The Supreme Court of Appeal’s (SCA) decision in Msibithi Investments and Others v African Legend Investment and Others [2025] ZASCA 61 is a clear reminder that the power to declare a director delinquent under section 162 of the Companies Act 71 of 2008 (Companies Act) has real teeth.
The judgment confirms that delinquency is not symbolic. It distils the core of section 162(5)(c)(iv). Egregious breaches of fiduciary duties that are neither technical nor trivial attract sanctions. In this sense, the case marks a decisive moment in the corporate reckoning of directors.
Section 162 as a statutory remedy
Section 162 of the Companies Act provides a crucial remedy where a director breaches fiduciary duties. Importantly, once the requirements are proven, a court has no discretion. It must order a declaration of delinquency.
In terms of section 162(5) of the Companies Act, a court must declare a director delinquent if, among other things, the director acted with gross negligence, wilful misconduct, or breach of trust in performing duties to the company. Accordingly, the provision operates as both a deterrent and a protective mechanism. It reflects the corporate reckoning of directors who fail to meet governance standards.
The dispute
The matter arose from a wide-ranging governance dispute involving African Legend Investments Proprietary Limited (ALI) and its subsidiary, Off the Shelf Investments 56 Proprietary Limited (OTS56).
In this context, the SCA declared Mr Mashudu Ramano (Director) delinquent for seven years. The court acted under section 162(2)(a) of the Companies Act, read with sections 162(5)(c)(iv) and 162(6)(b).
The dispute stemmed from a 2017 Pre-Emption Framework Agreement between OTS56 and Glencore South Africa Proprietary Limited and Glencore Energy UK Limited (collectively, Glencore). The agreement contemplated two interrelated transactions.
Transaction 1 involved OTS56 exercising its right of pre-emption, with funding from Glencore, to acquire shares in Astron Energy and Astron Botswana. Transaction 2 required OTS56 to on-sell those shares to Glencore, subject to specified conditions.
Critically, OTS56 agreed to use its best endeavours to fulfil those conditions. These included Competition Commission approval and shareholder resolutions under section 115 of the Companies Act. OTS56 also undertook to avoid any conduct that could delay or adversely affect satisfaction of those conditions.
ALI shareholders, including the Director, gave irrevocable and unconditional undertakings to Glencore. They agreed not to take any action or make any statement reasonably likely to prejudice the transactions. This included voting in favour of required share issues or repurchases. These undertakings framed the corporate reckoning of directors in this matter.
Delinquency and fiduciary duties
Against this factual matrix, the SCA identified common-cause pillars justifying the Director’s declaration of delinquency.
The court relied on section 162(5)(c)(iv) of the Companies Act. It found gross negligence, wilful misconduct, and breach of trust. Each finding flowed from breaches of fiduciary duties. Together, they illustrate the corporate reckoning of directors who undermine binding commitments.
Misrepresentation to the board
The Director misrepresented facts to the board. He claimed that OTS56’s attorneys believed a letter from Glencore gave OTS56 an entitlement to buy out Glencore before Transaction 2 closed. However, a proper reading of the letter showed otherwise.
Glencore later confirmed that the letter conferred no such option. This conduct constituted a serious breach of fiduciary duty.
Deliberate frustration of binding undertakings
The Director also caused OTS56 to breach the Framework Agreement and the parties’ undertakings. These undertakings required the use of best endeavours to fulfil the agreed conditions and not to obstruct them.
First, he unilaterally “suspended” OTS56’s compliance with the relevant agreements. He did so without board authorisation. As a result, OTS56 defaulted on its obligations.
Second, he delayed and attempted to derail the Competition Commission approval process. He postponed meetings and advanced allegations aimed at persuading the Commission to prohibit the merger. This occurred despite a majority of the OTS56 board confirming support for the merger.
Third, on 30 November 2018, he persuaded ALI shareholders not to pass, and instead to defer, the section 115 resolutions required to close Transaction 2. This delay breached OTS56’s and the shareholders’ undertakings. Each act deepened the corporate reckoning of directors in this case.
Governance defiance
After his removal as ALI chairperson, the Director continued to defy governance processes. He purported to convene a shareholders’ meeting “by order of the Chairman”.
He persisted with this position through legal representatives. This occurred despite clear board communications confirming that no such meeting would take place. In doing so, he breached his fiduciary duties.
Reneging on undertakings
The Director also failed to honour his own undertakings to the OTS56 board. He did not provide written responses to breach letters issued by Glencore. This failure amounted to a further breach of fiduciary duty.
Drawing on Gihwala and Others vs Grancy Property Ltd and Others [2016] ZASCA 35, the SCA held that the Director owed fiduciary duties to OTS56. These duties included ensuring compliance with binding obligations. Wilful obstruction of OTS56’s obligations under a binding agreement constitutes wilful misconduct and a breach of fiduciary duty. This reasoning reinforces the corporate reckoning of directors under South African company law.
The SCA further explained how breaches of fiduciary duties intersect with section 162. Under the common law and sections 75 to 77 of the Companies Act, directors must act in good faith. They must act in the best interests of the company, for a proper purpose, and with care, skill and diligence.
Once a court establishes that a director breached these duties in a manner meeting the threshold in section 162(5), it must declare the director delinquent. The court has no discretion.
Dominant purpose approach
Notably, the SCA also upheld the validity of a board round-robin resolution under section 74 of the Companies Act. The resolution issued ALI shares to the Astron Energy Employee Trust. The purpose was to raise capital for OTS56’s option to acquire shares in Astron Botswana.
The SCA endorsed the dominant purpose approach. Where multiple purposes exist, a decision remains valid if the dominant purpose is proper. In this case, the dominant purpose involved raising capital to position OTS56 to exercise the option.
On rationality under section 76(4)(a)(iii), the directors had a rational basis to believe the decision served ALI’s best interests. No alternative funding was available. Vendor finance for Botswana had also been declined.
In addition, a minority shareholder’s oppression claim under section 163 of the Companies Act failed. Dilution inherent in a bona fide capital raise did not meet the high threshold of unfair prejudice where section 76 was satisfied.
Dissenting judgment
Molemela J dissented. She held that the cross-appeal on delinquency was not appealable. In any event, she considered the matter incapable of resolution on motion due to material disputes of fact.
The dissent highlights that delinquency enquiries are fact-intensive. They often move into trial terrain.
Practical lessons
Despite the dissent, the majority judgment sends a clear message. Directors and companies should bear several practical lessons in mind.
Grounds for delinquency may arise from the following breaches of fiduciary duties:
- Misrepresentation to the board.
- Defiance of governance processes.
- Defiance of binding undertakings given by a director and by the company.
Once a court establishes the grounds in section 162(5), it must declare a director delinquent. This sanction is severe. It serves as both a deterrence and protection for companies.
The judgment also confirms that shareholder dilution does not constitute oppression where decisions are rational and made for a proper purpose. Ultimately, the case reiterates that fiduciary duties are not platitudes. Acting in good faith, with candour, and for a proper purpose is the price of office. This remains the enduring corporate reckoning of directors.
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| Nastascha Harduth | Head | Corporate Debt, Turnaround & Restructuring Sector | mail me | | Gaby Wesson | Associate | Corporate & Commercial Practice | mail me | |
| | Cliffe Dekker Hofmeyr (CDH) | | |
