“Irregular”, “wilful misconduct” and “recklessness” were just some of the recurring terms used in the judgment handed down by Honourable Judge Ronel Tolmay of the North Gauteng High Court in Pretoria recently (27 May 2020) following an application launched against the former non-executive chairperson of South African Airways (“SAA”), Dudu Myeni.
The Organization Undoing Tax Abuse (“OUTA”) and the South African Airways Pilots’ Association (“SAAPA”) as the plaintiffs, sought an order declaring Dudu Myeni to be a delinquent director in terms of section 162(5) of the Companies Act 71 of 2008 (“the Companies Act”).
The relevant section in the Companies Act regarding an application to declare a director delinquent states in unmistakable terms that a Court must make an order declaring a person to be a delinquent director if the person, while a director –
- grossly abused the position of director;
- took personal advantage of information or an opportunity, contrary to section 76(2)(a);
- intentionally, or by gross negligence, inflicted harm upon the company or a subsidiary of the company, contrary to section 76(2)(a);
- acted in a manner –
(aa) that amounted to gross negligence, wilful misconduct or breach of trust in relation to the performance of the director’s functions within, and duties to, the company; or
(bb) contemplated in section 77(3)(a), (b) or (c);
The word ‘must’ as used in the abovementioned section has the effect that once a Court has established any of the above conduct, a declaration of delinquency ought to be granted – the Court therefore cannot exercise its discretion in this regard. The Court can only do so when it comes to the conditions that will be attached to such an order as well as its duration.
The Court’s judgment shed light on two deals that Dudu Myeni stalled the finalization of during her tenure at SSA, to the detriment of not only SAA but the country as a whole, that is, the Emirates Deal and the Airbus deal.
The Emirates deal would offer SAA an annual minimum revenue guarantee of approximately R1.5 billion per annum but was never concluded. This guaranteed revenue not only had the potential to return SAA to its good standing but could have also saved employees from retrenchment. In this particular instance Dudu Myeni was found to have breached her fiduciary duty “to act in good faith, for a proper purpose, and in the best interests of SAA” as she did not have any reasonable grounds to block the signing of the memorandum of understanding on which the entire deal relied upon. The Court also held that Dudu Myeni, due to her recklessness, sabotaged the deal to the detriment of the airline as well as the people of South Africa.
The second deal concerning airline manufacturer – Airbus, involved an unheard of attempt by a chairperson to (unilaterally) renegotiate a deal that was already approved. This deal was riddled with gross negligence and topped off with a defective section 54 application. The evidence advanced by the plaintiffs clearly indicated Dudu Myeni’s obstruction and delay of this deal and led to the conclusion that she, as chairperson of the board, did not show any concern for the catastrophic consequences of her actions.
Section 162(6) of the Companies Act provides that a declaration of delinquency under section 162(5)(c) subsists for a minimum period of seven years or such longer period as determined by the Court. Remarkably, the plaintiffs argued that a lifelong declaration of delinquency was appropriate and the Court concurred.
Despite a lifelong declaration of delinquency, there remains some hope of redemption given that it will always remain open for Dudu Myeni to apply to the Court after three years for the declaration of delinquency to be suspended in terms of subsection 162(11) and (12) of the Companies Act.
This notwithstanding, it is certainly unlikely that she would ever again be appointed to such a position in another company given the reputational damage that comes with such a declaration which is near impossible to shake off.
For more information relating to a director’s duties, and for assistance in having a director declared delinquent, kindly email us on firstname.lastname@example.org
Written by Enhle Mtolo – Candidate Attorney
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