Sign of the times: When directors sign without authority

The importance of board resolutions and director authorisation

A recent Supreme Court of Appeal judgment serves as a stark warning to counterparties that blindly enter into contracts without first ascertaining whether their counterparty has the necessary authority to conclude such a contract. In SACTWU Investments Group (Pty) Ltd v Sekunjalo Independent Media (Pty) Ltd and Another (915/2024) [2026] ZASCA 39 (26 March 2026), a subordination agreement was declared void because the director who signed it lacked the authority to do so. The board resolution he relied upon did not specifically authorise the signing of the subordination agreement, and the SCA refused to interpret it as a blanket mandate. The court emphasised that a director has no inherent authority to bind the company as they wish, and rather authority must be conferred either expressly or by implication from a specific board resolution. The consequences were significant, with the debtor being ordered to pay approximately R458.6 million. This case underscores that parties must be diligent in ensuring that all parties to a contract are duly authorised to conclude the contract prior to entering into the contract.

Background

SACTWU Investment Group Proprietary Limited (SIG), an investment vehicle of the Southern African Clothing and Textile Workers Union, sought to exit its loan to Sekunjalo Independent Media Proprietary Limited (SIM) in 2017, when SIM had not made any interest payments over the seven-year term. An exit strategy was agreed, and SIG’s loan claim and shares in SIM would be sold in exchange for shares in Sagarmatha Technologies Limited, a company due to list on the JSE. On 22 November 2017, SIG’s board passed a resolution authorising the sale agreement and empowering any director to sign any documents that were “reasonable and necessary” to give effect to the transaction.

Nine days later, a director of SIG, Mr Kriel, was presented with and signed a subordination agreement at SIM’s offices, which indefinitely subordinated SIG’s claim until SIM’s auditors certified the company as solvent. Critically, this subordination agreement had never been discussed at board level, was not referenced in the sale agreement nor the November 2017 resolution, and had not been vetted by SIG’s advisors. When the Sagarmatha listing failed in April 2018, SIM sought to rely on the subordination agreement to block SIG from claiming repayment of its loan.

Key findings

Overturning the decision of the high court, the SCA held that Mr Kriel lacked actual authority to bind SIG to the subordination agreement. The court held that the November 2017 board resolution was not an “open sesame” for directors to sign any agreement they saw fit. The directors’ authority was limited: they were empowered to do or cause “all such things to be done, to sign and file all documents as may be reasonable and necessary” to give effect to the sale agreement – and that was the resolution’s sole purpose.

Critically, the SCA noted that both the sale agreement and the resolution were signed on the same day (22 November 2017), and a subordination agreement presented to Mr Kriel nine days later could not have been within the board’s contemplation when the resolution was passed. There was no mention of the subordination agreement in the sale agreement, and an open-ended subordination persisting indefinitely, even if the listing failed, was not “reasonable and necessary” to implement a transaction whose entire purpose was to enable SIG to exit the loan through the listing.

The court further found that ostensible authority was not established, as SIM’s own representative, Mr Hove, admitted he had never seen the board resolution and could not have relied on it as a representation of authority.

Protecting yourself: Verifying counterparty authority

This judgment carries critical lessons for any party entering into a contract. Before signing, counterparties must verify that the individual executing the agreement has actual authority to bind the company. The failure to do so in this case proved fatal to SIM’s reliance on the subordination agreement: Mr Hove admitted he had never seen the resolution authorising Mr Kriel to sign, and had SIM requested it, it would have discovered that the subordination agreement fell outside its scope. The lesson is clear - never assume authority exists.

Counterparties should be aware that board resolutions must be interpreted contextually, having regard to the text, purpose, and surrounding circumstances. Broad language, such as “reasonable and necessary,” will not suffice if an agreement was never contemplated by the board. The sole purpose of the November 2017 resolution was to exit the loan via the sale agreement, and the SCA refused to extend this mandate to cover an unrelated subordination agreement. A counterparty reviewing that resolution with a critical eye would have identified this gap.

Finally, companies should establish internal procedures to ensure that any document presented to a director for signature is first checked against a list of board-approved agreements and reviewed by the company’s advisors. In this case, the subordination agreement was not shown to or vetted by Mr Govender, SIG’s advisor on business and investment matters, even though he had been at the same offices an hour earlier to vet all documents relating to a separate transaction.

A wake-up call for corporate governance

The SACTWU v Sekunjalo judgment is a cautionary tale and a wake-up call for any party entering into a commercial contract. The SCA’s message is clear: a director has no inherent authority to bind the company, and authority must be conferred either expressly or by implication from a specific board resolution. Broadly worded resolutions will not cure a lack of specific authorisation, and resolutions authorising “reasonable and necessary” documents will be interpreted narrowly in light of the transaction they were intended to effect.

Counterparties should make it a point to always verify the authority of their counterparty to conclude the contract before entering into such a contract. Companies should review their board resolution templates and signing protocols to ensure that directors are never placed in a position where they sign agreements beyond their mandate. The cost of getting this wrong, as this case demonstrates, can run into hundreds of millions of rands.