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CHANGE IN STATUS OF DIRECTOR:  EXECUTIVE TO NON-EXECUTIVE DIRECTOR AND VICE VERSA

CHANGE IN STATUS OF DIRECTOR: EXECUTIVE TO NON-EXECUTIVE DIRECTOR AND VICE VERSA

0April 3, 2018April 4, 2018
By FHBCIn Administration and Secretarial Services

fhbc_april-rocketmailer_01_11Change in status of directors:

  1. A person may be appointed as a company director by:
    1. a person who is named in the Memorandum of Incorporation (MOI) of a company;
    2. the shareholders of the company who are entitled to exercise voting rights in the election of directors of that company;
    3. the board of directors of the company.
  2. In terms of section 66(4)(b) of Companies Act 2008, the MOI of a profit company must provide for the election by the shareholders of the company of at least 50% of the directors and 50% of the alternate directors.
  3. Therefore, at least half (i.e. 50% or more) of the board of directors must be elected by the shareholders of the company. This implies that a company could require 50% or less of its directors to be appointed by the board itself.
  4. Appointment by the Board of Directors of the Company
    1. Where the power to appoint directors is vested in the Board of directors it is a fiduciary power which must be exercised in good faith, for a proper purpose and in the best interest of the company.
  5. Appointment by the Shareholders of the Company
    1. Unless the MOI provides otherwise, the default position is that the election of directors by the Shareholders must be conducted as a series of votes.
    2. Each director must be appointed by a separate shareholders resolution.
    3. The series of votes continues until all vacancies on the board at that time have been filled.
    4. A shareholder may only exercise his right to vote once.
    5. The vacancy will be filled if the majority of the voting rights exercised on the resolution are in support of the candidate.
    6. Shareholders may vote for a director in their own interest and they are not under any obligation to choose the person most suitable to be a director.
  6. Appointment by Person Named in the MOI
    1. It is questionable whether a provision in the MOI which gives a third party the right to appoint a director may be enforced by specific performance where this third party is not a director, shareholder, prescribed officer or a board committee member of the company.
    2. This is because the MOI is not binding upon third parties and does not confer rights on third parties which may be enforced against the company.

     

    Therefore where:

  7. Directors are Elected by the Board:
    1. in the event that the board has elected the executive director and wishes that director to stand down as a non-executive director, the board may re-elect that director by a majority board resolution to be elected a non-executive director of the company.
  8. Directors are Elected by the Shareholders:
    1. in the event that the board has elected the executive director and wishes that director to stand down as a non-executive director, the board may re-elect that director by a majority board resolution to be elected a non-executive director of the company.
    2. in the event that the shareholders of the company have elected the executive director and wishes that director to stand down as a non-executive director, the shareholders may re-elect that director by an ordinary shareholders resolution to be elected as a non-executive director of the company.

     

    Caution:

  9. It is vital to take notice of the Term of Office of the Executive Director either in the MOI of the Company or in a separate Agreement or Contract of Employment between that Director and the Company in order to avoid a claim of damages for loss of office, breach of contract and other terms.
  10. Within 10 business days after a person ceases or becomes a director of the company (including change in directorship), the company is required to file a Notice of Change of Director(s) under Cover of Form CoR39 with the Commission (CIPC).

Source Reference:

Courtesy of: Adv. L Hefer. Executive Chairman | Genesis Corporate Services CC. www.genesiscorporate.biz

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