Deadlines no longer count
Final dates and times specified for the lodging of proxy votes are invalid, the appeal court has found
If you’re a procrastinator and happen to have shares in a Jse-listed company, things are going your way.
In fact, they’ve been going your way since the new Companies Act came into effect in 2011. But it’s only since a supreme court of appeal ruling earlier this year that your right to pitch up at the very last minute and vote at a shareholder meeting has been given muscle.
Piet Delport, professor of law at Pretoria University, is of the opinion that even if the meeting has commenced and you have already handed your proxy to someone else, you can change your mind, right up to the time the voting occurs. Delport says the court’s ruling in the Clearwater case in March makes clear that a proxy that contains a requirement that it be lodged before a meeting cannot be valid.
The ruling did no more than confirm shareholders’ rights, in terms of section 58 of the Companies Act, to appoint a proxy “at any time”. This means a company cannot require a proxy to be lodged on or before a particular time. If it does, the proxy votes, which often account for more than 75% at a shareholder meeting, could be declared invalid. This would allow a minority shareholder attending the meeting in person to determine the outcome of the meeting.
It seems Jse-listed companies are slowly coming around to the dramatic implications of the three-month-old ruling.
Computershare, which provides custodial services for listed companies, has written to clients suggesting that in future their notice of meetings should make no reference to a specific cut-off time. Computershare director Charles Lourens said there is talk of approaching the authorities to have the act amended, but in the meantime they’re recommending that their clients avoid any mention of deadlines. Electronic settlement system administrator Strate says it has assessed the Clearwater ruling and agrees the Companies
Act does not allow a deadline to be set by a company. “Strate would like to reiterate that its rules and directives are purely enabling, and do not in any way restrict the voting or proxy process, and hence cannot override the act or indeed a ruling of a court of law.”
Strate has advised that the Clearwater ruling “should not [affect foreign-incorporated] companies as they are not subject to local judgments”.
The JSE says the ruling has no bearing on its listings requirements and though it will make the outcome of meetings less predictable it does reinforce shareholders’ rights. Vodacom is one of the first major listed companies to address the matter. In the circular sent last week to shareholders detailing the notice of a general meeting relating to the proposed acquisition of a stake in Safaricom it “recommends” proxy forms be lodged 24 hours before the meeting. Delport says this would probably stand up to any challenge. “The moment a company makes it a requirement, rather than a recommendation, it could be deemed invalid if challenged.”
Computershare’s letter refers to legal advice explaining that the reason for early proxy delivery was simply to ensure orderly conduct. “It would be a tricky situation if 100 or more ‘proxyholders’ were to turn up with forms in hand, at a meeting, very close to its scheduled commencement time.” This might have required the chairman to adjourn the meeting to allow the proxyholders the opportunity to register and have their identities checked.
This is only part of the explanation. At least as important is that the 48-hour cutoff gives the board time to withdraw a resolution it realises will be unsuccessful. As for amending the relevant section of the Companies Act 2008 to bring it back into line with the previous act, even if it were feasible it would be at least several months before the amendment came into force. Meanwhile, companies that did not adjust their proxy forms to exclude any time restriction would be vulnerable to a challenge. Over the longer term it’s likely companies will have to get used to being much more nimble. Computershare already has an eproxy facility that allows administrators in certain circumstances to check and record votes up to an hour before a meeting starts.
What will be less easy to deal with is the inability to scrap unsuccessful resolutions.