Board member or general manager of AS/ASA - this is what you need to know about the difference between your competence and credentials  

Board member or general manager of AS/ASA - this is what you need to know about the difference between your competence and credentials

A recent Supreme Court ruling shows that the difference between competence and credentials is often misunderstood. In the relevant case, the general manager of an AS had entered into an agreement relating to the purchase of operating assets. Trøndelag District Court and Frostating Court of Appeal had both assumed that the agreement was not binding on the company because the managing director had not authorized as having aignatury rights for the company, and such signature right was not registered in the Register of Business Enterprices. As the Supreme Court correctly stated in the ruling, both decisions were wrong and based on a misunderstanding of the fundamental difference between competence and credentials.  

If you are a board member or general manager of AS/ASA, you must therefore know the following:

• Competence: The question of whether you have competence can be rephrased as "has someone given you permission to do this"? Such permission can be in the form of a decision by the general meeting, a board resolution, or a power of attorney that may result from the Companies Act or general power of attorney rules.  

• Credentials: The question of whether you have credentials can be rephrased as "has someone given you a title that allows a counterparty to assume that you have permission to do something"? The most common types of credentials in this context are the power of attorney and the right of authorized signatory.  

Signature right, i.e. the right to a signature that is registered in the Enterprise Register, gives the person or persons who have been given such authorization credentials to bind the company in every respect. The person who uses his signature right must, however, always ensure that she has sufficient competence to carry out the act in question. Signatory rights are therefore not in themselves a "permission" to do something on behalf of the company. If you use the signatory right without the action being rooted in an internal decision that allows the action, or without the action falling within the authority of your position, you therefore do not have the right to carry out the action even if the other party were to believe in good faith that you have such a right.  

Example no. 1: If the general manager with signatory rights alone signs loan documents on behalf of the company, this will in principle bind the company - but if by doing so the general manager acts contrary to the authority he has in accordance with the Companies Act or other orders issued by board, the general manager will have gone beyond his competence and could become personally liable for losses the company incurs.  

Example no. 2: If the general manager without signatory rights alone signs loan documents on behalf of the company, this will bind the company if the loan was taken out within the general manager's authority in accordance with the Norwegian Companies Act, i.e. that the loan was not of such a nature that it must be considered outside the day-to-day management. In other words, the general manager's lack of signature right does not automatically mean that the loan agreement does not bind the company, only that the question of the company's binding must be assessed when interpreting the power of attorney.  

Example no. 3: A board consists of five members. The company has decided that two board members jointly have signatory rights for the company. As a starting point, individual board members have no competence to act on the company's behalf when entering into a contract. Two board members who must sign a contract on behalf of the company in accordance with signature right, must therefore always seek the permission of the board before they sign the contract, in practice by the board either approving the relevant contract or resolving an authorization which permits board members to use their signatory rights to approve and sign the relevant contract for the company.     

The difference between credentials and competence can be complicated to understand. As the Supreme Court's decision illustrates, misunderstandings in this regard can be decisive for whether an agreement is binding or not. Mistakes can lead to liability for those who go beyond their powers. At the same time, it can also mean that the other party is not bound by the signed contract.

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AGP is a law firm specialized in transactions, capital markets and corporate. Advice related to company law matters is one of our core competences.  

Gard A. Skogstrøm

Partner / gard@agpadvokater.no / 973 18 439

Ketil E. Sauarlia

Partner / ketil@agpadvokater.no / 417 62 807

This article is marketing and does not constitute legal advice.