PROPER CORPORATE EXECUTION
The structure of a company significantly affects the manner in which documents can be executed. What is “proper execution” when dealing with corporate entities?
Section 127
The most common method of execution by a corporation is pursuant to section 127 of the Corporations Act 2001 (Cth) (“Act”), specifically section 127(1) and 127(2). The two sections are very similar except that section 127(1) provides for execution without the common seal while section 127(2) provides for execution with a common seal.
Section 127(1)
“A company may execute a document without using a common seal if the document is signed by:
(a) 2 directors of the company; or
(b) a director and a company secretary of the company; or
(c) for a proprietary company that has a sole director who is also the sole company secretary—that director.”
Section 127(2)
“A company with a common seal may execute a document if the seal is fixed to the document and the fixing of the seal is witnessed by:
(a) 2 directors of the company; or
(b) a director and a company secretary of the company; or
(c) for a proprietary company that has a sole director who is also the sole company secretary—that director.”
It is important to note that these two sections do not provide for execution by a company which only has one director and no company secretary. Also where a company executes a document pursuant to subsection (b) of either section 127(1) or 127(2), the director and company secretary that sign must not be the same person.
If other legislation has specific requirements for execution of documents, then the Act will not necessarily override those requirements.
If documents are executed pursuant to either section 127(1) or 127(2) of the Act, then certain assumptions arise (set out in sections 128 and 129 of the Act) including:
(i) that the company’s constitution (if there is one) and the replaceable rules have been complied with;
(ii) a person who the company holds out to be an officer or agent of the company has been duly appointed and has the authority to exercise the power and perform the duties that it has done; and
(iii) if a document has been executed in compliance with section 127(1) or 127(2) of the Act, then a person may assume that it has be duly executed by the company.
When relying on these assumptions, there is no requirement for a party to do anything further (except if that party knew or suspected that the assumption was incorrect), there is not need to search the ASIC register to establish if the persons executing the document are duly appointed and current officers of the company.
Landgate also accepts documentation execution pursuant to section 127 of the Act.
Sole Director Companies
If a company has only one director (who is not also appointed as the company secretary) (“Sole Director Only Company” or “SDOC”) then the process of execution and verifying proper execution of documents by a SDOC is more complex. Because a SDOC cannot execute pursuant to section 127 of the Act, the assumptions in sections 128 and 129 of the Act do not apply.
Execution of documents by a SDOC must be completed in compliance with either the replaceable rules (if adopted by the company) or the company’s constitution.
Replaceable Rules
The replaceable rules set out in the Act apply to all corporations, unless deleted or varied by the company’s constitution.
The replaceable rules provide a mechanism for a SDOC to execute “negotiable instruments” (section 198B of the Act). What documents are “negotiable instruments” is limited, so the application of the section is not able to be utilised in all instances for SDOC execution. For example, leases, transfers and contracts for sale are not negotiable instruments.
If a party is to rely on this replaceable rule for the purposes of executing a document, the SDOC must be able to prove that the replaceable rules were adopted by the company and that they have not be varied.
Constitution
Ideally, a SDOC should have a constitution which clearly provides that any document executed on behalf of the company by the sole director will bind the company. Because the assumptions provided for under the Act do not apply, any party relying on a document executed by a SDOC pursuant to its constitution will, at the very least, need to review the Constitution and ASIC register to satisfy itself as to the execution.
Landgate
Regardless of the assumptions set out in sections 128 and 129 of the Act, Landgate will at times, undertake its own ASIC searches to check if the directors and company secretary who have executed documents pursuant to section 127 of the Act are registered at ASIC as such officers.
If a SDOC is a party to a Landgate document and the sole director executes the document pursuant to its constitution or replaceable rules, then Landgate requires a true or authentic copy of the constitution to be lodged with the documents. Landgate may, on request, record the sealing clause or execution requirements on its departmental computer so that subsequent transactions can be accepted by the examiner checking the records on the departmental computer rather than needing to lodge a copy of the constitution every time a document executed by that company is lodged.
Sole Director and Sole Secretary Company
If a company is set up with a sole director which is also the sole secretary, rather than a SDOC, then execution of documents is much simpler because that company will be able to do so pursuant to section 127 of the Act.
Anka Burns
Senior Associate, Jackson McDonald
t 08 9426 6706 | f 08 9481 8649
Email: aburns@jacmac.com.au
