If a person has in the past been removed from an office of trust due to dishonesty, been declared insolvent, or criminally convicted and/or imprisoned, it may result in disqualification in the consideration of and/or appointment as a director of a company in terms of the stringent provisions of the Companies Act 71 of 2008 (“the Act”), but there is relief available in some instances.

The grounds of disqualification are set out in section 69 of the Act. This section does not only apply to directors, but also to alternate directors, prescribed officers and members of the board committee, whether such persons are members of the board of directors or not.

A prescribed officer can be defined as any person who exercises general executive control over and management of the whole, or a significant portion, of the business and activities of the company, or regularly participates to a material degree in the exercise of general executive control over and management of the whole, or a significant portion, of the business and activities of the company, thus including a Chief Executive Officer, Company Secretary and Chief Operations Officer.

Persons who are disqualified from being appointed as a director include the following:

•    where a person has been prohibited by a court or any other public regulation from becoming a director;

•    where a person has been declared delinquent by a court in terms of section 162 of the Act; •    if a person is an unrehabilitated insolvent;

•    if a person has been removed from an office of trust on grounds of misconduct involving dishonesty;

•    if a person has been convicted and imprisoned without an option of a fine, or has been fined more than the prescribed amount (currently R1 000.00) for theft, fraud, forgery, perjury or other offences specified in the Act

•    In addition to the grounds set out in the Act, the company’s Memorandum of Incorporation (“the MOI”) may provide additional grounds and a director may also be disqualified if the conditions set out in the MOI are met. For example, the MOI may provide that a director will be disqualified if they fail to attend a certain number of board meetings.

Except for persons who have been prohibited from being a director by a court of law, the other disqualifications provided for in the Act are not absolute and a court has a discretion as to whether to allow such disqualified persons to be appointed as a director.

Section 69(11) of the Act gives a court a discretion to grant an exemption from being disqualified from appointment as a director and the following persons may apply to court for such an exemption:

-    an unrehabilitated insolvent;
-    a person who was removed from an office of trust for dishonest misconduct; or
-    a person who was convicted of a crime with an element of dishonesty (theft, fraud, forgery, perjury or other offences involving fraud, misrepresentation or dishonesty in connection with the promotion, formation or management of a company).

The disqualified person will on application to court have to prove that he has been rehabilitated from his wrongful ways and can be trusted with the responsibility of directorship. With regards to a previous  criminal conviction, the court in Ex parte Barron 1977 (3) SA 1099 (C) held that the factors that affect the discretion of the court to authorise a person to act as a director include: type of offence; whether or not it was a first conviction; type of punishment imposed; whether it was a public company in regard to which the applicant wished to act as a director or whether it was a private company; the attitude of shareholders and whether all the shareholders supported the application to court.

Disqualification on the grounds of insolvency and a criminal conviction will last a period of 5 years, unless the court directs otherwise.

It is important that, before a person is appointed to the board of directors of a company or appointed as a prescribed officer or member of a board committee, proper background checks must be done to ensure that no ineligible or disqualified persons are appointed to these positions. Even when the person is already acting as a director, should that person be disqualified or become ineligible, they can no longer act in their capacity as director of the company.