The statutory foundation of director delinquency

Section 162 of the Companies Act 71 of 2008 provides a potent statutory mechanism to safeguard corporate governance and ensure accountability. It empowers courts to declare a director delinquent where serious misconduct or dereliction of fiduciary duty has been proven.

Once a breach meeting the statutory threshold is established, the court has no discretion. It must issue a delinquency order. Under section 162(5), this occurs where a director acts with gross negligence, wilful misconduct, or in a breach of trust towards the company. The provision thus operates as both a punitive and preventative remedy, preserving public confidence in corporate stewardship.

Background to the dispute

The case at the centre of this discussion involves a prolonged governance fallout at African Legend Investments (Pty) Ltd (ALI) and its subsidiary Off the Shelf Investments 56 (Pty) Ltd (OTS56). The Supreme Court of Appeal (SCA) ultimately declared Mr Mashudu Ramano, a director of both entities, delinquent for seven years in terms of section 162(2)(a), read with sections 162(5)(c)(iv) and 162(6)(b) of the Companies Act.

The conflict arose from a 2017 Pre-Emption Framework Agreement between OTS56 and Glencore South Africa (Pty) Ltd together with Glencore Energy UK Ltd. The arrangement involved two interdependent transactions:

Transaction 1: OTS56, financed by Glencore, would exercise its pre-emptive right to acquire shares in Astron Energy and Astron Botswana; and

Transaction 2: OTS56 would later on-sell those shares to Glencore once certain regulatory and shareholder conditions were met.

A central obligation under the Framework Agreement required OTS56 to use its best endeavours to obtain Competition Commission approval and secure shareholder resolutions in terms of section 115 of the Companies Act. Shareholders, including Mr Ramano, further undertook not to act in any way that could jeopardise completion of these transactions.

Conduct giving rise to delinquency

The SCA found that Mr Ramano had breached his fiduciary obligations and engaged in wilful misconduct warranting a delinquency declaration. The Court’s findings rested on several pillars of undisputed conduct.

Misleading the board

Mr Ramano misrepresented to his board that OTS56’s legal advisors considered a letter from Glencore as granting an option to purchase Glencore’s stake prior to the closing of Transaction 2. In truth, the correspondence conferred no such right, and Glencore subsequently clarified that no option existed.

Obstructing binding commitments

The director acted contrary to his company’s contractual duties by:

• unilaterally “suspending” OTS56’s compliance with the Framework Agreement without board approval;
• delaying and attempting to frustrate the Competition Commission process by lobbying against merger approval; and
• encouraging shareholders to withhold the section 115 resolutions necessary to finalise Transaction 2.

These acts directly breached both his fiduciary duties and the shareholders’ own undertakings to facilitate the deal’s completion.

Defiance of governance authority

After being lawfully removed as ALI’s chairperson, Mr Ramano purported to call a shareholders’ meeting “on behalf of the chairman” and persisted with this claim through legal representatives, despite explicit instructions from the board that no such meeting was authorised.

Failure to honour undertakings

He further failed to supply promised written responses to breach notices issued by Glencore, aggravating the company’s exposure to contractual non-compliance.

Fiduciary duty and statutory intersection

In reaching its decision, the SCA drew on Gihwala and Others v Grancy Property Ltd and Others [2016] ZASCA 35, reaffirming that a director owes a duty to ensure the company honours its binding obligations. Deliberate non-performance or obstruction constitutes wilful misconduct and a breach of trust.

The Court emphasised the alignment between section 162 and the common-law fiduciary duties codified in sections 75 to 77 of the Companies Act, namely, to act in good faith, for a proper purpose, in the best interests of the company, and with care, skill, and diligence. Once it is established that a director’s conduct amounts to gross negligence or wilful misconduct, a delinquency order follows as a matter of law.

The dominant-purpose doctrine

A secondary issue concerned the validity of a round-robin resolution under section 74 of the Act, authorising ALI to issue shares to the Astron Energy Employee Trust to raise capital for OTS56’s intended acquisition of Astron Botswana shares.

The SCA upheld the resolution, applying the “dominant purpose” test: where a board decision serves multiple objectives, it remains valid if its primary aim is legitimate. Raising funds to enable the company’s commercial participation in the transaction was deemed the dominant and proper purpose.

The Court further held that the directors’ decision satisfied the rationality requirement under section 76(4)(a)(iii), as it was based on sound commercial reasoning, no alternative funding existed, and vendor finance had been refused.

A minority oppression claim under section 163 also failed; mere shareholder dilution arising from a bona fide capital raise was not deemed “unfairly prejudicial” when undertaken for legitimate company interests.

The dissent

In a separate opinion, Molemela JA dissented, holding that the cross-appeal on delinquency was not properly before the court, and that disputed factual issues rendered the matter unsuitable for resolution on motion proceedings. The dissent underscores that delinquency proceedings are often fact-intensive, requiring careful evidentiary assessment.

Key takeaways for directors and boards

The majority judgment delivers an unmistakable warning to directors: fiduciary obligations are enforceable with serious personal consequences. The ruling highlights several critical lessons:

• Misleading the board or stakeholders can constitute misconduct warranting delinquency.
• Defying lawful governance structures, or disregarding contractual undertakings made on the company’s behalf, breaches fiduciary trust.

Once the grounds in section 162(5) are proven, courts lack discretion, delinquency is automatic.

A legitimate, rationally founded corporate decision will not amount to oppression merely because it dilutes shareholding.

Ultimately, this decision reinforces that directors’ duties are not abstract ideals; they are binding legal obligations that form the cost of occupying a position of trust. The judgment reaffirms the centrality of integrity, candour, and accountability in the governance of South African companies.