A great leap forward?** Attorneys acting as director

A recent post considered the broad limitations to an attorney's powers.

While a validly appointed financial attorney has extremely wide powers in relation to what they may do on behalf of the donor, one of the key specific restrictions relates to a donor's directorships.

A directorship is a personal role and cannot be delegated.

Arguably the leading case on this point is Mancini v Mancini [1999] NSWSC 799.

The key statement in that decision was as follows -

'The office of a director is a personal responsibility, and can only be discharged by the person who holds the office.

If there is any exception, it must be found in the constitution of the company and in some authorisation there found to act by an alternate or other substitute or delegate.

The office of a director is not a property right capable of being exercised by an attorney or other substitute or delegate of the person holding the office; many rights as shareholder can be distinguished in this respect because they are rights of property.'

It is important to understand from an estate planning perspective that there are three main potential work arounds in this area, namely -

1. a company may grant an individual a power of attorney to act on behalf of the company;
2. the company may appoint an alternative director; or
3. if the director is personally a shareholder and has granted a personal enduring power of attorney, then the attorney may be able to exercise their powers via control of the shareholding to appoint a new director (including themselves).

As usual, please contact me if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Billy Bragg song 'Waiting for the great leap forward'.

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How many (times) ** and directors does it take to bind a company?

As is generally well understood, section 127 of the Corporations Act confirms a company with 2 or more directors may execute a document by either:

1. 2 directors signing; or
2. a director and a company secretary signing.

Where a company has a sole director and secretary, that director can sign.

Perhaps less well known is section 126 of the Corporations Act that allows for a company to be bound by an individual acting with the company's express or implied authority.

In situations where section 126 is being relied on a company's constitution is also often relevant. For example, a constitution may provide that the directors can resolve that a specified director is authorised to execute documents.

Third parties will of course not necessarily be aware of the internal resolutions of a company. The Corporations Act under sections 128 and 129 therefore provides some protection for third parties confirming that they may rely on certain statutory assumptions as to valid execution.

These assumptions have a number of limitations however, for example they cannot be relied on where:

1. The person seeking to rely on the assumption knew or suspected that the assumption was incorrect.
2. The document is being executed relying on section 126, as opposed to under section 127. In other words, if 2 directors (or one director and one secretary) sign then the assumption can be relied on. However, if one director only signs who is not the sole director and secretary then the protection of the valid execution assumption is unavailable.

Practically, therefore where a sole director signs a document third parties should ideally:

1. obtain confirmation (for example by performing an ASIC search) that the person is the sole director and secretary;
2. obtain an extract of the constitution for the company and a copy of the resolution appointing the director as an authorised sole signatory; or
3. require the company to instead grant power of attorney to the relevant director. A copy of the power of attorney should then be produced at the time of signing.

** for the trainspotters, the title here is riffed from the Bob Dylan song, ‘Blowin’ in the Wind’.