Execution of documents by companies

Given how often companies execute documents, and the consequences of getting it wrong, I have always found the law on the subject weirdly complicated.  Perhaps that’s just because I’m a litigator and never quite cottoned on to a commercial lawyer’s basic skill.  But a beautifully written Clayton Utz file note by John Elliott, about Vero Insurance Ltd v Kassem [2010] NSWSC 838 winningly entitled ‘Sometimes You Do Have to Sweat the Small Stuff” suggests that there may be others with difficulties in this area of the law.  Vero tried to vote at a creditors meeting (an insolvency law procedure) by a proxy signed by its ‘Executive Director’.  That did not comply with s. 127 of the Corporations Act, 1991 which said:

‘(1)  A company may execute a document without using a common seal if the document is signed by:

(a)  2 directors of the company; or

(b)  a director and a company secretary of the company; or

(c)  for a proprietary company that has a sole director who is also the sole company secretary–that director.

(2)  A company with a common seal may execute a document if the seal is fixed to the document and the fixing of the seal is witnessed by:

(a)  2 directors of the company; or

(b)  a director and a company secretary of the company; or

(c)  for a proprietary company that has a sole director who is also the sole company secretary–that director.’

Of course if s. 127 were a code for the way companies may execute documents properly, it would all be very simple.  But there are lots of other ways companies can execute documents validly.  For example, a barrister may sign terms of settlement on behalf of a company, as its agent.

Vero argued that there was inadequate time to get a director’s signature before the meeting, and the administrator presiding over the meeting should have accept the signature under the indoor management rule.  The administrator refused to accept the proxy votes, and the matter went to court, vindicating the punctilious administrator.  Justice Barrett said:

‘Most large companies have in place well documented systems of delegation to officers of different ranks. Internal delegations are often accompanied by powers of attorney executed under the common seal embodying, by way of safeguard, limitations and requirements for multiple signatures and sometimes allowing sub-delegation. Arrangements of that kind give those companies a ready and convenient means of proving the authority of officers on any occasion on which it becomes necessary or desirable to do so, particularly in a legal context. On the evidence before me, Vero is not shown to have had any such system in place.’

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