Written by Roy
Bregman, admitted attorney with over 51 years' experience in employment
law and company law.
Last updated: 29 October 2026
|
Key Takeaways •
An executive director holds two
positions, a seat on the board and a job. Removing one does not automatically
end the other. •
Shareholders can remove a
director by majority vote without a specific reason, but only after proper
notice and a chance to be heard. The board can do so only on limited grounds
set out in the Companies Act. •
"Loss of confidence"
is not a reason for dismissal on its own. It must be linked to conduct,
capacity or operational requirements and backed by evidence. •
Getting it wrong can lead to
reinstatement, compensation of up to 12 months' pay, and public damage to the
company's reputation. |
You cannot lawfully remove an executive simply because the board has
lost confidence in them. South African law treats an executive director as
holding two separate positions, a seat on the board and a job, and each has its
own rules for bringing it to an end.
Boards often get this wrong. They pass a resolution behind closed
doors, send a short letter, and announce a resignation that never happened.
That approach can lead to a court order reinstating the director, a claim at
the CCMA (the Commission for Conciliation, Mediation and Arbitration), and an
expensive public dispute.
This article explains how the law works, what the courts have said
recently, and the steps a company should follow.
Is removing an executive from the board the same as
dismissing them?
No. Removing someone as a director ends their seat on the board, but
it does not automatically end their employment contract.
Two roles, two sets of rules
The board seat is governed by the Companies Act 71 of 2008. The job
is governed by the employment contract and the Labour Relations Act 66 of 1995,
known as the LRA.
Section 71(9) of the Companies Act confirms that a director who is
removed keeps any right to claim damages or compensation for losing the office
of director, or any other office lost as a result. A company that deals with
only one of the two roles leaves itself exposed on the other.
Who can remove a director from the board?
Under section 71 of the Companies Act, the shareholders can remove a
director, and in limited cases so can the board or the Companies Tribunal.
Removal by the shareholders
Shareholders can remove a director by ordinary resolution, meaning a
simple majority vote at a shareholders' meeting. They do not need a specific
reason. The director must, however, receive proper notice of the meeting and
the proposed resolution, and must have a reasonable opportunity to address the
meeting before the vote.
Removal by the board
The board can remove a director only on specific grounds: the
director has become ineligible or disqualified, is incapacitated, or has
neglected or been derelict in (seriously failed to perform) their duties. This
route is available only where the company has more than two directors.
The director must receive the proposed resolution with written
reasons specific enough to prepare a reply, and a chance to respond before the
vote. A director removed this way can ask a court to review the decision within
20 business days.
Companies with only one or two directors
Where there are two or fewer directors, a director or shareholder
can ask the Companies Tribunal to decide whether a director should be removed
on the same grounds.
Comparison: the four
ways an executive can lose their position
|
Route |
Who
decides |
Is
a reason needed? |
Key
safeguard |
|
Shareholder
removal, s 71(1) Companies Act |
Shareholders,
by majority vote |
No
specific reason |
Notice
and a chance to address the meeting |
|
Board
removal, s 71(3) Companies Act |
The
board, without the director concerned |
Yes:
ineligible, incapacitated, negligent or derelict |
Written
reasons, a chance to respond, court review within 20 business days |
|
Companies
Tribunal, s 71(8) Companies Act |
Companies
Tribunal |
Same
grounds as board removal |
Independent
decision where there are two or fewer directors |
|
Dismissal
from employment, LRA |
The
employer |
Yes:
conduct, capacity or operational requirements |
Fair
procedure, with a challenge at the CCMA or Labour Court |
Is "loss of confidence" a fair reason to dismiss
an executive?
Not on its own. Section 188 of the LRA allows only three fair
reasons for dismissal: the employee's conduct, the employee's capacity, or the
employer's operational requirements, meaning genuine business needs such as a
restructuring.
Turning a breakdown of trust into a lawful reason
A breakdown of trust must be tied to one of those three reasons and
supported by evidence. Proven dishonesty may justify dismissal for misconduct.
A persistent failure to meet clear targets may justify dismissal for poor
performance. A general feeling around the boardroom table that the chief
executive is "not the right fit" is not enough.
What changed in 2025?
A new Code of Good Practice: Dismissal took effect on 4 September
2025, replacing the old Schedule 8 guidelines. It now formally recognises
incompatibility, an inability to work in harmony with colleagues or the company
culture, as a form of incapacity. The employer must still show that the problem
exists, that the executive contributed to it, and that reasonable steps were
taken to fix it first.
Do senior executives get less protection?
They get different protection, not less. The 2025 Code accepts that
senior employees can judge their own performance and may not need the coaching
or repeated warnings a junior employee would receive.
They are still entitled to know what the concerns are and to be
heard before a decision is made. Lawyers call this audi alteram partem, Latin
for "hear the other side".
What have the courts said recently?
Three recent judgments show how courts approach removals, from the
board seat to the job itself.
Golden v Quantum Foods Holdings Ltd (2024)
The facts: Ms Golden, a non-executive director of a JSE-listed
poultry group, pressed the board to disclose a legal opinion. Days later, most
of her fellow directors signed a notice requiring her to resign, relying on a
clause in the company's Memorandum of Incorporation (MOI), its founding rules.
The company told the market she had resigned. She had not.
The decision: The Western Cape High Court held that a clause
allowing removal without reasons and without a hearing is against public policy
and void. It found the removal oppressive and unfairly prejudicial under
section 163 of the Companies Act, set it aside, reinstated her, and ordered a
corrective market announcement. This is a High Court decision, and the company
indicated it would seek leave to appeal.
Mawerco (Pty) Ltd v Sithole (Supreme Court of Appeal,
2024)
The facts: A 51% shareholder appointed two directors under a
shareholders' agreement and later removed them. The directors asked the High
Court for orders restoring them but never asked the court to review and set
aside the decision that removed them. The High Court found in their favour.
The decision: The Supreme Court of Appeal overturned that order.
Because the removal decision itself had not been challenged and set aside, the
application had to fail. The lesson for removed directors is to bring the right
application, and to do so promptly.
Maleka v Boyce N.O. (Constitutional Court, 2026)
The facts: Mr Maleka, an IT director, resigned after a restructuring
changed who he reported to. He kept his title, duties and pay, and did not use
the company's grievance procedure. He then claimed constructive dismissal,
meaning that the employer had made his job so intolerable that he had no real
choice but to resign.
The decision: The majority refused condonation (permission to
proceed despite lateness) because his claim had poor prospects. The test is
objective, and fears about future treatment are not enough. The warning for
boards runs the other way too: quietly stripping an executive of status or
duties to force a resignation invites exactly this kind of claim.
What could an unfair dismissal cost the company?
Compensation for an ordinary unfair dismissal can reach 12 months'
remuneration under section 194(1) of the LRA, and 24 months' where the
dismissal is automatically unfair, for example because it is discriminatory.
For an executive, remuneration can include allowances and benefits, so the
figure is often large.
On top of that come possible contract claims, such as pay for the
rest of a fixed term contract, legal costs, and reputational harm when the
dispute becomes public.
How should a company remove an executive lawfully, step by
step?
Follow a structured process that deals with the board seat and the
job separately.
1. Take legal advice before anyone speaks to the
executive, and read the MOI, any shareholders' agreement and the employment
contract together.
2. Identify the true reason, and decide whether it
is conduct, capacity (including poor performance or incompatibility) or
operational requirements.
3. Gather objective evidence, such as minutes,
targets, correspondence and performance reviews.
4. Choose the correct route for the board seat: a
shareholder resolution, a board resolution on the statutory grounds, or the
Companies Tribunal.
5. Give proper notice, written reasons where
required, and a real opportunity to respond. Record the response and genuinely
consider it.
6. Run a fair employment process for the job
itself, alongside or after the board process.
7. Consider a negotiated separation agreement
covering pay, restraint of trade, confidentiality and a full and final
settlement.
8. Communicate accurately. Never announce a
resignation that did not happen, and update the company's records with the
Companies and Intellectual Property Commission (CIPC).
What should an executive do if they are removed?
Act quickly. A removal by the board can be taken on review within 20
business days, and an unfair dismissal dispute must generally be referred to
the CCMA within 30 days of the dismissal.
Keep every notice, set of minutes and message, and do not resign in
protest before taking advice.
What is the bottom line?
Removing an executive involves two legal processes, not one. The
board seat and the job each need a valid reason, a fair process and accurate
records.
Boards that follow the rules can act decisively and with confidence.
Boards that take shortcuts may watch a court reverse their decision in public.
Frequently asked questions
Can shareholders remove a director without giving a
reason?
Yes. Under section 71(1) of the Companies Act, shareholders may
remove a director by ordinary resolution without stating a specific reason.
However, the director must receive notice of the meeting and the proposed resolution
and must be given a reasonable opportunity to address the meeting before the
vote. Skipping these steps can make the removal invalid.
Does removing a director from the board end their
employment?
No. Removal from the board ends the directorship only. An
executive's employment contract continues until it is lawfully ended under the
contract and the Labour Relations Act. The employer needs a fair reason, such
as misconduct, poor performance or restructuring, and must follow a fair
procedure, or it risks an unfair dismissal claim.
Is loss of confidence a valid reason to dismiss an
employee in South Africa?
Not on its own. The Labour Relations Act recognises only three fair
reasons for dismissal: conduct, capacity and operational requirements. A
breakdown in trust can support a dismissal only where it flows from proven
misconduct, poor performance, genuine incompatibility or real business needs,
supported by evidence and a fair process.
How long does a director have to challenge removal by the
board?
A director removed by the board under section 71(3) of the Companies
Act may apply to court to review the decision within 20 business days.
Separately, an executive who is also dismissed from employment generally has 30
days to refer an unfair dismissal dispute to the CCMA. Early legal advice
protects both rights.
How much compensation can an executive get for unfair
dismissal?
For an ordinary unfair dismissal, the CCMA or Labour Court may award
compensation of up to 12 months' remuneration, calculated at the rate on the
date of dismissal. For an automatically unfair dismissal, such as one based on
discrimination, the limit is 24 months. Separate contractual claims may also be
available.
Need help removing an executive, or have you been removed?
Whether you sit on a board that needs to act, or you are an
executive who has just received a notice, the first few days matter most. Speak
to us before you sign, vote or resign. We will tell you plainly where you stand
and what to do next.
• Call: +27 (0)11 646 0335
• Email: roy@bmalaw.co.za
• Website: www.bregmans.co.za
Bregman Moodley Attorneys Inc. Taking the
Sting Out of Legal Problems Since 1974.
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