The applicability of Rule 53 to decisions in terms of section 71 of the Companies Act - Sipho Pityana v Absa Group Limited

It has been widely reported that Mr Sipho Pityana is challenging the decision of the boards of directors to remove him as a non-executive director of the Absa Group and Absa Bank Limited (collectively referred to as “Absa”). He launched an application in the Gauteng Division of the High Court in Pretoria (“the Court”) for a review of the decision to remove him in terms of section 71(3) of the Companies Act 71 of 2008 (“the Companies Act”).

In the review proceedings, Mr Pityana required Absa to provide him with a record of the decision in terms of Rule 53 of the Uniform Rules of Court (“Rule 53”). A record contains all the information relevant to the impugned decision or proceedings under review, excluding privileged information.

Absa launched an application in terms of Rule 30 for the Court to declare that utilising Rule 53 to obtain the record in a review of the decision to remove Mr Pityana is an irregular step. On 10 May 2023, the Court handed down a judgement in this interlocutory application in favour of Mr Pityana. This judgement is important because the Court made a finding of procedural significance in reviews of a board’s decision to remove a director in terms of section 71(5) of the Companies Act.

Section 71(5) of the Companies Act states that if the board of a company has determined that a director is ineligible or disqualified, incapacitated, or has been negligent or derelict, the director concerned may apply to a court to review the determination of the board. Absa argued that Rule 53 does not apply to these reviews. Rule 53 states that where a review application is brought in respect of “the decision or proceedings of any inferior court and of any tribunal, board or officer performing judicial, quasi-judicial or administrative functions”, the applicant can call upon the decision maker to despatch the record of the proceedings/decision being reviewed.

Absa argued that the decision to remove Mr Pityana does not constitute the performance of judicial, quasi-judicial or administrative functions and Rule 53 therefore does not apply. This is particularly because Absa is a company and was not performing a public function but a commercial or managerial one. The Court’s finding was that Rule 53 does indeed apply. Whether this finding was correct or not is a question to be considered elsewhere. We only set out below the Court’s reasoning.

The Court found that the Companies Act does not state whether the provisions of Rule 53 are applicable to a review of a decision to remove a director in terms of section 71(5). It stated that the wording of Rule 53 referring to “any inferior court and any tribunal, board or officer performing judicial, quasi-judicial or administrative functions” is not determinative of whether Rule 53 is applicable to section 71 of the Companies Act. According to the Court, the decision by the boards of Absa (a public company) clearly does not fit into this wording but Rule 53 is applicable, nonetheless.

The Court set out the principles of statutory interpretation and found as follows:

-       The procedure to remove a director in terms of section 71(3) involves first an allegation that the director has neglected or been derelict in the performance of his functions.

-       Second, the director must receive notice of the meeting where the resolution to remove him will be considered and be provided with reasons containing sufficient specificity.

-       The reasons must be given before the meeting and the director must be given an opportunity to be heard.

-       No indication is given in the Companies Act of the review process to be followed for this decision.

-       Not only is a removed director allowed to apply for a review but also the person(s) who was entitled to appointed him.

-       There is no requirement that the latter person(s) be given reasons for the resolution to remove a director.

-       The purpose of Rule 53 is to place the relevant evidential material before the Court.

-       Despite the fact that a director may already have the reasons pertaining to the decision to remove him, persons other than the director may also bring a review of a decision to remove him who may not have the relevant documents.

-       Therefore, Rule 53 is available to any person reviewing such decision in terms of section 71(5) of the Companies Act.

-       If a person other than a director is entitle to the record in terms of Rule 53, then it is logical that a removed director is as well.

-       Absa’s argument that Rule 53 does not apply to the review of Mr Pityana’s removal is misplaced as the rule has not been interpreted that way by our courts.

The Court stated however that a review in terms of section 71(5) is limited. A court may only determine whether the process was properly conducted, not whether the decision was substantively correct. According to the Court, it is doubtful whether a court will interfere with a decision to remove a director if the decision marker(s) were compliant with the procedure in section 71 of the Companies Act. This however does not affect the director’s right to the record. The record in this context is to shed light on what occurred and prevent the decision maker(s) from providing justifications for its decision after the fact.

This judgement therefore established the principle that parties reviewing decisions to remove directors in terms of section 71 of the Companies Act are entitled to the record of the decision. This is the case even when the decision involves confidential information. Aspects of confidentiality must be handled between the parties and the relevant court at the time of disclosure.