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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.
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
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.
•
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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