditor who has reason to apprehend that any claim
will be made against him in respect of any negligence, default, breach of duty or breach
of trust, may apply to the Court for relief, and the Court shall on any such application
have the same powers to grant relief as are by subsection (1) conferred upon it with
reference to proceedings referred to in that subsection.
Notes
These provisions are designed 2427 to protect honest directors, officers and auditors, and
ought not to be construed in a narrow sense, 2428 and for this reason it has been held
that the
RS 8, 2011 ch8-p363
court may grant relief from liability for damages for breach of contract. 2429 They do not,
however, empower the court to grant relief to a director or other officer against a claim
by a third party such as a creditor of the company; the only relief that can be obtained
being relief from liability to the company itself 2430 and from criminal liability. 2431 Nor do
they empower the court to relieve a director from liability for debts of the company
imposed on him in terms of s 424. 2432
RS 8, 2011 ch8-p364
The word 'default' is to be construed as a failure to conduct himself properly as a
director, officer or auditor of the company in discharge of his obligations pursuant to the
provisions of the Companies Act. 2433That is to say, it is 'failure to act or perform
adequately' and contemplates 'an omission or failure to do something, or to fall short in
the performance of something required in law'. 2434 In Re Claridge's Patent Asphalte Co
Ltd2435 it was held that all applications of a company's money ultra vires the company
are breaches of trust 2436 on the part of the directors. The legal bases of liability referred
to overlap. 'Conduct (whether by commission or omission) which amounts to negligence
could also, depending upon the circumstances, fall within the description of default,
breach of trust or breach of duty', and if default has a meaning which extends beyond
omission, then there is a default in failing to comply with the obligation to exercise
reasonable care. 2437 And of course, a breach of trust is a breach of duty.
In England, where the corresponding provision 2438 contains the words 'if it appears to
the court hearing the case', it has been held that the court that hears the matter is the
only court with jurisdiction to grant relief in respect of proceedings already
commenced. 2439
There are three requirements for relief, namely, that the person concerned (a) acted
honestly, (b) acted reasonably, and (c) ought fairly to be excused. 2440 The requirement
that the director or officer should have acted honestly means that the court is not
empowered to relieve such a person from any liability resulting from fraudulent conduct
on his part. 2441 Whether the person concerned acted honestly or not must to some
extent depend upon the way in which matters have been handled by the company in the
past. 2442 The requirement that the director or officer must have acted reasonably gives
rise to difficulty where liability arises from negligence. 2443 The fact that a director was
paid for his services
RS 6, 2009 ch8-p365
has been taken into account in determining whether or not he acted reasonably. 2444 The
court has also taken into consideration the fact that the person concerned acted
on, 2445 or failed to obtain, 2446 legal advice. Directors have been held to have acted
unreasonably where they acted blindly or without consideration at the behest of a
majority shareholder without regard to minority shareholders; 2447 and where they acted
with gross negligence. 2448 It has been suggested that the legislature may have intended
that the court's readiness to find that a director or other officer who has been guilty of
negligence has nevertheless acted reasonably, should vary inversely to the degree of
negligence proved. 2449 Where the director had not acted dishonestly, but the
transaction (a contravention of s 322(3)(b) of the English 1985 Act) was detrimental to
the company, being one-sided in the sense that the director was to profit but not to bear
a share of the loss, it was held that it could not be said that he had acted reasonably or
that he ought fairly to be excused. 2450 Even where it is accepted that the person
concerned acted honestly and reasonably, a mere technical defect may nevertheless, in
the circumstances, be such that he ought not fairly to be excused. 2451
In PNC Telecom plc v Thomas and others, 2452 the court found on the facts that
although there was no proof of fraud the director had placed himself in a position of a
conflict of interest and duty. He was consequently in breach of his fiduciary duty to the
company. He had failed to act reasonably, that is to say, applying the dictum of Buckley
J In Re Duomatic, 2453 he had failed to act 'in the way in which a man of affairs with
reasonable care and circumspection could reasonably be expected to act in such a case'.
The court accepted that s 727(1) of the Companies Act, 1985 contemplated that a
person could have acted reasonably even though ie s/he has been negligent. 2454
As to the words 'all the circumstances of the case', 'the case' directs attention 'to the
way in which the default or breach has occurred'. 2455
It has been held that the court will not exercise its jurisdiction without clear evidence
concerning the opinions of the persons concerned. 2456 The court may, however, exercise
its jurisdiction even though the shareholders oppose the application; for the opinion of
the shareholders is only one of the circumstances which the court has to take into
account. 2457
RS 6, 2009 ch8-p366
Under the above provisions persons have been relieved of liability for penalties
resulting from their failure to obtain their share qualification, 2458 of liability arising from
an ultra vires transaction, 2459 and of liability arising from their failure to obtain approval
of the general meeting concerning the determination of their
remuneration. 2460 However, the court will be reluctant to relieve a director from liability
to repay money from which he has received a benefit. 2461 Where a company claimed
money paid to a director as remuneration for services he had rendered in terms of an
unauthorised contract, the court declined to give the director relief from liability, both
because the company's claim was for the recovery of money, and because an order
permitting him to retain the money would entitle him to retain the remuneration without
the authority of the board and, hence, would be contrary to the company's articles. 2462
As to the court's power to grant relief 'either wholly or partly', see Re D'Jan of London
Ltd Copp v D'Jan, 2463 where it was held that the director concerned should be liable to
compensate the company for an amount not exceeding any unpaid dividends to which he
would otherwise be entitled as an unsecured creditor in the liquidation of the company.
His negligence, although it could not be excused, was not gross, had occurred when the
company was solvent and prosperous so that he was the only person at risk, and was
the kind of thing that could happen to any busy man.


2427 The origin of this provision is to be found a recommendation of the Company Law Amendment
Committee (Reid Committee Report) 1906 (UK). In par 24 the Committee warned that provisions of the
Companies Act should not be used as engines of oppression for honest and prudent men. It stated that while it
would not be either safe or wise to diminish the obligations imposed by the Act, 'we think that it would be both
safe and wise to make some amendment in the law which shall prevent such penal provisions from operating
unfairly'. The Committee recommended that the power be given to the court to relieve any director, or
promoter, from liability for breach of duty imposed on him by the Act 'provided that the breach has been
occasioned by honest oversight, inadvertence, error of judgment on his part, and in an action for negligence or
breach of trust against a director to relieve him from his liability on such terms as the court may consider
proper if the court is satisfied that he acted honestly and reasonably. The Committee drew attention to the fact
that an analogous power had been given to the court in the case of trustees by s 3(1)(a) of the Judicial
Trustees Act 1896. Following upon the Report s 32 of the Companies Act 1907 was enacted. See AWA Ltd v
Daniels (1992) 7 ACSR 759 855 SC(NSW). And see J S Fourie 'Enkele Historiese Perspektiewe op die
Vertrouenspligte van Direkteure en Artikel 248 van die Maatskappywet' (1991) 2 Stell LR 339. See also R
Edmunds & J Lowry 'The Continuing Value of Relief for Directors' Breach of Duty' (2003) MLR Vol 66 195 where
in reviewing the position in the UK the authors argue that the underlying rationale for this type of provision
would be better met if the test for relief was based solely upon the court's determination of fairness.
2428 Re Claridge's Patent Asphalte Co Ltd [1921] 1 Ch 543 548; AWA Ltd v Daniels (1992) 7 ACSR 759 855
SC(NSW).
2429 AWA Ltd v Daniels (1992) 7 ACSR 759 855 SC(NSW).
2430 Customs and Excise Commissioners v Hedon Alpha Ltd [1981] 2 All ER 697 (CA); Ex parte Lebowa
Development Corporation Ltd 1989 (3) SA 71 (T) 107; Re Duckwari plc (No 2) [1998] 2 BCLC 315 325 (CA).
In Customs and Excise Commissioners v Hedon Alpha Ltd [1981] 2 All ER 697 (CA) Stephenson LJ (at 824)
held that s 448 of the Companies Act 1948 'is inapplicable to any claim by third parties to enforce any liability
except a director's liability to his company or his director's duties under the Companies Acts. Wide and general
though the opening words of s 448 are, read in their context they do not allow an officer or auditor of a
company to claim relief in "any" legal proceedings which may be brought against him in his capacity as an
officer or auditor of a company by the rest of the world'. And see Ackner LJ's judgment at 826. But see Lawson
v Mitchell [1975] VR 579 594-595, where Kaye J held that, while 'negligence and breach of trust are
constituted by factual situations which do not necessarily fall within the circumstances of the contravention or
failure to comply with a statutory provision', the words 'default' and 'breach of duty' refer to the performance
or omission to perform some act required or forbidden by the statute, and (at 599) that the introduction of
those words into the section 'made the section applicable to those provisions in the Act imposing liability on
persons to pay compensation to persons who had suffered loss, in consequence of an irregular allotment of
shares or a false prospectus'.
2431 Customs and Excise Commissioners v Hedon Alpha Ltd [1981] 2 All ER 697 (at 826) (CA) Ackner LJ
said: '[T]he true ambit of s 448 [of the English 1948 Act], with one limited exception, is restricted to claims by
or on behalf of the company or its liquidator against the officer or auditor for their personal breaches of duty.
The only exception relates to the criminal process for the enforcement of certain specific duties imposed by the
1948 Act on the company's officers . . . .' See however Lawson v Mitchell [1975] VR 579.
2432 Even if it were accepted that a director on whom liability in terms of s 424 is imposed has acted in
breach of a 'duty' (see Re Produce Marketing Consortium Ltd [1989] 3 All ER 1, but see Commonwealth Bank
of Australia v Friedrich(1991) 5 ACSR 115 SC(Vic) and consideration of this question in Standard Chartered
Bank off Australia Ltd v Antico (1995) 131 ALR 116-117 SC(NSW)), it would not be possible for the court to
hold that a director who is guilty of reckless or fraudulent trading had, nevertheless, acted honestly and
reasonably, and that having regard to all the circumstances of the case, including those connected with his
appointment, ought fairly to be excused for the negligence, default, breach of duty etc. Furthermore, s 424
imposes liability on 'any person' who was knowingly a party to the carrying on of the business of the company.
Such persons need not be directors or officers of the company, and therefore 248 could have a 'capricious'
operation if it were to applied to proceedings under s 424: see Standard Chartered Bank off Australia Ltd v
Antico supra 117. And, since the provisions of s 248 do not apply to a claim by a third party, presumably it
cannot apply where a member or creditor of a company brings proceedings under s 424 in the case of a
company that is not in liquidation. Finally, in granting relief under s 424 the court exercises its discretion. It
would seem unlikely that the legislature intended that the court under s 248 should have a discretion to
interfere with the exercise of its statutory discretion by another court under s 424. See Re Produce Marketing
Consortium Ltd supra, where it was said that relief from liability in terms of s 214 of the English Insolvency Act
1986 (wrongful trading) could not be granted under s 727 of the English Companies Act 1985. And see Re
Duckwari plc (No 2) [1998] 2 BCLC 315 325 (CA). See also Commonwealth Bank of Australia v Friedrich
supra; Standard Chartered Bank off Australia Ltd v Antico supra.
2433 Customs and Excise Commissioners v Hedon Alpha Ltd [1981] 2 All ER 697 703 704 (CA); Re Duckwari
plc (No 2) [1998] 2 BCLC 315 325 (CA).
2434 Gamble v Hoffman (1997) 24 ACSR 369 381 (Fed C of A).
2435 [1921] 1 Ch 543 548. See also Re Sharpe [1892] 1 Ch 154 167 (CA).
2436 On the question of what constitutes a breach of trust, see notes on s 247.
2437 per Carr J in Gamble v Hoffman (1997) 24 ACSR 369 381-382 (Fed C of A).
2438 s 448(1) of the 1948 Act, s 727 of the 1985 Act.
2439 Re Gilt Edge Safety Glass Ltd [1940] Ch 495; [1940] 2 All ER 237.
2440 National Trustees Co of Australia v General Finance Co of Australasia [1905] AC 373 (PC); Niagara Ltd v
Langermann 1913 WLD 188 201-202; Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 2 All ER
1073 1155; Re Duomatic Ltd [1969] 2 Ch 365; [1969] 1 All ER 161.
2441 Ex parte Lebowa Development Corporation Ltd 1989 (3) SA 71 (T) 107.
2442 Re Duomatic Ltd [1969] 2 Ch 365; 1969 1 All ER 161. In Re J Franklin & Son Ltd [1937] 4 All ER 43 47
it was said by way of an obiter dictum that 'honestly' in this section means 'without direct motive', and that
where directors act recklessly, but without considering the interests of the company, they may be said to have
acted dishonestly.
2443 In Ex parte Lebowa Development Corporation Ltd 1989 (3) SA 71 (T) 108 Stegmann J observed: 'The
provision . . . envisages a situation in which a director's act or omission may be found to be both "negligent"
and "reasonable" at one and the same time. Since an act (or omission) is only "negligent" if it is something
which would not have been done (or left undone) by a reasonable man acting reasonably, there is some
uncertainty as to what the Legislature can have had in mind when it empowered the Court to relieve a director
from liability to the company for his negligence, provided that he acted "reasonably". The concept of
"reasonable negligence" appears on the face of it to be self-contradictory.'
2444 National Trustees Co of Australia v General Finance Co of Australasia [1905] AC 373 (PC).
2445 Re Claridge's Patent Asphalte Co Ltd [1921] 1 Ch 543; cf National Trustees Co of Australia v General
Finance Co of Australasia [1905] AC 373 (PC).
2446 Re Duomatic Ltd [1969] 2 Ch 365; [1969] 1 All ER 161.
2447 Selangor United Rubber Estates v Cradock (No 3) [1968] 2 All ER 1073.
2448 Niagara Ltd v Langermann 1913 WLD 188; and see Ex parte Lebowa Development Corporation Ltd 1989
(3) SA 71 (T) 108-109.
2449 Ex parte Lebowa Development Corporation Ltd 1989 (3) SA 71 (T) 108-109, where Stegmann J
suggested that: '[T]he less serious the departure from the standard of the reasonable man, the greater the
readiness of the Court to find reasonableness for the purpose of s 248. In the case of culpa levissima,
reasonableness may be found relatively easily; in the case of culpa levis less easily; and in the case of culpa
lata or gross negligence (such as in Niagara Ltd v Langermann 1913 WLD 188) reasonableness may virtually
never be found.'
2450 Re Duckwari plc (No 2) [1998] 2 BCLC 315 325 (CA).
2451 Re J Franklin & Son Ltd [1937] 4 All ER 43.
2452 [2008] 2 BCLC 95 (ChD).
2453 [1969] 1 All ER 161.
2454 At para 94.
2455 Per Kirby P in Advance Bank of Australia Ltd v FAI Insurances Australia Ltd (1987) 9 NSWLR 464 490;
12 ACLR 118 141 CA(NSW).
2456 Re Barry and Staines Linoleum Ltd [1934] Ch 227 234.
2457 Re Gilt Edge Safety Glass Ltd [1940] Ch 495 502; [1940] 2 All ER 237 241.
2458 Re Barry and Staines Linoleum Ltd [1934] Ch 227; Re Gilt Edge Safety Glass Ltd [1940] Ch 495; [1940]
2 All ER 237.
2459 Re Claridge's Patent Asphalte Co Ltd [1921] Ch 543.
2460 Re Duomatic Ltd [1969] 2 Ch 365; [1969] 1 All ER 161.
2461 Re International Vending Machines Pty Ltd [1962] NSWR 1408; Gamble v Hoffman (1997) 24 ACSR 369
387 (Fed C of A).
2462 Guinness plc v Saunders [1990] 2 AC 633 695; [1990] 1 All ER 652 663 668 (HL). The Court of Appeal
(Guinness plc v Saunders [1988] 2 All ER 940 (CA)) held that, whether or not a director who, in breach of his
fiduciary duty, is wrongfully in possession of the company's property is within the provisions of s 727 of the
English 1985 Act, if the director's claim to be compensated for his services by way of quantum meruit or
equitable compensation were to succeed, he would not need relief under the section; and, if it failed, he would
have failed to disclose any grounds for relief under the section.
2463 [1994] 1 BCLC 561.


249 False statements and evidence
(1) Any person who in any statement, return, report, certificate, financial statement or other document
required by or for the purposes of any provision of this Act makes a statement which is false in any material
particular, knowing it to be false, shall be guilty of an offence.
(2) Any person who on examination on oath or affirmation in terms of this Act or in any affidavit or
deposition in or about any matter arising under this Act wilfully gives false evidence, shall be guilty of an
offence and liable on conviction to the penalties prescribed by law for perjury.
Notes
The penalty for the offence in s 249(1) is a fine or imprisonment for a period not
exceeding one year, or both the fine and imprisonment. 2464 As to examinations on oath,
see ss 415, 417 and 498.
RS 1, 2004 ch8-p367


2464 s 441(1)(e).


250 Falsification of books and records
(1) Any director or officer of a company or any other person who conceals, destroys, mutilates, falsifies or
makes any false entry in or, with the intent to defraud or deceive, makes any erasure in any book (including
any minute book), register, document, financial record or financial statement of any company, irrespective of
whether it is or has been kept in electronic format, shall, subject to the provisions of subsection (2), be guilty
of an offence.
[Sub-s. (1) substituted by s. 25 of Act 35 of 2001.]
(2) It shall be a defence to any charge under subsection (1) of concealing, mutilating, falsifying or making a
false entry or erasure in any book, register, document, financial record or financial statement to prove that the
accused had no intention either to defraud or to conceal any offence or any conduct which he believed might
constitute an offence or render any person liable to any penalty or civil obligation.
Notes
The penalty for each of the two offences is a fine or imprisonment for a period not
exceeding one year, or both the fine and imprisonment.2465


2465 s 441(1)(e).


251 False statement by directors and others
(1) Every director or officer of a company or accountant employed by or auditor of a company or any other
person employed generally or engaged for any special work or service by the company who makes, circulates
or publishes or concurs in making, circulating or publishing any certificate, written statement, report or
financial statement in relation to any property or affairs of the company which is false in any material
particular, shall, subject to the provisions of subsection (2), be guilty of an offence.
(2) In any prosecution under subsection (1) it shall be a defence to prove that the person charged had,
after reasonable investigation, reasonable grounds to believe and did believe that the certificate, written
statement, report or financial statement was true, and that there was no omission to state any material fact
necessary to make the statement as drafted not misleading.
Notes
Although the word 'director' in the winding-up provisions of the Act is usually used in a
special sense to mean or include a person who was a director at the time of the order, in
s 251 'director' is not used in that special sense, and therefore the section does not
apply to a statement made by a director after the winding-up order has terminated his
office.2466 This also holds true in the case of a statement made by an officer of the
company, or accountant employed by or auditor of a company, or any other person
employed generally or engaged for any special work or service by the company.2467
RS 1, 2004 ch8-p368
To 'concur' in this context means being a party to, or at least agreeing beforehand to
the making, circulating or publishing of such documents.2468 Mere approval of the
contents of an already published statement, although it might be described as concurring
in the contents of the document, does not constitute concurring in the publishing of
it.2469
The offence is punishable by a fine or by imprisonment for a period not exceeding one
year, or by both the fine and imprisonment.2470


2466 Attorney-General v Blumenthal 1961 (4) SA 313 (T) 318.
2467 See Attorney-General v Blumenthal 1961 (4) 313 SA (T) 318.
2468 R v Milne and Erleigh (7) 1951 (1) SA 791 (A) 858.
2469 R v Milne and Erleigh (7) 1951 (1) SA 791 (A) 859.
2470 s 441(1)(e).