Smuts v Kromelboog Conservation Services (Pty) Ltd and Another

Dr Boudewyn Homburg De Vries Smuts was the sole director of Kromelboog Conservation Services (Pty) Ltd, a livestock farming company wholly owned by the Tamarisk Trust, from 2015 until his removal on 7 July 2021. He was also a trustee of the non-profit Landmark Foundation Trust, which conducted the Shepherding Back Biodiversity Project on farms leased by Kromelboog from Tamarisk. Kromelboog traded at a substantial loss, funded by shareholder loans from Tamarisk exceeding R27 million. Following a dispute over an alleged 2013 joint venture agreement and funding, Dr Smuts’s relationship with Tamarisk deteriorated. Minutes before a shareholders’ meeting convened on 7 July 2021 to remove him, he instructed the transfer of R367 071.42 from Kromelboog’s bank account to Landmark. After his removal, he caused Kromelboog’s account to be frozen, caused the company to pay approximately R241 136 in legal fees relating to his removal and Landmark’s litigation, authorized a R108 000 donation to Landmark without shareholder approval, invoiced Kromelboog over R160 000 for personal consultancy fees (including preparation for his removal meeting) without a special resolution, requested vehicle registration documents from Kromelboog for Landmark’s benefit, and encouraged employees to leave Kromelboog for Landmark or a newly incorporated entity, Shepherding Back Co. Kromelboog applied to the Western Cape High Court for a declaration of delinquency under s 162(5)(c) of the Companies Act 71 of 2008. The High Court granted the order, and Dr Smuts appealed to the Supreme Court of Appeal.

• Whether the appellant’s conduct justified a declaration of delinquency under s 162(5)(c) of the Companies Act 71 of 2008
• Whether the High Court erred in making factual findings on disputed evidence in motion proceedings
• Whether the appellant’s reliance on a joint venture agreement and legal advice excused breaches of ss 75 and 76 of the Companies Act
• Whether a holistic or piecemeal approach should be adopted when assessing multiple complaints of director misconduct
• Whether s 75(2) exempted the appellant from the shareholder approval requirements of s 75(3) for transactions involving personal financial interest

The appeal is dismissed with costs, including the costs of two counsel, where so employed. The order of the Western Cape High Court declaring the appellant a delinquent director in terms of s 162(5) of the Companies Act 71 of 2008 is upheld.

Under s 162(5)(c) of the Companies Act 71 of 2008, a court mustdeclare a person a delinquent director upon proof of gross abuse of the position of director, intentional or grossly negligent infliction of harm on the company, or gross negligence, wilful misconduct or breach of trust; the court has no discretion once such serious (non-trivial) misconduct is established. In assessing whether such conduct exists, a court must adopt a holistic rather than a piecemeal approach. A sole director who does not hold all beneficial interests in a company may not approve or enter into transactions in which he or she has a personal financial interest without the approval of an ordinary resolution of shareholders after full disclosure under s 75(3), and cannot rely on s 75(2) (removal proposals) or on external agreements to circumvent this requirement.

The court observed that the term ‘egregious misconduct’ under s 162(5)(c) does not admit of degrees; conduct is either trivial or sufficiently serious to trigger a mandatory delinquency order. It further remarked that a director’s reliance on incorrect professional advice will not excuse a breach of fiduciary duty where the director was in a conflicted position and failed to comply with the statutory requirement of shareholder approval. The court also noted that the High Court had erred in assessing certain individual complaints, such as the request for vehicle registration documents, in isolation rather than as part of a broader pattern of conduct demonstrating an attempt to usurp the company’s business.

The judgment reinforces that a declaration of delinquency under s 162(5) is mandatory once serious misconduct is established, and that courts have no discretion to decline the order. It affirms the need for a holistic assessment of director misconduct and underscores the strict fiduciary and statutory duties owed by directors under the Companies Act, particularly regarding conflicts of interest and related-party transactions. It clarifies that a sole director cannot rely on external joint venture agreements or alleged legal advice to bypass shareholder approval requirements under s 75(3), and that s 75(2) does not permit a director facing removal to incur expenses or conclude agreements for personal benefit without compliance with s 75. The decision serves as a strong deterrent against directors treating companies as personal vehicles and promotes rigorous standards of corporate governance.