Holding delinquent directors accountable – time to fully empower the public-interest litigant?

The Companies Act, 2008, introduced a novel remedy to South African company law: declaring a director delinquent on the basis of gross abuse of power, gross negligence, willful misconduct and breach of trust, among other grounds. A delinquency order bans a person from serving as a director for seven years and, in serious cases, for life. In addition to the Companies and Intellectual Property Commission, Section 162(2) of the Act states that the company, directors, shareholders, the company secretary, and a registered trade union or other employee representatives may bring a delinquency application. The purpose of a delinquency order is to protect the company, shareholders, employees, service providers and the general public from directors gone rogue.

The delinquency remedy is alive and well. Since the first successful application in the 2012 case of Kukama v Lobelo, some 20 delinquency applications have been decided by South African courts, with 60% succeeding.

Until now, however, there has never been any matter on a par with the grand delinquency on display in Organisation Undoing Tax Abuse (Outa) v Myeni, a judgment of the Pretoria High Court handed down on May 27, 2020. And until now, there has never been a public-interest litigant (in the form of Outa) who played such a prominent role in the proceedings.

In this case, the two plaintiffs – Outa and the South African Airways Pilots Association (SAAPA) – succeeded in their application to have former SAA board chairperson Duduzile Myeni declared a delinquent director for life. As a registered trade union, the SAAPA clearly fell within the list of potential applicants in Section 162(2). Outa, however, had to rely on the extended standing spelled out in Section 157(1)(d), which affords persons acting in the public interest the right to bring applications under the Companies Act, but only with leave of the court.

Myeni had challenged Outa’s standing to bring the matter in an interlocutory application heard on December 12, 2019. Judge Ronel Tolmay found that Outa had standing to bring the case, but remarked that whether Outa was ultimately entitled to the relief claimed (that is, the delinquency order) should be dealt with in the main trial.

In the main trial, Outa and the SAAPA led evidence of Myeni’s conduct in blocking SAA’s potentially lucrative code-sharing deal with Emirates, and her attempt (aided by fellow board members Yakhe Kwinana and John Tambi) to collapse a swap transaction with Airbus. Her trail of reckless, unlawful and dishonest behaviour came to a head on December 22, 2015 (the December of three Finance Ministers), when SAA would have been liable to pay $117-million in predelivery payments to Airbus, had newly appointed Finance Minister Pravin Gordhan, National Treasury officials and certain former executives at SAA not secured a last-minute board confirmation of the deal.

The court was scathing in its assessment: Myeni had shown “supine indifference” to the “catastrophic consequences” of her actions, not only for SAA but for the whole country; had deliberately or through gross negligence inflicted substantial harm on SAA; and had grossly abused her power and acted dishonestly and in bad faith. She had also proven to be an unreliable and dishonest witness. The court held that her conduct satisfied multiple grounds of delinquency and that she had also acted in direct breach of her duties under the Public Finance Management Act.

The judgment has rightly been hailed as a victory for Outa and for South African civil society. Outa had the foresight to serve papers on Myeni in March 2017, before the period to apply to court for an order of delinquency prescribed. As a private entity with limited means, it persevered, weathering a number of interlocutory applications, and bringing the case on the merits to a successful close. It has done far more than deliver on its mission to represent the interests of South African taxpayers who partly foot the bill for SAA. It has acted in a way that advances fundamental constitutional values: openness, democracy and the rule of law.

It is a pity, therefore, that the court did not conclusively determine that Outa was entitled to the declaration of delinquency as a public-interest litigant. In the interlocutory application heard in December 2019, Judge Tolmay intimated that this issue would be decided in the main trial. But in her May judgment, she simply remarked that Outa had “qualified” to bring the delinquency application in an interlocutory application, and that even if the court had erred in this regard, there was always one plaintiff (namely the SAAPA) that undisputedly had the necessary standing to proceed with the matter.

Public-interest litigants deserve clear assurance from the legislature or the courts that their locus standi includes standing to claim the relief sought. Although it would obviously be advisable to seek the support of the clear list of potential applicants in Section 162(2), there may be circumstances where this is not achievable. In these circumstances, the public-interest litigant may be our only check on delinquent governance.