CRS Business Rescue
In-depth analysis of the business rescue provisions contained in Chapter 6 of the Companies Act No. 71 of 2008 and the Companies Amendment Act No. 3 of 2011

Section 162: Application to declare director delinquent or under probation

as amended by section 101 of the Companies Amendment Act No. 3 of 2011

(1) In this section, ''legislation'' means any national or provincial legislation—

(a) relating to the promotion, formation or management of a juristic person;

(b) regulating an industry or sector of an industry; or

(c) imposing obligations on, prohibiting any conduct by, or otherwise regulating the activities of, a juristic person.

(2) A company, a shareholder, director, company secretary or prescribed officer of a company, a registered trade union that represents employees of the company or another representative of the employees of a company may apply to a court for an order declaring a person delinquent or under probation if—

(a) the person is a director of that company or, within the 24 months immediately preceding the application, was a director of that company; and

(b) any of the circumstances contemplated in—

(i) subsection (5)(a) to (c) apply, in the case of an application for a declaration of delinquency; or

(ii) subsections (7)(a) and (8) apply, in the case of an application for probation.

(3) The Commission or the Panel may apply to a court for an order declaring a person delinquent or under probation if—

(a) the person is a director of a company or, within the 24 months immediately preceding the application, was a director of a company; and

(b) any of the circumstances contemplated in—

(i) subsection (5) apply, in the case of an application for a declaration of delinquency; or

(ii) subsections (7) and (8) apply, in the case of an application for probation.

(4) Any organ of state responsible for the administration of any legislation may apply to a court for an order declaring a person delinquent if—

(a) the person is a director of a company or, within the 24 months immediately preceding the application, was a director of a company; and

(b) any of the circumstances contemplated in subsection (5)(d) to (f) apply with respect to any legislation administered by that organ of state.

(5) A court must make an order declaring a person to be a delinquent director if the person—

(a) consented to serve as a director, or acted in the capacity of a director or prescribed officer, while ineligible or disqualified in terms of section 69, unless the person was acting—

(i) under the protection of a court order contemplated in section 69(11); or

(ii) as a director as contemplated in section 69(12);

(b) while under an order of probation in terms of this section or section 47 of the Close Corporations Act, 1984 (Act No. 69 of 1984), acted as a director in a manner that contravened that order;

(c) while a director—

(i) grossly abused the position of director;

(ii) took personal advantage of information or an opportunity, contrary to section 76(2)(a);

(iii) intentionally, or by gross negligence, inflicted harm upon the company or a subsidiary of the company, contrary to section 76(2)(a);

(iv) 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);

(d) has repeatedly been personally subject to a compliance notice or similar enforcement mechanism, for substantially similar conduct, in terms of any legislation;

(e) has at least twice been personally convicted of an offence, or subjected to an administrative fine or similar penalty, in terms of any legislation; or

(f) within a period of five years, was a director of one or more companies or a managing member of one or more close corporations, or controlled or participated in the control of a juristic person, irrespective of whether concurrently, sequentially or at unrelated times, that were convicted of an offence, or subjected to an administrative fine or similar penalty, in terms of any legislation, and—

(i) the person was a director of each such company, or a managing member of each such close corporation or was responsible for the management of each such juristic person, at the time of the contravention that resulted in the conviction, administrative fine or other penalty; and

(ii) the court is satisfied that the declaration of delinquency is justified, having regard to the nature of the contraventions, and the person's conduct in relation to the management, business or property of any company, close corporation or juristic person at the time.

(6) A declaration of delinquency in terms of—

(a) subsection (5)(a) or (b) is unconditional, and subsists for the lifetime of the person declared delinquent; or

(b) subsection (5)(c) to (f)

(i) may be made subject to any conditions the court considers appropriate, including conditions limiting the application of the declaration to one or more particular categories of companies; and

(ii) subsists for seven years from the date of the order, or such longer period as determined by the court at the time of making the declaration, subject to subsections (11) and (12);

(7) A court may make an order placing a person under probation, if—

(a) while serving as a director, the person—

(i) was present at a meeting and failed to vote against a resolution despite the inability of the company to satisfy the solvency and liquidity test, contrary to this Act;

(ii) otherwise acted in a manner materially inconsistent with the duties of a director; or

(iii) acted in, or supported a decision of the company to act in, a manner contemplated in section 163(1); or

(b) within any period of 10 years after the effective date—

(i) the person has been a director of more than one company, or a managing member of more than one close corporation, irrespective of whether concurrently, sequentially or at unrelated times; and

(ii) during the time that the person was a director of each such company or managing member of each such close corporation, two or more of those companies or close corporations each failed to fully pay all of its creditors or meet all of its obligations, except in terms of—

(aa) a business rescue plan resulting from a resolution of the board in terms of section 129; or

(bb) a compromise with creditors in terms of section 155.

(8) The court may declare a person under probation in the circumstances contemplated in—

(a) subsection (7)(a)(iii), only if the court is satisfied that the declaration is  justified having regard to the circumstances of the company's or close corporation's conduct, if applicable, and the person's conduct in relation to the management, business or property of the company or close corporation at the time; or

(b) subsection (7)(b), only if the court is satisfied that—

(i) the manner in which the company or close corporation was managed was wholly or partly responsible for it failing to meet its obligations; and

(ii) the declaration is justified, having regard to the circumstances of the company's or close corporation's failure, and the person's conduct in relation to the management, business or property of the company or close corporation at the time.

(9) A declaration placing a person under probation—

(a) may be made subject to any conditions the court considers appropriate, including conditions limiting the application of the declaration to one or more particular categories of companies; and

(b) subsists for a period not exceeding five years, as determined by the court at the time it makes the declaration, subject to subsections (11) and (12).

(10) Without limiting the powers of the court, a court may order, as conditions applicable or ancillary to a declaration of delinquency or probation, that the person concerned—

(a) undertake a designated programme of remedial education relevant to the nature of the person's conduct as director;

(b) carry out a designated programme of community service;

(c) pay compensation to any person adversely affected by the person's conduct as a director, to the extent that such a victim does not otherwise have a legal basis to claim compensation; or

(d) in the case of an order of probation—

(i) be supervised by a mentor in any future participation as a director while the order remains in force; or

(ii) be limited to serving as a director of a private company, or of a company of which that person is the sole shareholder.

(11) A person who has been declared delinquent, other than as contemplated in subsection (6)(a), or is subject to an order of probation, may apply to a court—

(a) to suspend the order of delinquency, and substitute an order of probation, with or without conditions, at any time more than three years after the order of delinquency was made; or

(b) to set aside an order of—

(i) delinquency at any time more than two years after it was suspended as contemplated in paragraph (a); or

(ii) of probation, at any time more than two years after it was made.

(12) On considering an application contemplated in subsection (11), the court may—

(a) not grant the order applied for unless the applicant has satisfied any conditions that were attached to the original order, or imposed in terms of subsection (11)(a); and

(b) grant an order if, having regard to the circumstances leading to the original order, and the conduct of the applicant in the ensuing period, the court is satisfied that—

(i) the applicant has demonstrated satisfactory progress towards rehabilitation, and

(ii) there is a reasonable prospect that the applicant would be able to serve successfully as a director of a company in the future.

(13) An applicant in terms of subsection (4) must serve the Commission with a copy of the application.


Business rescue legislation

Other legislation cited by Chapter 6


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Business rescue provisions in the Companies Acts and Regulations

Business rescue provisions in Chapter 6 of the Companies Act No. 71 of 2008 pdf (323k).

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Companies Acts and Regulations

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