The introduction of the concept of 'Sole Directorship' by the Companies Act 2016 ("Act 2016") presents challenges and issues in relation to the previous practice of passing a resolution. This note seeks to discuss the interaction between the abovesaid concept vis--vis the practice of the execution of documents in the new Act 2016 which came into effect on the 31st January 2017.
The Companies Act 1965 ("Act 1965") requires a company to have a minimum of 2 resident directors as well as prohibiting the company from carrying on business with fewer than 2 shareholders for more than 6 months. Nevertheless, Act 2016 now allows for the incorporation of a private company with the minimum number of one (1) director.
It is also imperative to note that in relation to the execution of a document, Act 1965 provides that upon the date of incorporation, the company shall be a body corporate capable of exercising all the functions of an incorporated company, suing and be sued and having perpetual succession and a common seal. By virtue of Section 61(1) of the Act 2016, a company may or may not have a common seal. Consequently, it would also affect the manner in which a document to be executed by a company.
Section 66 of Act 2016 entails the manner to execute documents. If a company adopts a common seal, document is executed by affixing the company's common seal, subject to the conditions or limitations in the constitution. On the other hand, if a company does not adopt a common seal, it can execute documents through a person acting under its express or implied authority by having the signature of two authorised officers of whom at least one must be a director.
It might be a concern for some as to how a company with a single director executes documents following the introduction of the sole directorship concept in the new Act 2016. Section 66(2)(b) provides that in the case of a sole director, a document is validly executed by a company if it is signed on behalf of the company by that director in the presence of a witness who attests the signature.
Nonetheless, for a company who does not adopts a common seal to execute a document, the law requires at least one of the director of the company to sign on that document.
There is however a much bigger concern surrounding this provision as a whole. In practice, not all documents executed on behalf of a company will be signed by the director himself. Execution of a simple document will take a longer period of time and the process might be cumbersome. For example, Power of Attorney Document by a bank is usually signed by the authorized officers from the bank by which none of them are the director of the bank.
It is vital to note that, no such signatory requirement is provided under the previous Act 1965. The introduction of Section 66 which regulates the manner of execution of documents in the Act 2016 poses some uncertainty whether the requirement is to be strictly adhered to. If the answer is affirmative, it would certainly generate a significant impact as all documents may require the signature of a director for it to be validly executed.
The law is stated as at 16.2.2017
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Ainul Azam / Brenda Yong / Faridzul Abd Rahim