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July 23, 2018
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August 6, 2018

Are deadlines for delivery of proxies enforceable?

What is a Proxy?

 

Section 58(1) of the Companies Act, No. 71 of 2008 (“the Act”) provides for proxies. A shareholder is entitled to appoint someone to participate in and speak or vote on its behalf at a meeting. Section 58(1) contains provisions on a number of matters concerning proxies, such as appointment of concurrent proxies, delegation of authority by a proxy (unless excluded), revocation or cancellation of proxies, directions in proxies on how the proxy should vote, and delivery of company notices to proxies.

Because the administration of dealing with proxies can be quite onerous, especially in large public companies, the Memorandum of Incorporation (“MOI”) of many companies prescribe a deadline for when proxies must be filed. In a recent case heard by the Supreme Court of Appeal (“SCA”), Richard Du Plessis Barry v Clearwater Estates NPC 2017 (3) SA 364 (SCA) the effect of failure to meet such a deadline was in issue: does late delivery of the proxy to the company render it invalid, or can late delivery be condoned?

In this case Clearwater’s MOI required that proxies had to be submitted not less than 48 hours before a meeting. Proxies were handed in late by some of the shareholders, so Clearwater’s board proposed a resolution at the meeting to condone the late filing of the proxies.

Mr. Richard Du Plessis Barry (the Appellant) did not like this and took Clearwater to court. In essence, he argued that the condonation of the late filings was effectively an amendment of Clearwater’s MOI, that it was invalid and there was no quorum at the meeting to condone such late filing.

Clearwater argued that the 48 hour rule in the MOI violated section 58(1) of the Act and was invalid and that proxies could be filed at any stage before the meeting.

 

Section 58(1) of the Act provides that: “At any time, a shareholder may appoint any individual ….. as a proxy”; and section 58(3)(c) provides that a copy of the proxy must be delivered to the company “before the proxy exercises any rights of the shareholder …..”

The SCA decided that section 58 is an unalterable provision of the Act (which means that companies cannot decide to change such a provision in a shareholders agreement or in its MOI) and that the MOI of Clearwater, by setting a deadline for proxies to be filed, went beyond what section 58(1) allows. The 48 hour rule in the MOI was therefore invalid.

The court acknowledged that this decision will pose practical administrative difficulties for larger public companies with thousands of shareholders, who could now leave it to the last minute to submit their proxy forms to the company. However, the court declined to let this practical difficulty guide its decision and held that only the legislature can change the effect of section 58 in this regard.

What does this mean? The time limit for delivery of proxies provided for in the MOI of many companies is therefore invalid and shareholders will comply with section 58 as long as a copy of the proxy is delivered to the company at any time “before the proxy exercises any rights of the shareholder”.