[Question] Director

[Bertus197010]

I was wondering if someone can guide me.

I am a director of a company which has two directors. I am in South Africa and a legal SA Citizen, my business partner(the other director) is a non SA citizen. I recently discovered that my business partner entered into a lease agreement for a printer in SA without my conscent. The lease agreement was granted to value of more than R1 mil. I realised this the minuted the SA bank account was debitted with the installments from the service provider.

My question is, must the two directors not to co-sign such an agreement if a company resolution is not in place for one director to sign such agreements. I find it not to be binding as the other director does not have authority to enter into agreements in South Africa withouot my conscent. In addition to this, the maintenance agreement on the device was signed by a third party with no relation to our company, also binding my company. I also need to mention that the banking details supplied was not even verified by a bank nor officially stamped.

The only resolution which was signed on this agreement, was provided by the services provider stipulating the the person who is signing the document do have the authority. I find this not to be binding, normaly I would have thought that a resolution letter on a company letter head signed by all directors would be more appropreciate before such an contract can be approved by the leasing company.

Your inputs and advice would be appreciated.

[Andromeda]

Generally speaking, a single director can contractually bind a company. Any rules regarding his ability to do so are between him, the board and the company, and do not bind third parties.

The board, or another director, or the company represented by a director, can have a claim against the director who exceeded his authority.

I am not aware of any restriction placed on a non-SA citizen who is a director, in other words a director is a director is a director. In his capacity as a shareholder (I assume he is one) and him being non-resident in SA, as opposed to a non South African, there are financing restrictions, but this is not a companies act issue, as far as I know.

In a nutshell, your gripe needs to be with him and not the contracting party.

[Bertus197010]

Thank you for the feedback Andromeda.

In terms of the financing do you not think there might be a way to declare that nulle and void. This is mainy due to the National Credit Act and the regulations thereoff. I am just looking for a way to declare this agreement null and void. A gribe between directors will deliver nothing, the issue is to get rid of the debt the Company was comitted to. Any thoughts.

[Dave A]

If the gross assets or gross annual turnover of the company exceeds R1 million Rand, the company is excluded from protection under the National Credit Act.

[Blurock]

The director clearly acted without authority and a claim can be instituted against him

[Andromeda]

In terms of the financing do you not think there might be a way to declare that nulle and void. This is mainy due to the National Credit Act and the regulations thereoff. I am just looking for a way to declare this agreement null and void. A gribe between directors will deliver nothing, the issue is to get rid of the debt the Company was comitted to. Any thoughts.

For the contract to be declared a nullity it must be seriously impaired in law. The resolution you mentioned that was signed only be him; if it was signed in the presence of the contractor then I would suggest that it was paid lip service and little else, because at the least the contractor should have satisfied himself that notice requirements were met, and that the required majority was obtained. Many of us have sat at a table with contractors and we have signed all manner of documents including resolutions.

You would probably need to be very sure of your facts and then take it up with the supplier. However be sure that you are conversant with the points of law, or get the assistance of an attorney.

Also, familiarise yourself with Sec 77 of the Companies Act, especially 77(3)(a) which determines that a director is personally liable if he signed anything, or purported to bind the company and lacked the authority to do so.

It is inescapable if that is what he did.

[Justloadit]

When you opened your bank account, there should have been an instruction given to the bank with the terms of payment.
Either both directors must approve, or one director may make a payment to a certain amount, there after both must approve.
This usually confirmed in a directors meeting with minutes accepted by all parties concerned. This would also apply to company contracts and commitments.
A directors fiduciary duty is to insure that his decisions never place the company in a bankrupt situation.

If this was not done, then you are in trouble as far as I am concerned, as there is no control of the company finances and is open to abuse and fraud.
The manner in which the other director has acted, in my opinion is already in bad faith, and I would already think that there was a back hand in the deal.
How can a decision like this be made with out informing the other directors.

I do not know much about your position here but, I would immediately resign and move out. I can only see trouble looming over the horizon. You have no control of the company finances, which simply means that you are going to continuously be on the back foot to maintain the company in a viable trading position. This is not good for business, rather get out now, as the saying goes, the first loss is the cheapest.