Scenario

Client X has recently discovered a big gap in the market for a new business venture. Client X explains that one of the constraints he is experiencing is the fact that he already serves as a director of Company A. Client X explains that starting the new business venture will take up a considerable amount of his time, and that there is a possibility that he won’t be able to attend to some, possibly all, of his duties as director in Company A. He wants to know if he, as director, can appoint a proxy to stand in for him while he gets the new business on its feet.

The Law

The appointment of a proxy in this instance is regulated by the Companies Act 71 of 2008 (hereinafter referred to as the Act).  Section 58 of the Act only grants shareholders the right to appoint proxies. The Act does not make provision for directors to appoint a proxy. 

Section 66 of the Act stipulates that the business and affairs of a company must be managed by or under the direction of its board, which has the authority to exercise all of the powers and perform any of the functions of the company, except to the extent that this Act or the company’s Memorandum of Incorporation (MOI) provides otherwise. Section 66(4)(a)(iii) of the Act stipulates that a company’s MOI may provide for the appointment or election of one or more persons as alternate directors of the company. Furthermore, section 1 of the Act defines an alternate director as a person elected or appointed to serve, as the occasion requires, as a member of the board of a company in substitution for a particular elected or appointed director of that company.

From the above sections contained in the Act, it is clear that a director wishing to temporarily cede some or all of his duties is not without a remedy. The solution is that such director must appoint an alternate director as provided for in the Act and MOI, and register such alternate director with CIPC and a shareholder’s resolution passed in terms of Section 68 of the Act, and a form COR 39 filed with CIPC.

As a result, it should be noted that from a practical point of view it is important to look at the MOI of the Company to determine whether provision is made for such an appointment, and confirm with CIPC if the appointment was made. Furthermore, such alternate director is subject to the provisions of the Act which prohibits certain individuals from being appointed as directors or alternate directors.

In conclusion, a director cannot appoint a proxy – only shareholders can appoint a proxy. A director must appoint an alternate director in such instances.

By Alan Edelstein (Director) and Jacques Opperman (Candidate Attorney)  | Corporate and Commercial Department