Company Secretaries: What You & The Banks Are Asking

While the function of a company secretary is generally straight forward, it is an undoubtedly important company role. Our company secretary resource is downloaded more than any other on our website, and queries about the role are among the most frequently asked by our clients.

The new Acis Pty Ltd constitution released early in 2020 addresses the role through a number of practical efficiencies. However, given the frequent interest, and the banks’ consistent scrutiny of document execution by companies, we decided it was time for a refresher on the appointment, function and cessation of company secretaries.

Technical Requirements for Company Secretaries

The Corporations Act 2001 (Cth) (“the Act”) stipulates that:

A proprietary company is not required to have a secretary but, if it does have 1 or more secretaries, at least 1 of them must ordinarily reside in Australia – s. 204A(1).
A company secretary must be over 18 years of age – s. 204B(1).
A person must give their signed consent to act as secretary before being appointed, and the company must retain that consent – s. 204C.
A secretary is appointed by the directors – s. 204D.
ASIC must be notified of a company secretary’s appointment within 28 days – s 205B(1).
The directors determine the terms and conditions of the office of secretary, including remuneration – s. 204F.
Generally, a person disqualified from managing companies may not be appointed as a company secretary – s. 204B(2).
Generally, a person ceases to be a company secretary if they are disqualified from managing companies under Part 2D.6 – s. 204G.
When a person ceases to be a company secretary the company is required to notify ASIC within 28 days, unless the person has directly given ASIC notice in the prescribed form accompanied by a copy of their resignation – s. 205A & 205B(5)
Company secretaries fall within the definition of ‘officer’ of a corporation (s. 9). As such, they have many of the same duties and obligations as directors, for example, care and diligence, good faith and proper purpose.
Where no secretary is appointed, the directors are responsible for the secretary’s functions – s. 188.

Practical Considerations: Dealing with Banks

Beyond the technical requirements relating to the role of a company secretary, there are practical efficiencies that should be considered. One of the most frequently encountered of these is in relation to a company’s execution of documents.

Section 127 of the Act sets out several ways in which a company may sign documents, stipulating that, if any of those methods are used, a number of assumptions can be made. For example, a third-party/bank can assume that the company’s constitution has been complied with and that the officers of the company have properly performed their duties.

Section 127(1)(c) can sometimes cause a practical hurdle for sole director private companies. It states that a private company with a sole director, who is also the company secretary, may execute a document if it is signed by that director. What this sub-section doesn’t address is the situation of a sole director private company without a secretary.

Banks often adopt the view that sole director companies must appoint a company secretary based on s. 127(1)(c). The banks’ perspective is at odds with most advisors’ understanding of the requirements of the Act (which states that a proprietary company is not required to have a secretary).

The practical result of this difference is that a lack of secretary in sole director proprietary companies can cause both delays and expense at time-critical junctures of a transaction. Although there is no question as to the validity of a company which has a sole director and no secretary, some banks will insist on the appointment of a secretary.

Acis recommends that a new company with a sole director also appoints that person as sole secretary to avoid frustrations when dealing with third parties. As a general rule, there is no additional risk undertaken by the sole director if he/she is also the sole secretary. For the same reason, we recommend that companies appoint a secretary when multiple director companies reduce the number of directors to one (e.g. where directors resign or die).

Execution of documents (including deeds) by the company itself – s. 127 Corporations Act 2001 (Cth)

(1) A company may execute a document without using a common seal if the document is signed by:

(a) 2 directors of the company; or

(b) a director and a company secretary of the company; or

(c) for a proprietary company that has a sole director who is also the sole company secretary – that director.

Note: If a company executes a document in this way, people will be able to rely on the assumptions in subsection 129(5) for dealings in relation to the company.

(2) A company with a common seal may execute a document if the seal is fixed to the document and the fixing of the seal is witnessed by:

(a) 2 directors of the company; or

(b) a director and a company secretary of the company; or

(c) for a proprietary company that has a sole director who is also the sole company secretary – that director.

Note: If a company executes a document in this way, people will be able to rely on the assumptions in subsection 129(6) for dealings in relation to the company.

(3) A company may execute a document as a deed if the document is expressed to be executed as a deed and is executed in accordance with subsection (1) or (2).

(4) This section does not limit the ways in which a company may execute a document (including a deed).

The Acis Constitution & the Company Secretary

Our mandate when drafting the new Acis Pty Ltd constitution was to combine technical improvements with practical efficiencies and guidance to simplify the governance of private companies for our clients. It does exactly that in dealing with the role of a company secretary.

For example, while the Act stipulates that directors can appoint a secretary and determine the terms and conditions of that office, it does not specifically stipulate that the directors can remove a secretary. This can cause confusion, especially when a person’s cessation as a company secretary is not consensual.

The Acis proprietary company constitution removes this uncertainty by specifically stipulating that the directors may terminate a secretary’s appointment and/or remove a secretary (Rule 30(c)).

Feel free to contact the Acis team any time with queries or for a sample of the company constitution.

Acis does not provide advice in relation to taxation, duty, the Corporations Act, company law or any other matter. We do not purport to provide advice in relation to the Acis Pty Ltd company constitution nor should you construe anything in the constitution, any correspondence with us, or material provided by us, as advice of any kind.