Company directors are often required to execute documents or undertake acts in connection with a transaction or other events at short notice or at times when they are unavailable. It is therefore common for the board to delegate powers to act and signing authorities. There are also circumstances in which directors may wish to appoint an attorney to execute documents on their behalf.
Whether the board or a director can validly delegate a certain act will depend on the delegation provisions in the company’s articles of association, and on the type of role that the board or director is attempting to delegate. The type of acts to be considered can be divided into the following categories:
• Delegation by the board of directors.
• Delegation of a director’s responsibility as a director.
• Delegation of a director’s authority to bind the company.
• Delegation of acts to be undertaken in a director’s personal capacity.
Delegation by the board - A company’s board of directors has collective responsibility for managing the company, and the starting point is that decisions concerning the running of the company should be taken by board resolution.
However, a board may delegate aspects of its functions to a committee, or to an individual executive director, or to others if and to the extent that the company’s articles expressly authorise that delegation. The committee, director or other individual to whom the directors’ powers are delegated may also sub-delegate those powers to others if the articles permit them to do so. It is therefore important to review a company’s articles whenever a board, committee or director intends to delegate or sub-delegate any of the board’s powers, to ensure that any authority under the articles is broad enough to cover the delegation in question.
Any board resolution delegating authority to a committee or individual when that delegation is not permitted by the company’s articles may be held to be invalid.
Common delegation provisions - In practice, most companies adopt articles that provide the board with wide powers of delegation, including by power of attorney
For example, Article 5 of the model articles set out in The Companies (Model Articles) Regulations 2008 (SI 2008/3229) (Article 5) (model articles) for both private and public companies authorises the board of directors to delegate any of the powers conferred on it by the articles “to such person or committee; by such means (including by power of attorney); to such an extent; in relation to such matters or territories; and on such terms and conditions, as they think fit”. Any delegation under Article 5 may authorise further delegation of the directors’ powers by any person to whom they are delegated.
Limits on power of delegation - Certain acts require a specific power to delegate to be included in a company’s articles of association and will not be covered by a general power to delegate such as that set out in Article 5 or regulation 72. For example, an express power should be included in a company’s articles if the board wishes to delegate its powers to determine directors’ fees and remuneration.
In addition, certain acts, such as the authorisation of a director’s conflict of interest under section 175(4)(b) of the Companies Act 2006 (2006 Act), are required by statute to be taken by the full board, and may not be delegated to a committee of the board.
To the extent that there is no express delegation of specific powers, the power may nevertheless be considered to be implicitly held by a director as a result of his executive office.