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Republic of South Africa
IN THE HIGH COURT OF SOUTH AFRICA (WESTERN CAPE DIVISION, CAPE TOWN)
Case No: 9900/2016
Before: The Hon. Mr Justice Binns-Ward
Dates of hearing: 29-30 August, 1 September 2016 Date of judgment: 11 October 2016
In the matter between:
LEWIS GROUP LIMITED Applicant and DAVID FARRING WOOLLAM First Respondent JOHAN ENSLIN Second Respondent LESLIE ALAN DAVIES Third Respondent DAVID MORRIS NUREK Fourth Respondent HILTON SAVEN Fifth Respondent
JUDGMENT BINNS-WARD J:  Lewis Group Limited, the applicant in this case, is a public company listed on
the Johannesburg Securities Exchange. It is the holding company of Lewis Stores
(Pty) Ltd, which operates over 700 retail outlets throughout Southern Africa. The
company also owns all the shares in Monarch Insurance Company Ltd. It has applied,
in terms of s 165(3) of the Companies Act 71 of 2008 (the 2008 Companies Act),
for an order setting aside a demand in terms of s 165(2)1 served on it by the first
respondent, Mr David Woollam. Section 165(3) of the Act permits a company upon
1 The text of the relevant parts of s 165 is set out in note 17, below.
which such a demand has been served to apply to a court to set aside the demand
only on the grounds that it is frivolous, vexatious or without merit.
 Woollam is a person entitled to be registered as a shareholder of the applicant
company. His entitlement arises from his quite recent acquisition of 3010 ordinary
shares in the applicant. The shares are currently held for him by a nominee. He
describes himself as their beneficial owner.
 Woollam served the demand purporting thereby to exercise the right conferred
in terms of s 165(2)(a) of the 2008 Companies Act. That provision entitles any
shareholder or person entitled to be registered as a shareholder to serve a demand
upon a company to commence or continue legal proceedings, or take related steps, to
protect the legal interests of the company. The service of such a demand is the first
step that any person with standing2 is required to take to enable such person, if so
advised, and if the company does not accede to the demand, thereafter, with the leave
of the court to be obtained in terms of s 165(5), to commence or continue the relevant
legal proceedings in the companys name.
 The demand, dated 20 May 2016, calls upon the applicant company to protect
its legal interests, more specifically, [by commencing] proceedings to declare as
delinquent four of the companys directors, namely Messrs Johan Enslin, Leslie
Davies, David Nurek and Hilton Saven (the second to fifth respondents, respectively).
The demand presaged six separate grounds for Woollams contention that
proceedings should be instituted by the company for a declaration that the second to
fifth respondents should be declared delinquent directors. These were:
1. That loss of employment insurance was being sold to customers of Lewis
Stores who were pensioners and self-employed persons and thus had no
insurable interest in terms of the relevant insurance policies.
2. That Lewis Stores customers were required, whether they wished to or not, to
purchase extended warranties on goods purchased.
3. That compulsory delivery fees were charged to Lewis Stores customers,
irrespective of whether they required delivery of the goods to be effected.
2 The classes of person afforded standing to initiate derivative proceedings are identified in s 165(2) of Act 71 of 2008; see note 17, below.
4. That the groups accounts had for many years appeared to overstate revenue
from the sale of insurance policies.
5. That the group had inappropriate revenue recognition policies with regard to
the sale of extended warranties that resulted in the on-going overstatement of
6. The incorrect processing of various accounting policy errors and the changing
of estimates, as prior year adjustments in the interim results for the period
ended 30 September 2015.3
 It is common ground that the proceedings that Woollam wants the company to
commence would be those provided for in terms of s 162 of the 2008 Companies Act.
The provision that a person with standing can apply to have a director or former
director declared delinquent or placed under probation is a novel remedy. It was not
available under any of the statutory predecessors of the 2008 Companies Act. The
effect of a declaration of a person as delinquent is that he or she is thereupon
disqualified, for so long as the declaration remains in force, from being a director of
any company;4 see s 69(8)(a) of the 2008 Companies Act.5
 The informed reader will have deduced from what has been said so far that the
statutory demand provided for in terms of s 165(2) of the 2008 Companies Act is a
procedural precursor to the possible institution by the person serving it of what
lawyers refer to as a derivative action. Such reader would therefore find no surprise
in the heading to s 165, which is Derivative actions. As far as my researches could
determine, however, he or she would not have encountered a case, here or abroad, in
which the type of relief that Woollam ultimately seeks to obtain under s 162 in this
matter has been sought or granted in derivative proceedings. Indeed, in the other
jurisdictions, to whose systems and law our courts make most frequent comparative 3 The wording of the sixth ground of complaint is quoted directly from the notice of demand. 4 Unless, in terms of s 162(6)(b)(i), the court making the declaration limits the application of its order to one or more particular categories of companies. 5 A declaration of delinquency in terms of s 162 of the 2008 Companies Act can potentially even have repercussions for the affected individual beyond the borders of South Africa. So, for example, in terms of s 206B(6) of the Australian Corporations Act, 2001, a person who is the subject of an order made by a court in a foreign jurisdiction prohibiting that person from being the director of a company is thereby disqualified from managing any corporation in Australia if that foreign jurisdiction is identified in the relevant regulations to the Act. A delinquency order obtained in South Africa may also afford grounds for the granting of a similar order in New Zealand in terms of s 383(1)(ca) of the Companies Act, 1993 (NZ).
reference in the field of company law,6 equivalent orders to the ones identified in
Woollams demand are generally to be had at the instance of the relevant regulatory
or statutory authority, rather than private litigants - although there are exceptions.
 In the United Kingdom, the disqualification of directors is regulated in terms
of the Company Directors Disqualification Act, 1986.7 Under the UK legislation,
courts can make disqualification orders mero motu in certain circumstances8 and in
other instances upon the application of the Secretary of State or, upon the direction of
the Secretary of State, by the official receiver of a company in winding-up.
Liquidators and official and administrative receivers are required to report to the
Secretary of State any circumstances discovered by them in the discharge of their
functions in which a disqualification order might be indicated. The only individuals
who appear to have standing to apply for disqualification orders under the UK
legislation are past or present members or creditors of any company in relation to
which that person has committed or is alleged to have committed an offence or other
default.9 An application by a member or creditor in terms of the relevant standing
provision under the UK legislation is unambiguously personal in character, and
definitely not to be brought derivatively.
 In Australia, disqualification orders are obtained at the instance of the
Australian Securities and Investments Commission (ASIC).10 The relevant objects
and functions of ASIC include maintaining, facilitating and improving the
performance of the Australian financial system and the entities within that system in
the interests of commercial certainty, reducing business costs, promoting the
efficiency and development of the economy and the confident and informed
participation of investors and consumers in the financial system.11 ASICs functions
are clearly directed in the public interest.
6 Section 5(2) of the 2008 Companies Act provides: To the extent appropriate, a court interpreting or applying this Act may consider foreign company law. 7 An account of the history, going back to 1928, of the preceding legislation that culminated in the currently applicable statute is given in Official Receiver v Wadge Rapps & Hunt (a firm) & Anor  UKHL 49,  4 All ER 18 (HL), at paras. 32-38. 8 In the context of making winding-up orders, for example. 9 Section 16(2) of the Company Directors Disqualification Act, 1986 (UK). 10 See Part 2D.6 of the Australian Corporations Act, 2001. 11 See s 1 of the Australian Securities and Investment Commission Act, 2001.