INTRODUCTION
As a law firm that regularly advises on corporate governance, we have seen firsthand how companies grapple with the interpretation of section 71 of the Act. This issue recently came under reconsideration in the Western Cape High Court judgment of Weir v Wiehahn Formwork Solutions (Pty) Ltd and Others (“Weir“). This judgment resolved the uncertainty created by conflicting decisions in Pretorius and Another v Timcke and Others (“Pretorius“) and Miller v Natmed Defence (Pty) Ltd (“Miller“). By deferring to Miller, the court in Weir confirmed that shareholders are not obligated to provide reasons when removing a director.
In terms of section 71(1) of the Act, a director may be removed by an ordinary resolution of the shareholders. The Act does not specify any grounds under which the shareholders may rely on in order to remove a director. Importantly, the ability of shareholders to remove a director applies irrespective of a provision to the contrary contained in the company’s Memorandum of Incorporation, an agreement between a company and a director, or even an agreement between any shareholders and a director.
It is important to note the procedural requirements contained in section 71(2) of the Act regarding the passing of the resolution at the shareholders’ meeting. Section 71(2) of the Act provides that notice of the meeting at which the proposed resolution to remove a director is to be voted must be given to the director whose removal is sought. Thereafter, the director concerned must be afforded an opportunity to make representations (in person or through a representative) to the general meeting before a decision on the removal is made. Shareholders are not required to provide the director with a statement setting out the reasons for the resolution to remove him or her.
CASE LAWS
On a plain reading of section 71, there is no provision requiring shareholders to provide reasons for removing a director. However, judicial interpretations of this provision have not always been consistent.
In Pretorius, the Western Cape High Court controversially and with respect, erroneously held that removing a director under section 71(1) is invalid unless the director is provided with reasons for the removal. This holding, with respect, ignored the plain reading of the legislative text and risked paralysing corporate governance. The court based its reasoning on the common law audi alteram partem (hear the other side) principle, effectively reading in an additional requirement that is not explicitly stated in the Act. This decision introduced uncertainty by suggesting that directors must receive reasons before removal, despite the Act’s silence on this point.
Subsequently, the Gauteng High Court, in the case of Miller, declined to follow Pretorius, essentially sending a message that corporate efficiency is not going to be held hostage by procedural technicalities, and further held that the court in Pretorius “impermissibly resorted to the remedy of reading in circumstances where the Companies Act is clear and the reading in not warranted”. The court held that,
according to sections 71(1) and 71(2) of the Act, shareholders are not required to give reasons for removing a director. The court emphasised that the law allows majority shareholders to remove a director they no longer support without having to provide reasons. The Miller ruling reaffirmed that the shareholders’ power to remove directors is an ownership right, distinct from the board’s fiduciary obligations.
Since neither decision was appealed, Pretorius remained binding in the Western Cape, while Miller was binding in Gauteng, resulting in conflicting legal positions across jurisdictions.
PROVINCIAL SPLIT RESOLVED
The recent Western Cape High Court case of Weir has now settled this jurisprudential conflict, affirming that section 71 (1) imposes no pre-removal procedural straitjacket beyond the statute’s plain reading. The applicant relied upon the decision in Pretorius in which the additional requirement of reasons was read into section 71(2)(b) of the Act. The court, however, held this to be incorrect. Instead, the court in Weir agreed with the decision in Miller, which held that the intention of the legislature is clear that reasons are only required when directors are removed by the board of directors, and this requirement cannot be read into section 71(2)(b) of the Act.
The court highlighted the logic behind the heavier burden placed on the board of directors removing a director, compared to the lighter burden placed on shareholders. Whereas shareholders exercise their ownership rights and ultimate control over the company, directors do so under the auspices of their fiduciary duties towards the company, where directors must act in good faith and in the best interests of the company. Moreover, as the board of directors can only remove directors on specific grounds, it is thus sensible that reasons for removal are provided as explicitly mandated by section 71(4)(a) of the Act.
The Weir ruling affirms that shareholders have the discretion to remove directors without providing reasons. This enhances flexibility for shareholders who may wish to remove a director for strategic, financial, or governance reasons without the burden of justification. Directors can no longer rely on Pretorius to challenge their removal on the basis that no reasons were provided by shareholders. However, they still have the right to make representations at the shareholders’ meeting, allowing them to defend their position before a final vote is taken.
CONCLUSION
The Weir judgment provides much-needed clarity on the longstanding debate over whether shareholders must provide reasons when removing a director under section 71 of the Act. By reaffirming the distinction between shareholder-led and board-led removals, the court confirmed that shareholders are not legally required to justify their decisions. This aligns with the fundamental principle that shareholders have broad discretion in appointing and removing directors, whereas boards must act within stricter fiduciary constraints. The decision in Weir reinforces the importance of adhering to the express wording of the Act rather than reading in additional requirements not provided for by the legislature.