This is the fourth part in a series of five blogs that outline the charity merger process – before, during and after the negotiation and signing of the asset transfer agreement ("Transfer Agreement").
In this Part 4 of the blog series, we focus on:
- signing (often called "execution") of the transfer documents; and
- the mechanics of completion e.g. whether the documents will be signed in person (also called "wet ink" signing) or electronically (e.g. using DocuSign).
Governing Law
Once parties have agreed the transfer documents, the time then comes to sign on the dotted line – this is the point in the process where the finish is in sight and can be an exciting time for both the transferee charity and the transferor charity, bringing what can often be a lengthy process, to a conclusion. However, it is imperative not to lose sight of the importance of the signing process and ensure that the transfer documents are executed in accordance with the law they are governed by so that they are valid and binding, and so that completion of the transfer is successful for both parties involved.
A merger involving two Scottish charities will be governed by Scots law. In cases where one party is a charity registered in England and Wales and the other is registered in Scotland, the governing law will have been negotiated and what was agreed set out in the Transfer Agreement.
Although there are certain similarities between the execution requirements under Scots and English law, there are also some significant differences which, if not observed, could strike at the validity of the relevant contracts and the wider transfer. For the purposes of this blog, we will focus on the requirements under Scots law.
Valid execution of a contract under Scots law usually requires the individuals who are a party to that contract to sign it to evidence that the person, or in the case of a merger, the charity, has agreed to be bound by the terms of the contract.
The parties to the Transfer Agreement and the ancillary contracts will be the charities themselves. In the case of a charitable company or Scottish Charitable Incorporated Organisation, a charity trustee, secretary or authorised person will sign on behalf of the charity. It is essential to check:
(i) that the person signing on behalf of the charity has authority to do so. Where the intended signatory is not a charity trustee or secretary, a power of attorney should be provided in favour of the intended signatory, or a letter from the charity authorising the person to sign on the charity's behalf. The other party's solicitors will also very likely request a copy of this; and
(ii) the constitutional documents of the charity to see if they contain any restrictions or requirements for signing. For example, if the charity is a subsidiary of another charity, the subsidiary's constitution might provide that the 'parent' charity must approve the signing of transfer documents.
As well as identifying who is to sign the transfer documents, there also needs to be consideration of the level of signing required. Under Scots law a document can be signed so that it is either:
- formally valid – signing by one person e.g. by a charity trustee, secretary or authorised person (usually authorised by the board of the charity they are signing on behalf of); or
- probative – signing by two persons e.g. a charity trustee or secretary and a witness, or two authorised signatories.
Some documents will require the higher level of signing, i.e. they will have to be signed so that they are probative. For example, these include:
- Dispositions / transfers of land
- Leases
- Mortgages or charges
- Powers of attorney
- Trusts
"Wet ink" signing, counterparts and delivery of transfer documents
It used to be that the parties to a transaction would meet in person to sign the transfer documents in one location, i.e. a "wet ink" signing. With the availability of electronic signing, "wet ink" signing is no longer so common when it is not required. If, however, the parties are signing in "wet ink" but are not in one location they will likely sign counterparts – separate (but identical) copies – of the documents and then exchange them. Each counterpart constitutes an original signed document and all of the signed counterpart documents together form a single binding agreement. Signing in counterpart can be a useful form of signing if there are several signatories who may be dotted around various locations.
Electronic signing
It is now more common for documents to be executed via electronic signing platforms such as DocuSign. This can be useful where parties or signatories have busy schedules and are usually on the move. There are also, of course, environmental benefits which come from electronic signing as it avoids the need to print off a suite of transfer documents which will often comprise hundreds of pages across a large number of separate documents.
There are three recognised types of electronic signatures under Scots law:
- simple electronic signatures;
- advanced electronic signatures; and
- qualified electronic signatures.
Scots law does not recognise electronic witnessing. Consequently, if a document requires to be witnessed under Scots law it must be signed in "wet ink".
The Law Society of Scotland has published a useful guide on electronic execution of documents, together with suggestions on good practice.
How Brodies can help
The importance of the signing process cannot be understated so care and thought should be applied to ensure valid and legally binding transfer documents.
Our charity law team have experience advising on all steps of a charity merger, including the signing of the Transfer Agreement and any ancillary documentation required. If you would like any advice on the issues raised in this blog, please get in touch with one of our charity lawyers.
