James is a Partner and Head of the Dispute Resolution team and primarily handles commercial…View Profile View all
The High Court has recently had to decide a case involving the execution of a debenture by a director. A company had been placed into administration by the holder of a debenture and there was an argument as to whether the administrators had been properly appointed. This arose because whilst the debenture had been signed by a director of a company, the debenture had not been dated at that time, nor delivered, in a legal sense, to the debenture holder. It was only later that the document was dated and ‘delivered’. If the debenture was not valid, the appointment of the administrators by the debenture holder would have been invalid and the debenture holder would have had to indemnify any losses which had arisen by reason of the invalid appointment.
The relevant provision of the Companies Act says that a document is validly executed by a company if it is signed on behalf of the company by two authorised signatories or a director of the company in the presence of a witness who attests the signature. “Authorised Signatories” are every director of the company and the secretary of the company.
The Court decided that notwithstanding the fact that by the time the debenture was dated and formally delivered to the debenture holder the director who signed it was no longer in office, the document had been validly executed because it had been signed by the director when he was still in office and there were corroborative board minutes and resolutions which confirmed that the debenture had been validly executed whilst the director was in office. Mr Justice Purle, sitting in the Chancery Division, decided that taken together there was sufficient evidence to show that the document had been properly executed for the purposes of the Companies Act 2006 notwithstanding the fact that the document was not dated and delivered until later.
This case underlines the importance of checking that company directors and secretaries who have signed documents are still in office at the relevant time or for obtaining documentary evidence that they were in office at the time of signature.
For further information contact James Staton on 01274 306 000.