By Nick Theunissen, Partner in the Corporate & Commercial department
The recent Judgement of the Supreme Court of Appeal in the case of Richard du Plessis Barry v Clearwater Estates NPC and others is important for companies and those individuals tasked with convening meetings of shareholders or members of companies.
Facts of the case
Clearwater Estates (“the Company”) is an estate management company. A general meeting of the Company was called for the purpose of inter alia increasing the levies payable with a view to ensuring that the Company was in a position to meet its obligations in terms of its Memorandum of Incorporation (“MOI”). The MOI of the Company provides that proxies must be delivered 48 hours before the commencement of a meeting whereas section 58(1) of the Companies Act (“Act”) provides that a proxy may be delivered “at any time.” Presumably this means at any time prior to the matter being discussed and voted on.
Some proxies were received less than 48 hours prior to the meeting and, in terms of the MOI, were late. However, the meeting agreed they would be taken into account for the quorum and the voting at the meeting. The member who sought to challenge the decisions taken at that meeting contended that the proxies were void because they were not delivered at least 48 hours prior to the meeting.
The Court held that Articles 13.7.10 and 13.7.11 of the MOI must be considered in the context of the definition of “alterable provisions” and “unalterable provisions” in Section 1 of the Act.
An alterable provision is:
“… 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 that company’s Memorandum of Incorporation.”
An unalterable provision is:
“… a provision of this Act that does not expressly contemplate that its effect on any particular company may be negated, restricted, limited, qualified, extended or otherwise altered in substance or effect by a company’s Memorandum of Incorporation or Rules.”
The importance of these definitions is that, in terms of Section 15.2 of the Act, the MOI may not contain a provision which negates, restricts, limits, qualifies, extends or otherwise alters the substance of an unalterable provision of the Act.
Justice Swain agreed that the provisions of Section 58(1) of the Act are unalterable. It followed in his judgment that as the Articles in question
“… contravene or are inconsistent with the provisions of Section 58(1) they are void in terms of Section 51 of the Act.”
Having concluded that the provisions of Articles 13.7.10 and 13.7.11 were inconsistent with Section 58 of the Act, the appeal was dismissed with costs.
It is fairly common for company MOI’s to contain a provision similar to the Articles 13.7.10 and 13.7.11. In light of this judgment, those provisions in the Articles may not be relied upon and Companies must give effect to the unalterable provision which allows proxies to be delivered “at any time”.
For more information on the above, please contact:
Partner in the Corporate & Commercial department
Shepstone & Wylie Attorneys
+27 82 443 7665