UK Company Law & Authorised Signatories: Time to review?
What’s the connection between UK Company Law and Authorised Signatories? In this blog, we take a look at the UK Company Law Reform Bill that was submitted in 2005 and particularly the proposal related to the appointment and management of Authorised Signatories.
What is Company Law?
Before we discuss the relationship between UK Company Law and Authorised Signatories, let’s see how exactly Company Law is defined.
Company Law (or sometimes referred to as Corporate Law) is the body of law governing the formation and governance of corporate organisations. In the UK, the responsible body is the Corporate Law and Governance Directorate of the Department for Business, Enterprise and Regulatory Reform (BERR), formerly the Department of Trade and Industry (DTI).
The connection between the Company Law Reform Bill of 2005 and Authorised Signatories
In June of 2005, the Company Law Reform Bill was put before parliament. It included a series of proposals on key organisational areas, with a particular focus on small businesses and their daily operations and governance. One such area was the appointment, registration and management of Authorised Signatories.
Looking into this in more detail, the bill proposed that a company may appoint one or more authorised signatories in addition to its directors and, in the case of a public company, its secretary.
Every company appointing one or more signatories must then keep a register of those individuals which would be open to inspection. Companies and officers of the company failing to do so would have been considered to have committed an offence.
In addition to having a signatory register in place, a Company would also have a duty to keep that register valid and up-to-date with any changes to individual signatories’ data and status. This update of the register would have to happen within fourteen days of any changes made.
However, the bill, laudable as it was, was never approved by the House of Commons and the House of Lords in its original form and, therefore, never became an Act of Parliament. In its place is a section under the Companies Act 2006 that defines how a Company executes agreements and contracts:
Using two “authorised signatories” as defined in the Companies Act 2006 as every director and the company secretary (but note that one individual who is both director and company secretary may not count as two authorised signatories);
Using one director’s signature, which must be witnessed; or
By affixing its common seal (this is not common in practice).
Arguably, the key difference between the proposals in the Bill and the Act is the current absence of a legal requirement for a Company to retain, maintain and manage an accurate register of authorised signatories, outside of the default directors and company secretary.
One explanation for this may be logistics, cost, practicalities and potential for being administratively burdensome. However, as companies and organisations grow, so do their number of authorised signatories and thus signatory lists. Those lists are then used as part of contract management processes and general good governance, becoming extended and complex. It’s physically impossible for directors to approve, authorise and sign everything. Therefore, it’s absolutely necessary to delegate this authority.
Consider a company with multiple entities, multiple locations and multiple authorisation levels. The number of signatories (or delegated authorities) could run into thousands. Add to that a legal requirement to update changes within fourteen days, then it becomes evident that elements of the original bill may not have worked in practice. Of course, many companies and organisations do have signatory lists but they are paper-based (or at best digital spreadsheets), which are time-consuming and inefficient to manage. Furthermore, they are susceptible to error and abuse as well. With little or no historical record, it’s extremely difficult to ensure parties to agreements have sight of the true and latest version.
With regard to smaller companies, the existing bill provides little protection and is arguably not fit for purpose in terms of governance. For example, having all directors appointed as authorised signatories by default can lead to issues. Many companies and organisations have directors or non-executive directors who may not participate in the day-to-day operations yet by default have the authority to sign contracts and agreements. It needs no explanation as to how this opens up the opportunities for fraud.
Internal and external abuse of authorised signatories is a real operational risk for companies and authorities alike. Over recent years, the misuse of signatures has played a major part in many cases of fraud, deception and corruption.
To summarise, the original Bill would have provided a solid framework for the effective management and use of authorised signatories but was deemed logistically unworkable. The subsequent diluted Act fails to provide real security and accountability for companies, organisations and the wider public.
What is Authorised Signatory Management?
Find out in our latest special report where we discuss the fundamentals of Authorised Signatory Management. Download
The ‘Bill’ reviewed?
The “perfect storm” of:
(a) increased and more sophisticated white-collar crime,
(b) a global pandemic forcing companies to create new work practices and
(c) increasing calls for ethical and governance accountability.
All indicate that now is the time to review the original bill. Critically, the key difference this time is the availability of technology which mitigates the logistical, practical and financial implications which prevented the Bill’s progression in 2006.
An application, developed by the UK-based Regtech company, Cygnetise, is being adopted by Companies to replace paper- or spreadsheet-based authorised signatory management protocols. Utilising distributed ledger technology (DLT), the application provides a secure platform to create, manage and share signatory registers.
This technology means that if the proposals made in the original Company Law Reform Bill were put forward today, Companies of all sizes could easily comply with the regulations whilst actually improving the quality of governance, reducing internal and external risk and generate increased cost efficiencies.
In conclusion, we now have the technology and know-how that warrants the review and enactment of the original Bill thus providing a robust platform for the appointment, management and distribution of Authorised Signatory Lists. The outcome would be a significant upgrade to the governance and efficiency of companies and organisations, irrespective of size and location.
For further information, see The 3 types of electronic signatures – Which one would you rather?