The execution of documents: timing and validity

The High Court has held in Re Armstrong Brands Ltd (In Administration) [2015] EWHC 3303 (Ch) that documents which had been signed by a person who was at the time of signature a director, but who was not a director or other authorised signatory at the time the documents were dated, and the transaction completed, were validly executed under section 44 of the Companies Act 2006 (the Act).

Background

Armstrong Brands Ltd (the Company) entered into a loan agreement with J.B. Armstrong & Co. Ltd (JB) dated 15 September 2008 under which JB agreed to lend the Company £750,000 in the form of cash and stock. At the same time the Company also purported to grant a debenture to JB as security for the payment or discharge of the secured liabilities. The documents were both expressed to be executed as deeds by the Company “acting by two directors or a director and the company secretary” and were signed by Mr Armstrong and the company secretary in early June 2008 when Mr Armstrong was a director. On 08 June 2008, prior to completion of the transaction, Mr Armstrong’s appointment as director was terminated and a new director was appointed. The question as to the validity of the documents arose when the administrators of the Company applied to the Court for a declaration that their appointment was valid. This depended on the validity of the qualifying floating charge under which the appointment was made. The debenture purported to create the floating charge.

The arguments

The administrators argued four points:

• The fact that the debenture was purportedly executed as a deed was irrelevant as a floating charge may be created by an “instrument” (paragraph 14(2) of Schedule B1). The judge dismissed this argument on the basis that it may be so but an instrument would still need to be validly executed pursuant to section 44 of the Act.
• A letter written by the company secretary on 10 June 2008 authorising Mr Armstrong to sign the documents on the Company’s behalf was sufficient to confer the necessary authority on Mr Armstrong independently of section 44 of the Act. The judge found it hard to reconcile this argument with historic case law on the section’s predecessor.
• JB, which lent substantial sums under the loan agreement in reliance on the debenture, was a “purchaser” within the meaning of subsection 44(5) of the Act and therefore the document is deemed to have been duly executed if it purports to be signed in accordance with subsection 44(2). The judge dismissed this argument because Mr Armstrong, whilst not a director of the Company in September 2008, was a director of JB. As his knowledge was attributable to JB, it follows that JB knew the documents, if signed in September 2008, were not validly executed and therefore JB could not rely on subsection 44(5).
• The documents were both signed, though not dated, when Mr Armstrong was still a director of the Company and therefore section 44 of the Act was complied with. It was this argument and the various board minutes and written resolutions produced to evidence that this was indeed the case which enabled the judge to establish the validity of the documents.

Outcome

The application was granted and the judge held that the administrators’ appointment was valid. The crucial point was whether section 44 had been complied with and what that section required was that the documents be signed by two authorised signatories. In the present case that meant one director and one company secretary. The documents were signed by a person who was at the time he signed a director, as well as by the company secretary and that was enough. The judge held that it did not matter that the transaction completed later, when the director signatory was no longer a director.

The judge also confirmed that execution and delivery need not be simultaneous, though will be presumed to be unless a contrary intention is proved under section 46(2) of the Act. In this case he was satisfied that the contrary intention was proved. The later delivery of the documents did not require any form of execution, it merely required board authority, which the applicants were able to produce by way of board minutes dated in September by the then current board. Alternatively, the judge said that the Company is to be taken as delivering the documents in June and then the documents being held in escrow until acceptance by JB on 15 September 2008.

Comment

This case is useful in practice as it addresses the question of validity when there is a period of time between execution and delivery/completion. It highlights the importance of keeping a detailed paper trail around the signature and completion of legal documents via emails, letters, board minutes and resolutions to avoid any questions over their validity.