A large insurance company claimed to be a creditor of Ungul, a
property developer. Ungul was in voluntary administration.
A meeting of Ungul's creditors was called for 11 June. The
insurance company's solicitors contacted the administrator and
the notice of the meeting had only been received on 9
the insurance company would be submitting a proxy;
because of the size of the insurance company, its directors
were spread around Australia and did not normally "deal with
day to day affairs such as this meeting", so it had been
impossible to get them to sign the proxy;
instead, the proxy would be signed by the insurance
company's "executive manager".
The administrator said that the proxy had to have the common
seal or to be signed by a director (as required by section 127 of
the Corporations Act). The signature of someone who
purported to be an "executive manager" just didn't
The insurance company's solicitors repeated their intention
to submit a proxy signed by the "executive manager". They
said that this proxy should be accepted by the administrator for
no other administrator had ever rejected a proxy signed by the
insurance company's "executive manager";
the administrator could rely on the indoor management rule (a
provision of the Corporations Act which says that a person dealing
with a company is entitled to assume that an officer of a company
has been validly appointed).
The meeting opened, the proxy was rejected and the insurance
company took the administrator to court.
Should the proxy have been accepted?
The Court rejected the insurance company's argument that the
proxy was saved by the indoor management rule.
The indoor management rule says that a third party dealing with
a company can assume that a person:
has been validly appointed as an officer of the company;
has the usual powers of such an officer
but only if the company has held the person out to be an
The rule didn't apply in this case for two reasons:
there was no evidence that the insurance company had held the
person out to be its "executive manager" (all the
administrator had was the solicitors' assurance that he was an
even if he had been validly held out to be "executive
manager", the office of "executive manager" did not
imply any particular authority to bind a company.
Systems and short-cuts
The Court pointed out that the insurance company could have
saved itself this grief by having a system of delegation in
"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
On the evidence before it, said the Court, the insurance company
had not been shown to have had any such system in place.
The need for a system of delegation is the obvious lesson from
this case. The other lesson is more subtle.
The insurance company's solicitors claimed that no-one had
ever rejected a proxy signed by the "executive manager".
The administrator's response was that he couldn't speak for
other administrators - and, as it turned out, the Court agreed with
The other lesson for companies, therefore, is the importance of
ensuring that documents are properly executed. For example,
short-cuts should be avoided, no matter how much pressure there is
to get the documents out the door. Nine times out of ten, the other
side in a deal may not notice that documents haven't been
properly executed. But it only takes one person to spot that
something's wrong, and you've got a real problem.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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On 12th November 2016, new laws will commence to protect small businesses from unfair terms in standard form contracts.
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