Dealing with a commercial transaction can involve various documents that need to be executed in different ways. If a document is not executed correctly, then it can affect the ability of a certain party enforcing the rights it grants.
One of the latest examples of this is in the case of Signature Living Hotel Ltd v Sulyok . This dispute involved the sole director of a company who had wanted to enter into two deeds of guarantee. Unfortunately, the two deeds of guarantee were not correctly executed by the sole director in accordance to s 44(2)(b) of the Companies Act 2006 (it was signed by the sole director, but it was not witnessed).
The company argued that as the two deeds of guarantee were not executed correctly, it could not be relied upon by those looking to enforce the guarantees against the company. However, Judge Hodge QC made a High Court ruling stating that the two deeds of guarantee were enforceable in contract law. This was in accordance to s 43(1)(b) Companies Act 2006 which states that for a contract to be valid, it must be signed by a person acting under the authority of the company. Thus, the two deeds of guarantee could be viewed as valid contracts. Consequently, the terms of the two deeds of guarantee could be enforced.
This case should be a warning for directors who provide guarantees on behalf of their company to secure more funding for projects. It should not be done lightly, and serious thought needs to be given to the consequences of the guarantee being enforced.
Please contact Lawdit’s commercial department with any queries.