The reporting of the decision in Re Armstrong Brands by the High Court created some confusion. Many reports appear to suggest that a former director can bind a company, even after he has resigned as a director. Careful reading of the case confirms that this is not the case. However, it provides some useful reminders and considerations when executing and delivering documents.
The facts are simple enough: a debenture creating a floating charge was executed by the sole director and company secretary of Armstrong Brands Ltd (Armstrong), but it was not delivered and dated until three months later. By then, the signing director was no longer a director.
The key issues were:
- whether the charge had been validly executed by the company, and
- whether the debenture had legal effect.
Two authorised signatories can execute a document for a company (section 44(2)(a) Companies Act 2006). As the signing director had since resigned, the court required evidence that he had in fact been a director at the time of signing. Combining the evidence from the letter of authority on Company headed notepaper authorising the signatory director to sign documents on the company's behalf, board minutes authorising signatures and the text of the lending company's ordinary resolution, the court was satisfied that the debenture was executed whilst the signing director was still in office. It did not matter, for these purposes, that the transaction was completed at a later date when the signatory director was no longer a director. The later delivery of documentation as a deed does not require any subsequent execution, merely board authority.
From a practical perspective, we should be reminded of the following:
- a deed may not require re-execution where it has been executed by someone who has ceased to be a director, but not delivered;
- failure to re-execute undoubtedly carries the risk that execution might be challenged in the future and parties put to proof;
- when accepting documentation executed by someone who has since ceased to be a director, we should request clear supplementary evidence that they were still a director at the point of execution; and
- where a document has been executed and delivered on different dates, we should ensure there is adequate board authorisation for both execution and delivery.
Crucially, the directors of Armstrong had held two board meetings, one authorising execution and a second, months later, authorising delivery. It was this second meeting which meant that the debenture had legal effect as the board had ratified both execution and delivery.
By executing documents closer to the time of delivery, the issues in Re Armstrong Brands can be avoided. This needs to be carefully considered in the rare circumstances when executed documents lie undelivered for many months.
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