The Missing Director and the Company Seal
Lanka Agro (Pvt) Ltd has two directors. One is in Dubai; the other is in Colombo. The company wants to mortgage its 12-acre land to a bank to secure a Rs. 150 million loan. The Colombo director brings a mortgage bond with the company seal already affixed. Article 14 of the articles requires any borrowing or encumbrance to be approved by a board resolution passed by both directors and sealed. There was no meeting. The 'resolution' is typed with both directors' names but signed only by the Colombo director. The Dubai director sent a WhatsApp message saying 'I agree' last week. A search shows an existing registered charge in favour of another bank. The notary is asked to attest immediately because the bank's credit approval expires tomorrow. The company secretary is unavailable.
1. What company-law and notarial checks must the notary make before attesting the mortgage bond?
Read the worked answer
He must inspect the certificate of incorporation, the articles, and the current board. Article 14 requires a resolution of both directors for borrowing and encumbrance. He must see a valid board resolution or written resolution signed by both directors in accordance with the articles, not a typed document with one signature. The absent director's WhatsApp message is not a signed resolution; it may evidence consent but does not satisfy the articles unless they permit electronic written resolutions and the statutory formalities are met. He must verify the local director's identity and authority, check that the seal is affixed as the articles require, and confirm the company's capacity to borrow. A search at the Registrar of Companies should reveal existing charges; the bank will need to address priority or obtain a no-objection. The notary should also check the land title and the board's authority to mortgage that specific property.
2. Can he attest on the documents presented? What should he do?
Read the worked answer
No. The resolution is defective: only one director signed, the other's name is typed, and the articles require both. The WhatsApp message is not a signed instrument and may not be authenticated. The seal may also have been affixed without proper authority. Attesting would allow the company to argue the bond was unauthorised and the bank may lose its security. The notary should return the documents, require a properly signed resolution, or a valid power of attorney from the absent director notarially executed and, if executed abroad, authenticated, and satisfy himself that the seal was affixed in accordance with the articles. If the absent director cannot sign, the company may need a directors' meeting by permitted means or an amendment to the articles. Only then may he attest.
3. What advice should he give about registration of the charge, and what if it is not registered within the statutory period?
Read the worked answer
The notary should advise the company and bank that the charge created by the mortgage must be notified to the Registrar of Companies within 21 days of creation under the Companies Act No. 7 of 2007. The notary's attestation does not itself register the charge. If registration is late or omitted, the charge may be void against a liquidator and creditors of the company, even though it remains valid between the company and the bank. The bank should ensure the notice is lodged and obtain the Registrar's certificate. The notary should record the advice and not accept a role in backdating documents. If asked to attest a deed with a false date to avoid the 21-day rule, he must refuse.