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The current economic climate underlines the need for businesses of all sizes to have positive cash flows.

Now is the time for terms and conditions of sale to be reviewed to ensure that the people that owe you money get the "hint" and are persuaded to pay up rather than abuse the credit terms that you have given them. There is a careful balance that needs to be observed between getting paid quickly and upsetting a customer so that they go elsewhere.

It is important that your terms and conditions are well written to protect the viability of your business. Good terms and conditions should contain, amongst other things, provisions for:

• charging interest on late payments (which could be as much 8.5% at today's rates)
• being able to recover reasonable administration fees to cover your credit control costs
• being able to recover your goods if the person who owes you money does not pay.

To back up these terms and conditions you need to have a robust credit control system with well worded reminder letters.

Legal recovery needs to be an act of last resort and terms and conditions need to be written so that a debtor has every incentive to pay what he owes within your credit terms. Experience tells me that customers will appreciate and respect you for being straight and firm in your resolve to recover money rightfully due to you as, after all, they are in business as well and facing similar challenges.

If you feel that your general terms and conditions of sale are not as effective as you would like then you should consider taking up Cleggs' initial assessment review for a fixed fee of £50 plus VAT. If after such assessment you decide to go ahead with our recommendations, then the initial fixed fee that you have paid will be credited against any further charges that we may make. Please contact me for full details of this offer.

Companies need to sign documents properly

This case clearly shows how important it is to have a proper policy in place for directors and other officers who sign documents on the Company’s behalf. Please send me an email  if you would like to discuss any of the points set out in this update.

The Facts of the Case

Mr Carter and Mr Jewson were two directors of Carson Country Homes Limited (“Carson”). As part of Carson’s banking arrangements with Barclays Bank, a debenture was to be created giving security to the bank over Carson’s assets. A debenture requires to be executed as a deed.

Mr Jewson dealt with the administration and financial affairs of Carson and Mr Carter, who was not always available, was in the habit of allowing Mr Jewson to sign documents for him so long as he was aware of what was happening. Mr Jewson signed the debenture for the bank. He did so for himself and he also signed for Mr Carter, replicating his signature, but he failed to tell Mr Carter of the transaction.

Shortly afterwards, Barclays had to appoint Administrators under their debenture and it was not until Mr Carter objected, that the bank was aware that the signature was a counterfeit. Mr Carter’s argument was that his signature had been forged and that the bank’s security in the form of the debenture was not valid and, therefore, the administrators’ appointment was invalid. The administrators applied to the Court for it to decide if they had been validly appointed.

Reasons for the Decision

It is not hard to see that the Court found in favour of the Administrators appointed by Barclays.

Reasons for the decision show clearly how Companies should execute deeds. Under section 44 of the Companies Act 2006 a Company has validly signed a document as a deed by any of the following methods:

• the company seal must be fixed to the document (a rare occurrence these days but not unknown); or
• two directors; or
• one director and the company secretary; or
• a director in the presence of a witness (not always accepted by banks who usually insist on two directors).

Section 44 also goes on to provide that a party acting in good faith for valuable consideration can rely on the presumption that a document is correctly execute if it appears to have been signed in accordance with section 44.  Barclays were such a person (the valuable consideration being the banking facilities made available to Carson) and they did not have to question that the document which appeared to have been signed by Carter and Jewson was, in fact, signed by both of them.

So Mr Carter’s argument that he was unaware of the transaction received little sympathy. Although this case involved a counterfeit signature which is quite rare, disputes normally arise when Companies try and argue that the person signing the agreement had no authority but the same rules and presumption apply.

Changes to the Memorandum of Association on 1st October 2009

In my last up-date, I discussed the changes made by the Companies Act 2006 to the Articles of Association. There are more radical changes about to be implemented to the Memorandum of Association and I think this change is probably the most significant under the Act as it affects the basic constitutional document. From from 1st October 2009, the memorandum (for all companies) will no longer by a dynamic document, it cannot be changed.

Companies formed after 1st October (new companies) will file a "one off" memorandum with Companies House as part of the formation requirements. The essence of this new document is simply a "snap shot" in time to identify the new company and contain a statement by the subscribers that they wish to be incorporated.

For companies formed before 1st October 2009 (existing companies) the objects clause will be deemed to transfer into the Articles of Association which will then become the sole constitutional document of the Company.

New companies can be formed with unrestricted objects but existing companies will continue to be bound by the objects transferred into the Articles.

However, existing companies can take advantage of this unrestricted status by changing their Articles. By unrestricting their objects, any risk of the Company acting beyond its powers can be eliminated.

If you would like to discuss further how your existing Company could take advantage of this and all the other new provisons of the 2006 Act then feel free to contact me by email.