Summary A recent Supreme Court decision highlights that a power of attorney does not extend to signing documents or generally acting on behalf of the Principal in his capacity as director of a company. Consideration is given to alternatives available for companies whose directors frequently travel or are otherwise unable to personally attend meetings.
Who does this impact? Every company and its directors.
What action should be taken? The alternatives discussed should be considered and the best chosen in the light of the circumstances of the individual company.
Powers of Attorney and the Travelling Director The recent Supreme Court decision of Cheerine Group (International) Pty Limited v Yeung highlights that a general power of attorney is not as far reaching in its operation as is commonly thought. In particular, a general power of attorney will not extend to signing documents or generally acting on behalf of the Principal in his capacity as a director of a company. This is in contrast to a frequently held view by members of the community that a general power of attorney authorises the Attorney to sign “any document” on behalf of the Principal.
Facts Cheerine Group (International) Pty Limited (“Cheerine”) was involved in the wine industry. Wong, who resided in Hong Kong, held 70% of the shares and Yeung, who resided in Australia, held 30%. Wong and Yeung were the only directors of Cheerine and were cousins. Wong had given two powers of attorney to Yeung, the first on 2 March 2001 and the second on 1 March 2003. Both were granted in very broad terms. Yeung became concerned about the operation and financial stability of Cheerine. He called a meeting of directors for 11am on 11 September 2006. Wong did not attend. In his absence, Yeung then purported to appoint a Mr Solferini as alternate director for Wong, relying upon the 2003 power of attorney. It was then resolved by Yeung and Solferini, purporting to act as the board of Cheerine, to appoint administrators.
Decision Mr Justice Young, the Chief Judge in equity, held that the resolution was “obviously” invalid. His Honour continued – “…a power of attorney given to a person who is also a director of a corporation confers no authority whatsoever for that person virtually to be or appoint an alternate director or exercise the functions of a director of that corporation, even though the donor is a director of the corporation and even though the power of attorney is in very wide terms.” In reaching this decision, the Judge relied in part upon a prior 1990 decision in the Supreme Court of Mancini v Mancini which is itself of interest.
Mancini v Mancini Mr and Mrs Mancini were the only directors of three companies described as the Wesco Group. The business of the Wesco Group principally related to trucking operations and supply and transport of ready mix concrete and basic materials. The parties separated and proceedings in the Family Court were ultimately settled. The Court orders provided that if a party was in default under the orders then the other party could rectify the default by any of the following:
(i) “execute documents; (ii) make payments; (iii) deal with any matter in the ordinary course of business; (iv) and the non defaulting party is enabled to do such things and take such actions as the attorney for the defaulting party.” Relying upon this power of attorney, Mrs Mancini called a meeting of directors of each company in the Wesco Group. Mr Mancini did not attend. The minutes stated the persons present as being “Valda Lynne Mancini” and “John Peter Mancini by his attorney Valda Lynne Mancini”. It was then resolved that Mr Mancini be removed as director of each company and a Mr Ray Azzopardi be appointed in his place. Mr Justice Bryson held that the proposed resolution was invalid for several reasons. One of these reasons is relevant to this paper, namely the incapacity of an Attorney to act as a director in place of the Principal. His Honour said – “the office of a director is a personal responsibility and can only be discharged by the person who holds the office… The office of a director is not a property right capable of being exercised by an attorney or other substitute or delegate of the person holding the office; many rights as shareholder can be distinguished in this respect because they are rights of property.”
Travelling Company Directors It is common knowledge that these days many company directors travel extensively and are frequently overseas for extended periods. At a practical level, how does a company arrange its affairs to overcome his or her absence so that the company can carry on business on a day to day basis? Clearly the director cannot give a third party power of attorney to act in his capacity as director. •
Four approaches can be considered, namely:
•
Appointment of additional directors;
•
Electronic meetings;
•
Delegation; or
•
Appointment of an alternate director.
Appointment of an Additional Director Assuming that there are two directors/shareholders and a quorum requires at least two directors, the company could appoint a third director. This effectively deals with the immediate problem.
However, on occasions it is not possible to find a suitable applicant prepared to act, given that heavy responsibilities and potential liabilities are assumed by directors these days. Alternatively, company politics might prevent the two company directors agreeing on a third director acceptable to both parties.
Electronic Meetings Section 248D of the Act provides that a directors’ meeting may be called and held using any technology consented to by all the directors. The consent may be a standing one. A director may only withdraw his consent within a reasonable time before the meeting. This section effectively provides scope for meetings of directors to be held with their unanimous consent using all available modern technology, eg telephone conferences or video conferences. Section 248A introduces a replaceable rule to the effect that the directors of a company may pass a resolution without a directors’ meeting being held if all the directors entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution set out in the document. Separate copies of the document may be used for signing by directors if the wording of the resolution and statement is identical in each copy. The resolution is passed when the last director signs. Under Section 135 of the Act a replaceable rule may be displaced or modified by a company’s constitution. Section 248A effectively provides another method for dealing with the problem of the absent director. He can sign a copy of the required resolution and either fax or email it from overseas back to the company secretary.
Delegation Section 198D of the Corporations Act 2001 provides that “unless the company constitution provides otherwise, the directors of a company may delegate any of their powers to: (a)
A committee of directors; or
(b)
A director; or
(c)
An employee of the company; or
(d)
Any other person.”
Under Subsection (3), the “exercise of the power by the delegate is as effective as if the directors had exercised it”. The delegation under Section 198D must be by the directors as a whole and cannot be by one director in respect of his individual powers.
The result is that the board could delegate their powers while one of the directors is overseas. However, given the responsibilities and liabilities vested in directors (which cannot be delegated), it is unlikely that directors will be comfortable with such arrangement for anything but a very short period. In my experience, Section 198D is more widely used to either: •
establish committees of directors to deal with certain types of company business on the basis that the committee reports regularly back to the board; or
•
delegate to an employee routine business which is not of sufficient significance to justify the board’s time at directors’ meetings. An example might be a delegation to an employee or employees to sign routine contracts on behalf of the company with a value below a specified amount.
Appointment of an Alternate Director Section 201K of the Act introduces a replaceable rule permitting a director, with the approval of the other directors, to appoint an alternate to exercise some or all of the director’s powers, including the right to receive notices of meetings, for a specified period or the appointment can be open ended. Again, under Section 135 of the Act, a replaceable rule may be modified or displaced by the company’s constitution. When an alternate exercises the director’s powers, the exercise of the powers is just as effective as if the powers were exercised by the director. The appointing director may terminate the alternate’s appointment at any time. An appointment or its termination must be in writing. Notice of the appointment (including its expiry date and terms) or its termination must be given to ASIC within 28 days.
Conclusion This paper has set out a number of suggested solutions to the increasing problem of absent directors and overseas travel. The best solution for a particular company will depend upon its overall situation. What is clear is that the problem cannot be solved by a director simply signing a general power of attorney.