Proxy appointment – What shareholders and companies need to know
10 Jul 2017
Under the 1973 Companies Act, a company was entitled to require a proxy to be lodged on or before a particular time, in order for that proxy to be valid. The rationale for this provision was to give sufficient time to enable the officer presiding at a meeting to verify and validate the proxy, before allowing that proxy to vote. It is common practice for a company to include a provision in its memorandum of incorporation which requires that a proxy form be lodged at least 24 hours prior to a meeting.
Reliance on this provision has meant that a shareholder who is unexpectedly prevented from attending a shareholders meeting through forces beyond its control, is unable to submit a proxy form on the day of such meeting, resulting in that shareholder not being entitled to vote at such meeting.
The wording of the Companies Act, 2008 (“the Act”) has changed, and the shareholders of a company is entitled “at any time” to appoint any individual as a proxy to participate in and speak and vote at a shareholders meeting on behalf of that shareholder.
What the Courts have said
The recent SCA case of Richard Du Plessis Barry v Clearwater Estates has examined whether the provisions of the Act allow for a company’s MOI to impose time limitation for the delivery of a proxy form.
The facts, briefly, are that certain shareholder proxies had been submitted on the day of the meeting, in contravention of the MOI, but based on a majority decision at the meeting, the late filing of these proxies was condoned in order to attain the requisite quorum. The challenge to the validity of the resolutions passed at the meeting, was that the shareholder proxies, submitted on the day of the meeting, were accepted in contravention of the MOI, which provided that proxies shall not be treated as valid unless they are deposited at a designated location not less than 48 hours before the time designated for the meeting at which such proxies are to be exercised.
The appellant sought to uphold and enforce the relevant articles of the MOI, with the object of defeating the resolutions passed at the meeting. The first respondent sought the annulment of the relevant articles of the MOI, with the object of preserving the validity of the resolutions.
The SCA held that the provisions of s 58(1) of the Act are unalterable (as contemplated in s 15(2)(d) of the Act), and that the right of the shareholder to appoint a proxy ‘at any time’ is a provision that may not be altered by the MOI of a company. The purpose of the provision is to protect the right of shareholders to participate in, speak at, and vote at a shareholders meeting, and to do so through a proxy of their choice. The time clause in the company’s MOI sought to negate, restrict, limit or qualify this fundamental right of the shareholder, contrary to the provisions of s 15(2)(d) of the Act. The time clause contained in the company’s MOI was therefore found to contravene and be inconsistent with s 58(1) of the Act and was void to that extent.
The practical implications
Upon a proper interpretation of the judgment, and the relevant provisions of the Act, the provisions of a company’s MOI which purport to impose a time constraint for the delivery of a proxy form, will be invalid, only to the extent that such provision/s are inconsistent with their shareholders’ right to appoint a proxy at any time before a meeting as provided for the in the Act. The proxy forms themselves will remain valid and shareholders making use of such forms will not be excluded from any meetings.
The court did recognise the practical difficulties that may arise as a result of this interpretation of s 58, including the administrative burden imposed on the presiding officer of a general meeting to validate and verify proxies prior to allowing a proxy to exercise a vote. It however noted that such practical difficulties need to be resolved through legislative intervention and not through a strained interpretation of the Act.
The ultimate effect of this judgment, therefore, is that shareholders may submit a proxy form “at any time” and the company is not entitled to place any time constraint on such right. Any attempt to enforce such a time constraint will not withstand challenge. No legislative intervention has been forthcoming to date, and any company which has an MOI which requires a proxy form to be delivered at a specified time prior to a meeting, should consider an amendment to that MOI, and at the very least, should not attempt to enforce such time limitation.(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)