A director of a company may in terms of the Companies Act be declared a delinquent director if certain prescribed criteria are met.
What does this mean? The effect of an order of delinquency is that a person is disqualified from being a director of a company. The rationale of this remedy is that a director who is guilty of serious abuse of his position and infringements of his fiduciary duties should not be allowed to continue to hold a directorship or should only be allowed to continue to do so under strict conditions imposed by a court.
This means that directors of companies must take steps to ensure that they do not open themselves up to the possibility of being declared delinquent, but what constitutes delinquent behaviour? For a director to be considered “delinquent”, the conduct complained of must be of a particularly serious nature, constitute a gross abuse and go beyond negligence.
In terms of relevant legislation, a court in certain instances ‘must’ grant an order of delinquency if the specified criteria are met (a court does not have a discretion whether to grant an order if any of these grounds are established). A court may also order a director to pay compensation to any person adversely affected by such conduct.
Accordingly, it is clear that directors have a far greater responsibility to ensure that they are aware of their obligations and duties, comply and carry out same to the best of their abilities.
