The suspension and setting aside of delinquency and probation orders under the Companies Act 71 of 2008

Abstract

A significant innovation of the Companies Act 71 of 2008 is contained in section 162. This provision empowers a court to declare a director delinquent or under probation on various grounds. The effect of a delinquency order is that a person is disqualified from being a director of a company, while being placed under probation means that he or she may not serve as a director except to the extent permitted by the order. A delinquency order may be unconditional and subsist for the director's lifetime, or it may be conditional and be effective for seven years or longer, as determined by the court. A probation order generally subsists for a period not exceeding five years, and may be subject to such conditions as the court considers appropriate. The harsh effects of these orders are alleviated by section 162(11) of the Companies Act 71 of 2008. Under this provision, a delinquent director may apply to court after three years has lapsed, to suspend the delinquency order and to substitute it for a probation order, with or without conditions. A person who was placed under a probation order may apply to court after two years for the probation order to be set aside. This article examines the procedure under section 162(11) of the Companies Act 71 of 2008 for the suspension and setting aside of delinquency and probation orders. The factors that a court must take into account in exercising its discretion whether or not to grant the application, as set out in section 162(12) of the Companies Act 71 of 2008, are also examined. This article draws on relevant jurisprudence as decided on the equivalent provisions in the corporate legislation in the United Kingdom and Australia. The method of interpretation used in these jurisdictions provide useful guidance on how best to apply and interpret sections 162(11) and (12) of the Companies Act 71 of 2008. Recommendations are made regarding the proper approach to interpreting, applying and enhancing sections 162(11) and (12) of the Companies Act 71 of 2008.