In Msibithi Investments Pty Ltd and others v African Legend Investment Pty Ltd and others 2025, the Supreme Court of Appeal (SCA) considered directors' fiduciary duties against the backdrop of a governance dispute involving shareholders, directors and affiliates of African Legend Investments Proprietary Limited (ALI) and various commercial transactions concluded between ALI, affiliated entities, including Off the Shelf Investments 56 (RF) Proprietary Limited (OTS56), (of which ALI is the ultimate holding company) and third parties.
The dispute centred on the validity of a board resolution in terms of which ALI approved the subscription for shares in ALI by the Astron Energy Employee Participation Plan Trust (Astron Trust). One of the shareholders of ALI, who at the time the resolution was approved, was also a director and the erstwhile executive chairperson of ALI (having been removed as chairperson a few days prior) (Director), was aggrieved by the decision to issue shares to Astron Trust and contended that it was not taken for a proper purpose and was aimed at diluting his shareholding in ALI to facilitate his removal from the ALI board (given the reduced voting rights that he and certain other ALI shareholders would hold following the subscription). After Astron Trust's subscription for shares in ALI, the Director was indeed removed from the board by a decision of the shareholders. Separately, other parties to the dispute sought an order declaring the Director delinquent, based on allegations of misconduct.
In considering the validity of the board resolution, the court considered section 76(3) of the Companies Act, which requires directors to exercise their powers and perform their functions in good faith and for a proper purpose. The SCA recognised the difficulties in delineating decisions made for proper purposes from improper ones, particularly in circumstances where multiple purposes are at work. The court noted that, in practice, board decisions often serve more than one purpose, the consequences of which may be adverse to some interested parties.
The SCA held that the lodestone for assessing whether directors have acted for a proper purpose is their bona fide belief that they have acted in the best interests of the company even if, as a result, it is to the detriment of others. The court further held that a subsidiary purpose, which, if taken alone, is not a proper one, should not disqualify a dominant purpose which is in the interests of the company and is a proper one. Ultimately the court held that the board's dominant purpose in approving the subscription for shares was to raise capital to be utilised in connection with the commercial objectives of ALI and OTS56 and that while this diluted existing shareholders' voting power in ALI, the purpose of approving the subscription for shares was not to facilitate the ultimate removal of the Director from the ALI board.
The court also considered the Director's conduct in the context of the various commercial transactions that gave rise to the matter in relation to both ALI and OTS56 (both of which he had been appointed to the boards of) and held that he wilfully misrepresented certain legal advice related to these transactions, had caused the breach and delay of contractual undertakings of OTS56 (including by frustrating the fulfilment of certain suspensive conditions contained in transaction documents), misrepresented his position as chairperson of ALI after he had already been removed from that office and had reneged on his own undertakings to OTS56. Ultimately, the SCA concluded that the Director had acted in a manner amounting to gross negligence, wilful misconduct and breach of trust in relation to the performance of his duties. The court accordingly declared him delinquent for a period of seven years in terms of section 162 of the Companies Act, which provides the mechanism for courts to make such declarations.
In another recent judgment dealing with directors' fiduciary duties and declarations of delinquency, Pillay v Stokes and Others 2025, the South Gauteng High Court reiterated the protective purpose of section 162 of the Companies Act. The provision is designed to ensure that investors are protected against directors who engage in serious misconduct, ie conduct that breaches the bond of trust shareholders place in those they appoint to the board.
In this matter, the court considered the conduct of two directors and declared both delinquent for falling short of the standard expected of directors, including for wilful misconduct, breach of trust and gross abuse of their position. This determination was on the basis that the directors failed to hold annual general meetings of the company concerned in breach of the Companies Act and the company's memorandum of incorporation, failed to procure the finalisation of annual financial statements in respect of the company in contravention of the Companies Act, refused to provide shareholders with access to certain company information to which they were entitled, failed to ensure that the company complied with its contractual obligations and failed to conduct the requisite due diligence in respect of anticipated company investments.
These cases serve as a useful reminder of the scope of directors' duties and offer practical insight as to the requirements of this office.
