Correct Execution of Documents by a Company

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Correct Execution of Documents by a Company

We are often asked to provide advice to our clients on proper execution of documents. This also covers how, as a contracting party, our clients can protect themselves against allegations that the contract was not properly entered into by one of the parties.

How do you protect yourself?

The most straightforward and fool-proof way of validly executing (and ensuring other contracting parties execute) an agreement or deed as a company is to execute in accordance with section 127 of the Corporations Act 2001. Many of you would have seen an attestation clause that reads “Executed by ABC Pty Limited by its authorised officers pursuant to section 127 of the Corporations Act 2001”.

Section 127 sets out that a company can execute an agreement or deed with or without a common seal, by having the document signed, or the seal witnessed by:

  • two directors of the company; or
  • a director and a company secretary of the company; or
  • if a proprietary company has a sole director who is also the sole secretary – the sole director/sole secretary.

The above options are not the only way a company can enter into and bind itself to the contents of an agreement or deed. However, if one of the above applicable alternatives is utilised, then the other contracting parties can make the following assumptions, without further investigation:

  • The company’s constitution (if any), and the provisions of the Act that apply to the company as replaceable rules, have been complied with.
  • Anyone who appears, from information provided by the company that is available to the public from ASIC, to be a director or a company secretary of the company:
    • has been duly appointed; and
    • has authority to exercise the powers and perform the duties customarily exercised or performed by a director or a company secretary of a similar company.
  • Anyone who is held out by the company to be an officer or agent of the company:
    • has been duly appointed; and
    • has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company.
  • The officers or agents of the company properly perform their duties to the company.
  • A document has been duly executed by the company if the document appears to have been signed in accordance with s 127(1) of the Act.
  • A document has been duly executed if:
    • the company’s common seal has been fixed to the document; and
    • the fixing of the common seal was witnessed in accordance with s 127(2) of the Act.

For the purpose of making the above assumptions as to execution by a company, a person may also assume that anyone who signs the document and states next to their signature that they are the sole director and sole secretary of the company occupies both offices.

Where it is not possible or practical to have a document executed in accordance with section 127, then a contracting party cannot rely on the above assumptions and must instead make their own investigations as to whether or not the company has in fact authorised the execution of the document in question and otherwise complied with the Corporations Act and its own constitution in that authorisation process.

Most contracting parties make a commercial decision on a case by case basis, depending on the size, value and importance of each agreement or deed, as to whether they are prepared to accept execution by a company other than in accordance with section 127. On each occasion, contracting parties will also make a decision on whether to rely on a reasonable person test that the person they are dealing with would usually have authority to sign the document in question.

If you have concerns, some questions to ask of a contracting party when section 127 cannot be complied with, include:

  • What office does the person or persons executing the document on behalf of the company hold within that company?
  • Is there a publicly available document which sets out the various delegated authorities of officers within the company?
  • Does the company have evidence of a resolution passed in accordance with its constitution or resolving to enter into the agreement or deed in question and authorising certain persons to execute on its behalf?

If you require further information regarding any of the above, please contact us on (02) 49252077.

 

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