THE LAUNCHING OF DELINQUENCY PROCEEDINGS UNDER THE COMPANIES ACT 71 OF 2008 BY MEANS OF THE DERIVATIVE ACTION Lewis Group Limited v Woollam 2017 (2) SA 547 (WCC)

Abstract

Section 162 of the Companies Act 71 of 2008 introduces a novel provision into our law in that it empowers a broad range of persons to apply to the court to declare a director delinquent in certain circumstances. The effect of a declaration of a person as delinquent is that he is disqualified, for the duration of the order, from being a director of a company.
In Lewis Group Limited v Woollam (2017 (2) SA 547 (WCC)) the Western Cape High Court was faced with an application brought by Lewis Group Limited in terms of section 165(3) of the Companies Act for an order setting aside a demand served on it by a shareholder, Mr David Woollam on the ground that it was frivolous, vexatious or without merit. Woollam wished to rely on the derivative action to require Lewis Group Limited to commence proceedings to declare four of its directors delinquent under section 162 of the Companies Act. The main question before the court was whether, under the Companies Act, a shareholder might institute proceedings to declare a director delinquent under section 162 of the Companies Act using the derivative action. The court, per Binns-Ward J, held that this may not be done and that the application must be instituted in terms of section 162 of the Companies Act. This note critically analyses the judgment and evaluates whether the court came to the correct decision.