Besso Investments (Pty) Ltd and Others v Capeco Development (Pty) Ltd and Others

The three applicants are shareholders of Capeco, each holding one third of the issued share capital. The second to fourth respondents are Capeco's directors. The ultimate beneficial owners of Capeco are European residents. John Baeyens, whose consulting contract was terminated in June 2023, continued to exercise control over Capeco's business despite having no legal basis to do so. The applicants contend that the third and fourth respondents (local employees and directors) act under Baeyens' improper influence to Capeco's detriment. On 5 August 2024, the applicants delivered a demand under section 61(3) of the Companies Act for the board to convene a shareholders' meeting to consider removing the third and fourth respondents as directors. After protracted correspondence, the respondents refused to call the meeting, arguing they were entitled to receive detailed reasons and grounds for their proposed removal before issuing the notice. The applicants brought an urgent application under section 61(12) for a court order compelling the respondents to convene the meeting.

• What are the requirements for a statutorily compliant notice calling a shareholders' meeting pursuant to a demand under section 61(3) of the Companies Act?
• Are directors who face removal by shareholders entitled to be provided with reasons or grounds for their proposed removal?
• Whether shareholders can unilaterally call a shareholders' meeting themselves under the company's memorandum of incorporation or shareholders' agreement?
• Whether the application was urgent and justified departure from the Uniform Rules?
• What are the formal requirements for resolutions proposing removal of directors under section 65(4) of the Companies Act?
• Whether the audi alteram partem principle applies to removal of directors by shareholders under section 71(1)?

The court granted the application with the following orders: (a) condonation of non-compliance with Uniform Rules and hearing as urgent matter; (b) applicants directed to furnish respondents with resolutions for removal within 5 days; (c) respondents directed to give notice of shareholders' meeting within 5 days of receiving resolutions, to be held within 10 business days thereafter, and to notify the third and fourth respondents of their right to make presentations; (d) costs awarded against third and fourth respondents on scale C including counsel.

When shareholders exercise their statutory right under section 71(1) of the Companies Act to remove directors at a shareholders' meeting, they are not required to provide the affected directors with reasons or grounds for the proposed removal. This is distinguishable from removal by the board under section 71(3)-(4), which expressly requires a statement of reasons. The legislature deliberately preserved the common law position that directors serve at the behest of shareholders who elected them and may be removed without cause. Section 71(2) requires only that affected directors receive notice of the meeting equivalent to shareholders, a copy of the proposed resolution, and a reasonable opportunity to make a presentation before voting—it does not require provision of reasons. Directors facing removal by shareholders are not entitled to invoke the audi alteram partem principle to demand reasons for their removal. The requirements of section 65(4) regarding clarity, specificity and explanatory material apply to enable shareholders to make informed voting decisions, not to inform directors of the case against them.

The court commented that Pretorius v Timcke was incorrectly decided in holding that the constitutional court in Motau established that section 71(2) requires compliance with natural justice rules. The court expressed agreement with the reasoning in Miller v Natmed as correctly stating the legal position. The court noted that while not finally determining all disputes regarding Baeyens' conduct (as separate proceedings were contemplated), the available evidence overwhelmingly supported that his continued involvement was not constructive and that he exercised improper influence over the third and fourth respondents. The court observed that it would be pragmatically undesirable for directors facing removal to be required to draft the resolutions for their own removal, even if there might be debate about who bears this duty. The court expressed willingness to assume (without finally deciding) that shareholders proposing resolutions must draft them, at least in circumstances where directors would otherwise draft resolutions for their own removal. The court commented that the respondents' request for detailed examples of dereliction "smacks of being a stratagem and a delaying tactic."

This judgment clarifies important principles regarding removal of directors under the Companies Act 71 of 2008. It establishes that shareholders removing directors under section 71(1) are not required to provide reasons or grounds for removal, distinguishing this from board removals under section 71(3)-(4) which require detailed reasons. The judgment confirms that directors serve at the pleasure of shareholders who elected them and may be removed without cause. It also clarifies the procedural requirements under section 61(3) for demanding shareholders' meetings and section 62 for notice requirements. The case demonstrates the court's reluctance to allow directors to frustrate legitimate shareholder action through procedural objections. It confirms the proper interpretation of section 65(4) regarding resolution requirements as applicable to shareholders, not directors facing removal. The judgment also provides guidance on urgency requirements in corporate disputes and the limits of shareholders' powers to unilaterally convene meetings.