The Companies Act 71 of 2008 (“Companies Act”) contains a mechanism whereby directors can take
action to protect the interests of the company in situations where a director or directors do not act
in the interest of the Company. Section 162 of the Companies Act allows for a director to be
declared delinquent by an application to court. Following an application to court, if there is sufficient
evidence of one of the following circumstances, the court will declare the director to be delinquent:

• If the director consented to serve as a director while he or she was ineligible to do so. For
  example, if the director was an unrehabilitated insolvent or if he or she has been convicted
  of certain crimes such as theft or fraud;
• If a director has grossly abused the position of a director;
• If a director took personal advantage of inside information or opportunities;
• If a director intentionally or by way of gross negligence inflicted harm upon the company;
• if a director committed any act which amounts to gross negligence, wilful misconduct or
  breach of trust in relation to the director’s functions or duties.

Case law has also provided guidelines as to what would constitute directorial delinquency. In the
matter of Kukama v Lobelo and Others, it was held that a failure to refund SARS is sufficient to
render a director delinquent. In Gihwala and Others v Grancy Property Ltd and Others the court held
that the misuse of the company to reap personal financial benefits, a breached investment
agreement or incomplete and inaccurate audited financial statements are further grounds for such
delinquency. In Lewis Group Limited v Woollam and Others, the court held though that ordinary,
poor decision making by a director is not enough to warrant delinquency. In Hacker v Hartmann and
Others the court accepted that gross misconduct on the part of a director who is in a fiduciary
position to the company constitutes delinquency.

Should the court find grounds for delinquency the court can declare a director delinquent, which
order, depending on the grounds for delinquency, could subsist for the lifetime of the delinquent
director. The delinquent director will also be disqualified from being a director of the company.
Through this mechanism, the Companies Act provides a way to ensure that directors remain
accountable to the company, shareholders, fellow directors and employees.