Proxy for Private Company



The manner in which meetings of a board of directors of a company must be conducted and the voting procedure relevant to such meetings are regulated in terms of the Companies Act 71 of 2008 (“Companies Act”) and the memorandum of incorporation of the company (“MOI”).

The Companies Act allow shareholders of a company to appoint proxies and delegate certain duties to proxies such as attending shareholder meetings and voting on their behalf at such meetings. A proxy is therefore a representative or agent who is legally authorised to act on behalf of another party.

It is important to note that a proxy must be deposited at the office of the company not less than 48 hours before the time appointed for holding of a meeting and if not deposited timeously, it shall not be treated as valid. It would result in an internal conflict within section 58 of the Act and will be inconsistent with the provisions of the Act and in particular with provisions of section 58(1) of the Act.

An important distinction can be drawn between a proxy and an alternate director. The alternate director does not serve in a representative capacity, but serves as if he/she is appointed as a director of the company.

The alternate director accordingly needs to act in the best interest of the company and is subject to all of the fiduciary duties towards the company as contemplated in the Companies Act.

Although the appointment of alternate directors is regulated by the Companies Act, it is also crucial to ensure that the MOI of the company addresses the nomination, appointment and service of an alternate director.

The dire consequences of the practical utility in respect of the following:

• It is estimated that at least 90%, if not more, of the companies who have drafted a Memorandum of Incorporation (MOI) on behalf of their corporate clients, were wrong and advised their company clients incorrectly.
• It is further estimated that 90%, if not more, literally thousands of registered MOI’s in our country contain void stipulations, which are inconsistent with the Act pertaining to late proxies.
• General meetings or annual general meetings will be disrupted and inconvenienced to the extent that no meeting will commence on the stipulated time scheduled in the notice until all proxies delivered, whether a millisecond or a nanosecond before the time scheduled for that meeting are firstly scrutinised, the validity thereof verified and counted.
• One can only imagine what absolute chaos will ensue in instances when public companies with literally hundreds and possibly thousands of eligible voter members giving proxies, are confronted with proxies delivered a second before the scheduled time for the commencement of the meeting.

The concept of disqualifying ‘late proxies’ stood the test of court scrutiny over time since the Companies Act 46 of 1926, the previous Companies Act 61 of 1973.

Section 58 of the Act stipulates, among other things, the following:
‘58(1) At any time, a shareholder of a company may appoint any individual, including an individual who is not a shareholder of that company, as a proxy to:
(a) participate in, and speak and vote at, a shareholders meeting on behalf of the shareholder; or
(b) give or withhold written consent on behalf of the shareholder to a decision contemplated in section 60.
(2) A proxy appointment:
(a) must be in writing, dated and signed by the shareholder; and
(b) remains valid for –
(i) one year after the date on which it was signed; or
(ii) any longer or shorter period expressly set out in the appointment, unless it is revoked in a manner contemplated in subsection (4)(c), or
(iii)expires earlier as contemplated in subsection (8)(d).

(3) Except to the extent that the Memorandum of Incorporation of a company provides otherwise:
• a copy of the instrument appointing a proxy must be delivered to the company, or to any other person on behalf of the company, before the proxy exercises any rights of the shareholder at a shareholders meeting.

With reference to s 58(3)(c), some people are of the view that section does not refer to or relate in any way as to the time when the proxy is to be so delivered. That is provided in section 58(1) of the Act.

It can clearly be assumed that ‘before the proxy exercises any rights’ refers to and relates to time, ‘before’ can be nothing else than time related.

Furthermore, the introductory wording ‘except to the extent that the Memorandum of Incorporation of a company provides otherwise’ postulates that the contents of s 58(3)(c) is alterable as stipulated in s 15(2) of the Act, which reads as follows:

‘15(2) The Memorandum of Incorporation of any company may:
(a) include any provision:
• altering the effect of any alterable provision of this Act;
• imposing on the company a higher standard, greater restriction, longer period of time or any similarly more onerous requirement, than would otherwise apply to the company in terms of an unalterable provision of this Act’.
An ‘alterable provision’ is defined by section 1 of the Act, as follows:
A provision of this Act in which it is expressly contemplated that its effect on a particular company may be negated, restricted, limited, qualified, extended or otherwise altered in substance or effect by the company’s Memorandum of Incorporation’.

Does ‘except to the extent that the Memorandum of Incorporation of a company provides otherwise’ not mean ‘expressly contemplated’ within the meaning of an alterable provision?

The ‘any time’ referred to in s 58(1) relates to the giving of a proxy inter partes (meaning between the parties) between the member and whomever the member appoints in terms of the proxy. However, as far as the company is concerned for purposes of regulating its own administrative procedures as provided for in s 15(2)(a)(iii) above, it is entitled to change ‘before’ as stipulated in s 58(3)(c) to ‘48 hours before’. Inter partes the proxy giver and the proxy receiver, it can be done any time.