REUTERS | Mike Blake

Should companies have passports?

How do you verify the identity of an overseas company, whether it has power to enter into the contract and who is authorised to act on its behalf? Does it matter if you don’t know the difference between a Gesellschaft mit beschränkter Haftung and an Aktiengesellschaft?

Individuals travelling overseas with any frequency are used to having to prove their identity by the presentation of a passport, but there is no equivalent proof of identity available to companies.

A company registered in England and Wales has a legal personality separate from the identity of its shareholders. A registered company can sue and be sued in its own name. You can check that the company exists and ascertain its unique identification through the free online services at Companies House. At relatively little cost you can also ascertain details of its constitution, the identity of its director and details of its filed accounts.

Little Red Riding Hood asks the Wolf to confirm he is in fact Grandma

It’s not unusual to find contractual terms where parties warrant that they are duly constituted and authorised to enter into a contract. This may sound good in principle, but relies on the assumption that the person representing a company has considered whether that company does actually have this power and has taken appropriate legal advice to verify the position.  Of course, if they haven’t considered the point (or have, but have reached the wrong conclusion) there may be no effective remedy available for breach of the warranty if the contract is unenforceable against the company.

Little Red Riding Hood asks the Wolf to provide a statement from its lawyers confirming his representations are correct

The Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009 specify a format to be adopted under English law for execution of contacts by overseas companies. Essentially, English law accepts that whatever method of execution is permitted by the laws of the territory in which the overseas company is incorporated (the “Local Law”),  this will be accepted as valid execution under English law. Following the requirements of these Regulations results in a presumption that the contract is correctly executed under English law. However it does not in itself necessarily mean that the contract is, in fact, valid and enforceable against the overseas company under the Local Law.

In order to verify that the overseas company exists and has power to enter into the contract and to check how it should execute the contract, it is prudent to obtain an opinion letter from a lawyer qualified to advise on the Local Law.

Okay, we’ll assume it’s not the Wolf: but is it really Grandma?

It is prudent to have the identity of the signatories and the execution of the contract verified by a notary. Even where your contract is validly executed and enforceable under English law, if the overseas company has no assets in the UK, you may still need to enforce your English court judgement through the courts local to the overseas company’s place of business, or wherever it holds assets. If the contract is not duly executed under the Local Law (for example, if the actual signatory did not have due authority) there is a risk that enforcement of the English court judgement may be contested.

Little Red’s been bitten before, so she double checks with the Woodcutter to confirm she has the right Grandma before handing over the basket of goodies

How do you know if your opinion letter is worth the paper it is written on, or that the contract execution has been duly notarised? It might seem a little over the top to suggest seeking a further legal opinion on the terms of the opinion letter from the overseas lawyer, but the opinion letter is likely to be drafted in heavily qualified legalese. While your English lawyer is unlikely to be able to verify the statements made in the opinion letter, he should be able to give some indication that the form of the opinion letter and the statements made are in line with what is normally expected in the course of a cross-border transaction. More importantly, your English lawyer should be able to provide a degree of comfort in assisting you to identify an appropriate and reputable overseas lawyer or notary to advise you.

Still not satisfied, Little Red leaves the basket of goodies with Goldilocks for her to pass on to Grandma under armed escort by the three Bears

Being ultra-cautious, you might also consider setting up an arrangement for payment to the overseas company to be made by letters of credit through your respective banks, or arrange for performance to be secured by way of a bank guarantee or bond.

Of course, all this does begin to sound like a gravy train for lawyers and bankers, especially if the process is repeated on every cross-border transaction.

Hold on. Couldn’t Grandma just show Red her passport to verify her identity?

Grandma will probably tire of Red’s visits very quickly, if on each occasion they entail detailed third party verification of her identity and rights to receive the basket of goodies. A quick glance at Grandma’s passport photograph should verify the absence or otherwise of large eyes, ears, sharp teeth and so on. And if it works for Grandma…

…Why not for companies? An EU recognised “Company Passport” could provide a standardised form of verification that a company is validly constituted with power to contract, showing its method of executing contracts, with photograph and specimen signatures of its authorised officers.

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