The recent High Court judgment in Pityana v ABSA Group Limited and Others (2021/64258) [2026] ZAGPPHC 176 (9 March 2026) provides helpful guidance on two important questions under the Companies Act:

• what a court can and cannot consider under section 71(5) when reviewing a board’s decision to remove a director; and
• how broadly the legal grounds for removal can be interpreted by a board.

In short, the court found that section 71(5) creates a “special statutory review” that focuses on whether the board acted lawfully and rationally (in other words, section 71(5) does not give rise to a full re-hearing of whether the decision was correct). Furthermore, courts should be careful not to replace the board’s judgement with their own on matters that fall within the board’s responsibility for business and governance.

A removed director’s scope of review

When considering whether to remove a director under section 71(3), the board (excluding the affected director) must pass a resolution finding that one or more legal grounds for removal exist, namely that the director (i) is ineligible or disqualified in terms of section 69 of the Companies Act; (ii) is incapacitated; or (iii) has neglected or failed to properly carry out their duties as a director. Section 71(4) requires that fair process be followed – the affected director must receive notice of the meeting and proposed resolution, a clear statement of reasons, and be given a reasonable opportunity to respond before the vote on their removal.

Section 71(5) gives the removed director the right to ask a court to review the board’s decision. In Pityana, the court rejected attempts to label the section 71(5) review as “narrow”, “wide” or sui generis (unique) and held that “special statutory review” is an established type of review in South African law, alongside administrative law (under the Promotion of Administrative Justice Act 3 of 2000), legality and common-law review. The court noted that Parliament deliberately used the word “review”, not “appeal” in section 71(5) – meaning the main purpose is to check whether the board acted lawfully (including rationally) and followed proper procedure, not to re-decide whether the removal was the correct decision. However, because section 71(3) removal depends on certain legal facts being present, a court may correct clearly wrong factual findings that the board relied on to justify its authority to act.

A court review under section 71(5) may therefore look at: (i) whether the legal grounds for removal actually existed; (ii) whether the correct procedures were followed; and (iii) whether the board’s decision was rationally connected to the purpose of the law and the protection of the company’s interests.

Court’s interpretation and how this impacts our understanding of section 71

The court in Pityana confirmed that a board’s decision is reviewed on a rationality standard: the question is whether the board’s decision is perverse or so outrageous in its defiance of logic that no sensible decision-maker could have reached it, and not whether the court would have decided differently.

In this regard, the board is uniquely positioned to assess what the company’s interests require, and matters such as reputational risk, the integrity of regulatory relationships and internal board trust fall squarely within its province. “Conflict of interest”, for these purposes, should be understood broadly – it goes beyond direct financial interest to include conflicts “in fact or in appearance” and may be informed by the company’s own code of conduct. Moreover, a director’s exercise of personal rights (including the right to bring legal action or to defend their reputation) does not override their fiduciary duty to put the company’s interests first. Therefore, conduct that is likely to harm the company’s relationships may legitimately be treated as both a conflict of interest and a dereliction of duty.

The court was also asked to consider whether collateral or historical matters could be included in the board’s determination to remove a director. In this respect, the court drew a careful distinction between facts that may have raised concerns about a director and the grounds on which the board decides to remove the director. Background matters that come up during discussions or that relate to reputational risk caused by a director’s own conduct, are not necessarily impermissible considerations; what matters is whether they form the true basis of the resolution. Therefore, boards should be careful to clearly identify the actual grounds relied upon for the removal of a director in both the notice to the affected director and in their minutes of the meeting.

The court further confirmed that the procedural protections (notice of the proposed resolution, reasons with sufficient detail and a reasonable opportunity to respond) should be assessed based on their practical effect rather than strict formality. Therefore, a director who has been able to properly engage with the allegations and has not suffered any prejudice cannot easily complain of inadequate detail. Importantly, a director removal process will not be invalidated simply because some board members had preliminary views before the meeting: the test is whether the required procedures were followed and whether the final decision is rational.

Key takeaways for companies, boards and directors

Section 71(3) is a powerful governance tool, but one that must be used carefully, and decisions to remove a director should be based on the legal grounds of ineligibility or disqualification, incapacity, or neglect or dereliction. Other concerns such as reputational and regulatory issues are not free-standing grounds for removal under section 71(3). The procedural protections in section 71(4) must be followed carefully, and the board’s discussions should be properly recorded in the minutes, as this record will be central to any court on review.

Furthermore, courts appear to be moving towards a broader, policy-driven understanding of “conflict of interest” under the Companies Act. In this regard, conflicts in appearance, reputational differences and the breakdown of trust within the board may all qualify and need not involve any direct financial benefit to the affected director. Importantly, boards of regulated companies may legitimately treat strain in the relationship with a primary regulator, or public conduct by a director that compromises that relationship, as a conflict justifying removal, provided the decision is rationally connected to protecting the company’s interests.

Additionally, the Pityana judgment reminds us that directors’ fiduciary duties to a company limit how they are able to exercise their personal rights. For example, legal action, public statements or reputation management that is likely to harm the company’s regulatory or stakeholder relationships may create a conflict justifying removal. In particular, directors in senior governance roles, such as lead independent directors, should expect these expectations to be more strictly applied.

Finally, this judgment sets a high bar for future review proceedings under section 71(5). To succeed, the grounds for review must be clearly based on legality, rationality and procedural compliance and not simply disagreement with the board’s commercial or governance judgement. It is clear that courts will give significant weight to a board’s assessment of sensitive matters, such as internal trust, reputational exposure and regulator relations, provided the decision falls within the legal framework and is objectively rational.

Conclusion

Section 71(5) is a focused mechanism to police legality, not a broad avenue to second-guess boardroom decisions. Boards retain significant freedom to act against directors whose conduct, even when it involves the exercise of personal rights, creates real or apparent conflicts of interest, damages trust within the board or strains important regulatory relationships – provided the legal requirements are met and proper procedures are followed.