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IN THE HIGH COURT OF SOUTH AFRICA

(WESTERN CAPE DIVISION, CAPE TOWN)

Case No: 15479/14

In the matter between:

JOHANNES JACOBUS PRETORIUS                                                             First Applicant

WILLEM HENDRIK PRETORIUS                                                              Second Applicant

And

STEVEN EDWARD TIMCKE                                                                      First Respondent

QUANDOGLO INVESTMENTS (PTY) LTD                                           Second Respondent

ZUKRASMART (PTY) LTD                                                                        Third Respondent

PB MEAT HOLDINGS (PTY) LTD                                                           Fourth Respondent

 

CORAM: SALIE-HLOPHE, J

HEARD: 11 March 2015

DELIVERED: June 2015

COUNSEL FOR APPLICANT: Adv. W. Vos

COUNSEL FOR 1^st & 4^th RESPONDENTS: Adv. J.H. Loots

 

JUDGMENT DELIVERED ON 02 JUNE 2015

 

SALIE· HLOPHE. J: INTRODUCTION:

[1] In this application the applicant seeks an order declaring that the respondents acted unlawfully when the respondents, as shareholders, resolved to remove the applicants as directors of PB Meat (Pty) Limited ("the company") without following the correct procedure as set out in Section 71(1) and (2) of the Companies Act, Act 71 of 2008 ("the Act") and that the resolutions taken on 13 June 2014 to remove the applicants as directors of the company are invalid and are to be set aside. The application is opposed by the first and fourth respondents, whom contend that they acted lawfully insofar as their actions are concerned to have the applicants removed as directors.

 

FACTUAL BACKGROUND:

[2] The applicants built up a business which they conducted under the style PB Meat, trading as a partnership. The business manufactured a variety of meat products, and they also sold the meat to other meat merchants. Sometime during 2010 Mr. Timcke ("Timcke", the first respondent) approached the applicants with a view of acquiring the applicant's business. They agreed to sell the business to the first respondent and his partners for R24 000 000.00 on certain conditions. A loan agreement between PB Meat (the partnership) and PB Meat (Pty) Limited, was concluded in terms of which the partnership lent R2 000 000.00 to the company. By virtue of the fact that the company acquired the business and had to repay a loan of R2 000 000.00 plus interest to the applicants, it was agreed that the applicants had to remain as directors of the company. The applicants maintain that the loan had not yet been settled, whilst the company alleges that it has a valid counterclaim against the applicants.

[3] On 21 November 2012 the company, represented by Timcke, delivered a letter to the applicants in which notice was given that the board of directors of PB Meat (Pty) Limited intended taking steps to remove the applicants as directors of PB Meat (Pty) Limited. Attached to the letter of 21 November 2012, was the draft resolution of the directors of PB Meat (Pty) Ltd proposing to resolve that the applicants be removed as directors of the company in accordance with the provisions of Section 71(3) of the Companies Act, Act 71 of 2008. A statement of reasons was also attached to the letter, setting out a total of six reasons forming the grounds for the proposed resolution to remove the applicants as directors. After receipt of the. aforesaid documents, the applicants addressed requests to PB Meat (Pty) Ltd to obtain documents to prepare and present their response at the proposed board meeting. The First Respondent and the company refused to furnish the required documents and also refused to accede to a request for a postponement of the meeting. The applicants thus launched an urgent application on 28 January 2013, the result of which was an order by my learned brother, Mr. Justice Yekiso, whereby the meeting was postponed sine dies pending the final determination of the relief sought by the applicants in part B of the notice of motion, which inter alia sought an order that the relevant documents requested by the applicants be made available to them in order to respond to the notice of 21 November 2012. On 14 June 2013 my learned sister, Mrs Justice Cloete, gave judgment in the matter, dismissing the applicants' application in case number 1057/2013. Leave to appeal was granted and the appeal has to date not yet been disposed of. As a consequence thereof, the meeting of the board of directors to remove the applicants as directors has not yet taken place. On 29 May 2014 a notice was served upon the applicants advising that a meeting of shareholders was convened for 13 June 2014, in order to have the applicants dismissed as directors. The applicants, through their attorneys, requested a postponement of the shareholders' meeting, which request was declined. Mr. Steyn, representing the applicants, informed the meeting that the applicants do not know what the reasons are as to why the applicants should be removed as directors; and that in the absence of those reasons, it was impossible to make representations.

[4] During the meeting Timcke indicated that the shareholders are not required to furnish the applicants with any reasons for the intended removal. After some insistence by Steyn, Timcke indicated that the reason was nevertheless that the shareholders did no longer want the applicants to be directors. The meeting proceeded and a decision was taken by the shareholders to remove the applicants as directors. Whilst various submissions were made at the meeting by the legal representatives of the applicants, the resolution dismissing the Applicants ns directors was passed.

 

APPLICABLE LAW:

[5] The proceedings relating to the shareholders' meeting on 13 June 2014 are governed by the relevant provisions of Section 71 of the Act. Sections 71(1) and 71(2) of the Act read as follows:

"71. Removal of Directors

(1)  Despite anything to the contrary in the company's Memorandum of Incorporation of rules, or any agreement between a company and a director. or between any shareholder and a director, a director may be removed by an ordinary resolution adopted at a shareholders. meeting by the persons entitled to exercise voting rights in an election of that director, subject to subsection (2).

(2)  Before a shareholder of a company may consider a resolution contemplated in subsection (1)

(a)  The director concerned must be given notice of the meeting and the resolution, at least equivalent to that which a shareholder is entitled to receive, irrespective of whether or not the director· is a shareholder· of the company: and

(b)  The director must be afforded a reasonable opportunity to make a presentation in person, or through a representative, to the meeting, before the resolution is put to a vote. "

 

ISSUE TO BE DETERMINED:

[6] Whilst subsection (2) of the Act sets out the manner and procedure by which shareholders are to remove directors from office, what exactly does section (b) thereof entail. In other words, what exactly is contemplated when provision is made in the act affording a reasonable opportunity to the affected director to make a presentation in person or through a representative?

[7] In Minister of Defence and Military Veterans v Motau and Others 2014 (5) SA 69 (CC), the Court held that Subsection 71(2) of the Act requires compliance with the rules of natural justice.

 

APPLICATION OF THE FACTS TO THE LAW:

[8] It is evident from the facts that the first respondent wanted to remove the applicants as directors of the company. When an attempt to remove them by way of a meeting of directors in terms of Section 71(3) remained ineffective as a result of ongoing litigation, resort was made to their removal by the shareholders of the company in terms of Section 71(1) of the act Removal of director/s by the board in terms of Section 71(3) need be met with the obligation by the board to give the affected director/s with a notice of the meeting, including a copy of the proposed resolution and a statement setting out the reasons for the resolution, with sufficient specificity to reasonably permit the director to prepare and present a response and a reasonably opportunity to make a presentation. Clearly the yardstick for removal of directors by the shareholding of the company is less onerous. However, in my view, the wording of the relevant section: "....must be afforded a reasonable opportunity to make a presentation ...'' certainly presupposes that the purpose of the provision is not only to ensure that a majority of shareholders assent to a decision to dismiss a director, but also to ensure that those whose interests may materially be affected by the decisions taken are given an opportunity to put forward relevant information and to ensure that the decision-makers are appropriately and adequately informed before taking a serious decision.

[9] Mr. Loots argued that the shareholders, exercised their proprietary rights and procedurally acted in accordance with the provisions of subsection 71(2) of the Act and that the resolutions to remove the applicants as directors must stand. It is further argued that the rules of natural justice as provided for by the said section of the Act had been complied with in the circumstances and that no more is required of the directors. Differently put, he argued that the shareholders need not give a reason to the affected directors, but that in any event, the reason was that the shareholders no longer wanted the applicants to be directors of the company. It is the argument for the respondents (1"' and 4'h) that given the nature of the relationship between shareholders and the directors of the company, that the reason provided is substantively Sufficient.

[10] I respectfully disagree with the argument postulated in support of the opposition of the relief claimed. Whilst the act requires less of the shareholding in removal of a director/s, the affected director/s indeed have a statutory right to be heard before the shareholders vote to adopt a resolution for his/their removal. A reading of the record of the proceedings at the shareholder's meeting illustrates that when the applicants' representatives were informed that the "reason" for their proposed removal was that the shareholding no longer wanted applicants to serve as directors, they were in my view merely advised of their finding or conclusion and indeed not furnished with a reason. The reason/s forming the basis for such finding or conclusion remained unknown. To read into the provision that an affected director can make representations, without being furnished with reasons for his or her intended removal, would render the wording of the provision superfluous and without effect. Its simple interpretation would be that the applicants had to be afforded with reasons in order that they could make representations in respect thereof and meet their case accordingly.

[11] In my view therefore the reason was never given by the shareholders and consequently without such reason being made known, the applicants were not afforded the fundamental right to be heard. By not knowing the reason for their proposed removal, they could not exercise their right to be heard as they undoubtedly did not know on what issue/s to state their case. Rules of natural justice and the fundamental principle of audi alterem partem presupposes the right to place facts and evidence before the decision maker A prelude to the exercise of the right includes the right to obtain information, particulars or documents so as to place the affected person in a position to meet the case that need be answered. The Respondents wanted to avoid this situation from arising again. The argument by Mr. Loots that they nonetheless had an opportunity to make representations, is in my view incorrect as the applicants' representatives would not have known what information to place before the shareholders which would be relevant and apposite to the reason/s for their intended removal.

 

CONCLUSION

[12] I find that the conspectus of evidence arising from the papers are that the respondents meticulously planned and orchestrated the meeting on 13 June 2014 and the subsequent removal of the applicants as directors to achieve an ulterior purpose and that it was not only done in bad faith but also without proper compliance with Section 71 of the Act and thus stands to be set aside for being unlawful.

[13] In the result, I make the following order:

i. The resolutions of the respondents, taken on 13 June 2014 removing the applicants as directors of PB Meat (Pty) Ltd, are invalid and are set aside;

ii. The respondents are ordered to pay the applicants’ costs of suit.

 

 

_____________________

SALIE-HLOPHE, J

JUDGE OF THE HIGH COURT

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