How neglecting corporate governance caused over 6 years of litigation for a company - and hundreds of thousands of rands in legal fees
By Warwick Maybery
Director
Every business owner knows that running their business is more than a full-time job - it's an all-consuming job, dominating almost every waking hour and much of your sleep too.
So no company owner thinks about compliance or regulations. But you neglect it at your peril, as an unfortunate client found out. Although it changed directors regularly over the course of 14 years, it failed to file the proper director appointment forms at the Companies and Intellectual Properties Commission (CIPC). Consequently, the CIPC's records of directorship of the company showed the original founders of 2005 as its directors.
In one matter, a company’s failure to properly maintain its corporate records contributed to a dispute that ultimately caused more than six years of litigation, and cost the company hundreds of thousands of rands in legal fees.
When a dispute arose amongst shareholders, two shareholders (let's call them "The Two") approached the founding directors and, promising them that they had been appointed as directors at an AGM, convinced the founding directors to sign appointment forms. They then filed these forms with CIPC, procuring a change of directorship in CIPC's records. With the CIPC certificate in hand, The Two then set about creating chaos.
Directors have the power to do almost anything
With the CIPC certificate in hand, these two shareholders directed the banks to give them access to the company bank account, they fired service providers who were loyal to the real directors, they restricted people's access to the company premises, and they commenced litigation against the real directors.
Appointed to represent the company and the validly elected directors, our firm opposed The Two through almost every court.
From November 2020 to March 2023, litigation ran its course through the High Court. We proved that, despite the company's failure to file proper records with CIPC, its AGMs were validly constituted through the years and successive directors were validly appointed.
This was crucial and required experience in the Companies Act, corporate governance and High Court litigation. Had the AGMs not been validly constituted, then the director appointments at those AGMs may have been invalid, and accordingly the founding directors would never have been resigned - which would have given The Two a direct route to appointment.
After our firm won the case in the High Court, The Two then appealed to the Supreme Court of Appeal. Knowledge of the Superior Courts Act and the appeals process was essential in our successful dismissal of their application on technical grounds.
Undeterred despite all evidence against them, The Two then referred the matter to the Constitutional Court. In September 2026, we recently received judgment in our client's favour, dismissing the Constitutional Court bid. Despite this, The Two have applied to the Constitutional Court for it to rescind its own judgment - an extremely narrow pathway with little chance of success.
The Lesson: Don't neglect your legal compliance.
A painful lesson was learned in this case. Had the client taken the time to properly ensure its filings were done, The Two dissenting shareholders would not have had a legal loophole to exploit. Six years of litigation through the High Courts, Supreme Court and Constitutional Court was an expensive lesson for the client. As much as we'd love to take on another landmark case like this - and we will eventually - you can make sure this doesn't happen to you. You need to be able to focus on growth and profit, not jumping through legal hurdles.
Your business compliance requirements
To help business owners minimise legal risk, we've created a handy Compliance Checklist for your business. Each business industry is different, and your business may have not only CIPC and tax-related compliance requirements, but also sector-specific BEE requirements and regulatory accreditation requirements (like NHBRC, PPRA or HPCSA). Contact us to discuss your business compliance requirements.
The Law Firm for Business Owners
Whether you need help with a compliance aspect or skilled commercial litigation, Maybery Inc. is here to help you solve your business legal issues - so you can focus on growth and profit.
The above information is for illustrative purposes only and does not take into account your specific circumstances. It therefore does not constitute legal advice. Please contact us for comprehensive advice to address your circumstances. Under no circumstances should any person use the above information in an attempt to circumvent the provisions of legislation or contract, or to cause damage to any other person. Always ensure you and your company are in compliance with the law in all dealings. This information is accurate as of the date of publication.
Comments