Section 1 of the Companies Act 71 of 2008 (“the Companies Act”) differentiates between alterable and unalterable provisions and defines “unalterable provisions” as a provision 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”.
_The case of Barry v Clearwater Estates NPC & Others 2017 (3) SA 364 (SCA)_ deals with section 15(2)(a)(iii) of the Companies Act which states that the Memorandum of Incorporation (“MOI”) of a company may not contain a provision that negates, restricts, limits, qualifies, extends or otherwise alters the substance and effect of an UNALTERABLE provision of the Companies Act.
In this case, Clearwater Estates convened a special general meeting to adopt various resolutions.
One of the resolutions approved was to increase levy payments by residents. Barry, being a director of Clearwater Estates, challenged the validity of the resolution on account of the fact that shareholder proxies in terms of the MOI, were to be submitted 48 hours before the time designated for holding the meeting. These proxies were instead submitted on the day of the meeting.
In short, it was contended that proxy forms submitted on the day of the meeting were invalid and therefore that the necessary quorum had not been met. The board proposed that in order to now meet the quorum requirements, it would vote on condoning the late filing of the proxies.
Clearwater contended that the articles found in the MOI relating to proxies were in contravention of the Companies Act in that section 58(1) of the Companies Act states that:
_”at any time, a shareholder of a company may appoint any individual, including an individual who is not a shareholder of that company …”_
In light of the above, it was argued by Clearwater that the articles contained in the MOI were in contravention of the Companies Act, and the requirement in the articles that any proxy be delivered not less than 48 hours before the meeting was therefore null and void.
As section 58 (1) of the Companies Act is an unalterable provision, it may not be altered by the MOI of the Company.
In contrast to Clearwater’s argument, Barry drew a distinction between section 58(1) and an alterable provision in the Companies Act being section 58(3)(c) which states that:
“_except to the extent where the MOI 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.”_
The court found that although section 58(3)(c) is an alterable provision, the plain wording of sections 58(1)(a) and 58(3)(c) read together is that a shareholder may appoint a proxy at any time provided that a proxy delivers a copy of the instrument appointing the proxy before the proxy may exercise any of the rights of the shareholder at the meeting.
Consequently, if the articles in question contravene or are inconsistent with the provisions of s 58(1), they are void in terms of s 15(1) of the Act.
In conclusion the court held that 58 (1) could not be altered and the articles in the MOI were null and void being inconsistent with the Companies Act.
It is important to note from the above case that if a section in the Companies Act is unalterable, it will always prevail over the company’s MOI. Companies need to be cognisant of the unalterable provisions of the Companies Act in order to safeguard compliance with it.