The Gazette 1987

GAZETTE

SEPTEMBER 1987

Debenture — Attestation of Company Seal

It mu s t be su r p r i s i ng t o t he p r ac t i t i oner t o r ead t ha t t he absence o f a d i r e c t o r 's c o u n t er s i gna t u re t o t he sea l i ng o f a deben t u r e, n o t w i t h s t a n d i ng t he A r t i c l es o f As s o c i a t i on o f t he c omp a ny conce r ned, w o u l d still cons t i t u te a va l id execu- t i on by t he c omp a n y, yet t h i s w a s t he c o n c l u s i on r eached by t he Eng l i sh H i gh Co u r t (Chance ry Di v i s i on) in t he case of T.C.B. Limited -v- W. A. Gray [1986] 3 C.M.L.R. 439.

of the debenture was a transaction decided on by the directors. Accor- dingly the necessary basis for ap- plying Section 9.(1) of the English European Communities Act, 1972 existed as between the company and T.C.B. and therefore the debenture was valid and Mr. Gray's defence failed. Although not quite couched in the same language, the equivalent regulation under Irish law is regula- tion 6. of the European Com- munities (Companies) Regulations, 1973 (S.I. No. 163 of 1973). Mr. Gray subsequently brought an appeal to the Court of Appeal as to his liability as Guarantor, but this was dismissed by the Court of Ap- peal (Times Law Reports, July 21 1987). Apart altogether from the ap- plication of community law to the execution of documents by com- panies, the case makes some in- teresting reading on other issues such as the lack of a seal on the relevant power of attorney but, not least, the fact that it was one of those cases where the solicitors concerned were given a matter of three or four days (inclusive of a week-end) to prepare almost 100 security documents. It was not sur- prising therefore that every " i " had not been dotted or " t " crossed with near fatal consequences — if community law had not come to the rescue. •

In that case Mr. Gray, a director and majority shareholder of the company, caused the company to issue a debenture in favour of T.C.B. in order to secure a loan of five million pounds. In addition, Mr. Gray executed a guarantee for the company's obligations to T.C.B. without limitation (although this was also a matter in dispute). By the company's Articles such an in- strument had to be signed by a director and counter signed by the secretary or another director. In fact the debenture, although seal- ed, was signed by a stranger, namely Mr. Gray's solicitor acting for Mr. Gray under a power of at- torney, and counter-signed by the company secretary. It was not ac- tually signed by any director. Nevertheless under Section 9.(1) of the English European Com- munities Act, 1972 the English High Court held that this was an authentic act of the company which could be enforced by a third party against the company. As part of his defence to the claim by T.C.B., Mr. Gray pleaded that the debenture was invalid in- sofar as the seal of the company had not been affixed in accordance with the Articles of Association and furthermore, as there was no power in the Articles of the com- pany enabling a director to act by his attorney, by applying the prin- ciple of "delegatus non potest delegare", the seal was not affix- ed in accordance with the re- quirements of the Articles and accordingly the debenture was not the act of the company. Whilst the Vice-Chancellor, Sir Nicholas Browne-Wilkinson ex- pressed the view that there would be much more force in those sub- missions, nevertheless Section

9.(1) of the European Communities Act, 1972 provided a complete answer. Under the old law, a per- son dealing with a corporation was

by JOHN G. FISH, Solicitor

required to look at the company's Memorandum and Articles of Association to satisfy himself that the transaction was within the cor- porate capacity of the company and was to be carried through in accordance with the requirements of its Articles. The rigour of those requirements was only tempered to the extent that the rule in Royal British Bank -v- Turquand (1856) 6 E. & B.327 allowed third parties to assume that acts of internal management had been properly carried out. In his judgment the Vice- Chancellor stated that it was rele- vant to note that the manifest pur- pose of both the Directive and the relevant section of the European Communities Act, 1972 was to enable people to deal with the com- pany in good faith without being adversely affected by any limits on the company's capacity or its rules for internal management. Given good faith a third party is able to deal with a company through its "organs". Following an examination of the relevant section the Vice- Chancellor held that a minute resolving to accept the facility and to accept the debenture under the common seal of the company stood as irrefutable evidence against the company that the grant

Viewpoint (Contd. from p. 271)

the Committee which produced the Report on Training may help to bring early action on it. Commis- sioner Doherty, to whom we offer our best wishes and support, could have no more lasting memorial to his term of office than that during it Garda training began to be overhauled and modernised so as to bring it into line with modern re- quirements. •

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