The High Court has found that a company debenture, signed by its sole director and the company secretary but not completed for three months by which time the director had left office, was validly completed. It did not need to be re-executed. That said, if this situation arose in practice, it may give greater certainty for the document to be re-executed by the new officer(s).
A company’s officers and senior managers should be aware of what is required for documents to be properly executed by the company or on its behalf. This will avoid arguments as to whether a contract or deed is, or is not, binding on the company or the other party/parties to it.
Contracts and deeds
Although advisable to have it in writing, contracts can be made orally if various legal elements exist. Some contracts, however, must be in writing too, for example: contracts for the sale of land; assignments of the benefit of a contract; share transfers; assignments of IP; and guarantees.
Some transactions must be by deed, for example: transfers of land; leases of more than three years; mortgages and charges; and powers of attorney. A deed must be in writing, clear from the face of the instrument that it is intended to take effect as a deed, validly executed, and delivered.
The two main differences between contracts and deeds are the limitation periods for court actions (six years for contracts and twelve years for deeds (but six years for arrears of rent or mortgage interest)) and that deeds are generally enforceable despite a lack of consideration, i.e. one party may give the other something but receive nothing in return for it.
Execution requirements for a company
Under the Companies Act 2006, contracts may be entered into:
- By a company, by writing under its common seal; or
- On behalf of a company, by a person acting with express or implied authority.
Documents (including deeds) may be executed by a company by either:
- Affixing its common seal;
- Signature on behalf of the company by:
- Two directors; or
- One director and the company secretary; or
- One director in the presence of a witness who attests the signature.
A deed must also be delivered to take effect, but it will be presumed this has happened on execution unless a contrary intention is provided.
The case
In June 2008, Armstrong Brands Ltd approved a loan agreement and the grant of a debenture as security for the loan. Both the loan agreement and debenture were deeds and were subsequently executed on behalf of the company by its sole director and the company secretary. They were not dated, however, until 15 September 2008, by which time the director had left office.
On 17 April 2014, the lender appointed an administrator under the terms of a floating charge contained in the debenture. The administrator sought a declaration regarding the validity of their appointment. The court had to determine whether the debenture had been validly executed in accordance with the Companies Act 2006.
The decision
The High Court held that the debenture had been validly executed. It was sufficient that it had been signed by a person who was a director at the time he signed in that capacity (as evidenced by minutes of board meeting on 1 September 2008) and that it had been prepared much earlier (as evidenced by an amendment to a shareholder resolution approving the documents extending the lapse date from 15 June to 21 September 2008). It was not an issue that the transaction completed at a later date.
The court was also satisfied that the later delivery required no further execution, just board authority, which had been given at the meeting on 1 September 2008.
The above is a very brief summary of how documents should be prepared and executed. Professional advice should be taken on any specific circumstances.
Re Armstrong Brands Ltd (In Administration) [2015] EWHC 3303 (Ch) (18 November 2015)
Charles Hylton-Potts
