COMPANY DIRECTORS – Reduce your Personal Risk

Directors – Reduce your exposure to personal financial risk when you sign a foreign document for your Company.

An English Limited Company is a creature which exists only within the framework of statute law. There are therefore very few grey areas when it comes to deciding whether a Company has or has not taken any particular action. Some documents must be made by DEED in order to bind a Company. A power of Attorney must be a DEED.

Whether or not any document is a Deed is a matter of fact with reference to the Law of England and Wales. The ways in which a Deed is created by a Company, and in which it can be executed, and the words which must be included, are all explained in my other blogs.

The importance of getting it right is to ensure that the person who signs can avoid any suggestion that the document binds him in person rather than the Company. A company has limited liability under the law. If it goes “bankrupt” in consequence of being unable to meet its financial obligations then this does not mean that the Directors must personally indemnify the creditors of the company – risking the loss of their houses and all of their assets. The risk of course, is that if a Director or officer of a Company (or worse, someone who is not such an authorised signatory in Law, say a Health and Safety Officer being asked to sign because the subject matter of the document is within the H&S remit) – purports to sign a binding written obligation on behalf of the Company then his intention in doing so is not really relevant. Either the document is right – a Deed as required by the Law – or it is wrong – not a Deed and not binding on the company and not something which the signatory can claim to be merely a Company obligation

What I do notice increasingly, is that Company Directors understand all of this and are more careful than in the past, to ensure that an English Deed is properly drawn up and does bind the Company and that Board resolutions are made and minuted etc.

HOWEVER – all of that seems to go out of the window when the document to be executed is written in Italian, Spanish, or other non-English language and is for use outside UK.

The trouble is that the document which your foreign lawyer prepares for execution by a Company Director will likely be exactly correctly worded to take effect in say, Spain – but will NOT comply with the law of England. For example, in Spain there is no concept of a Deed (as creating a binding obligation irrespective of financial consideration) just as in England we have no recognition of the Spanish tradition of the use of “Public” or “Private” documents.

Try as we may to integrate the various laws and customs of the countries of Europe so differences are irreconcilable. And no-one would expect the documents and practices of say Russia or China to accord with those of England. Consider a typical Spanish Attestation clause “El compareciente Don. XY quien firma en mi presencia como Administrador único de ABC Limited y previa lectura e interpretación al Ingles del presente poder a que yo, el Notario, procedí por su tácito acuerdo, se ratifica en su contenido y firma conmigo, de todo lo cual doy fe, así como doy fe de que en otorgamiento de este poder se han observado todas las formas y solemnidades prescritas por la ley del lugar del otorgamiento “

This means literally “The respondent Mr XY has signed in my presence as Administrator of ABC Limited and after the English reading and interpretation of this power by me the Notary, he proceeded by tacit agreement to ratify it in its content and signed before me, all of which I give faith, and I bear witness that in granting this power have observed all the forms and solemnities prescribed by law of the place where this took place.”

First – Those words do not say that the Document is a Deed. If there are no words making it clear that the paper is a Deed, then in English Law it cannot be a Power of Attorney binding on the Company

Second – The words do not say that the paper is executed by the Limited Company – there is a strong sense that in fact the paper is executed by Mr XY in person (he happening to be the Administrator – a position unknown in English Law)

So what we need in England is for the paper to say Executed as a Deed by ABC Limited acting by its Director XY who signs in my presence and, after I have read to him the English translation of this power of Attorney confirms its contents on behalf of the said Company and signs it before me, as to all of which I certify, as I also certify that in the execution of this document the appropriate requirements of the place of execution have been complied with The trouble often is that the foreign lawyer is in a hurry – there may be a deadline – and is unsure of the position if there are any amendments to his text.

My suggested resolution is either to make the document in two languages, with the non-English text as produced by the foreign lawyer but also with the English text written in accord with the English Law. This means that the paper is effectively two different documents in one, rather than one text written in two languages.

If this resolution is not acceptable to the foreign lawyer then my best advice to an English director who has no option other than to execute the foreign paper in order to “get the job done” is that a second paper written in English should be prepared making it clear that a proper Deed fully binding on the Company has been created.

It seems to me that it doesn’t matter a jot that this second paper never actually goes abroad to be the authority relied upon there. Its purpose is to preserve the signing Director’s personal fortune from the liabilities created by the paper he has signed. It will serve its purpose admirably merely by existing!