Can you backdate a contract? No, not in the sense most people mean, which is signing it today and writing an earlier date at the top. What you can do, and what I’d recommend, is date the document on the day it’s actually signed and say in it that it takes effect from an earlier date and records the terms you’ve been working to since then. You get the same commercial result and none of the risk.
The difference can sound like a technicality, but it matters a lot to whoever reads the document later and needs to know when it was really signed, which is usually a buyer, an investor, HMRC, an auditor or a judge.
Why people want to backdate
It nearly always comes from the same place. You’ve been working with a contractor, a supplier, a customer or a business partner for a year or two on a handshake, or on a draft nobody got round to signing. Then something happens that means you need the paperwork: a buyer’s due diligence, an investor, a dispute, or the accountant asking what the arrangement actually is. The instinct is to sign it now and date it back to the start, so it looks as though it was always there.
I had this recently with a client who’d been using an overseas contractor for a couple of years. I’d started drafting an agreement for them at the beginning, then it went quiet, and as far as anyone could tell the relationship had run without a signed contract ever since. The fix was to finish the agreement, sign it now, and give it an effective date at the start of the relationship, with a line making clear that it records the terms the parties had been dealing on. Nobody was being misled about anything, and the document says so on its face.
What’s actually wrong with backdating
Under the Forgery and Counterfeiting Act 1981, a document is “false” if it purports to have been made on a date on which it wasn’t in fact made (section 9(1)(g)). That doesn’t mean every backdated contract is a forgery. The offence in section 1 needs an intention that someone will accept the document as genuine and act, or not act, to their prejudice because of it. Two parties who both know the real date and are just tidying up their own paperwork are a long way from that.
The trouble is that you don’t control who reads the document next. A backdated agreement that seemed harmless between you and your contractor looks very different to HMRC if the date affects tax, to a buyer’s solicitor if it’s been produced in due diligence, or to a court if it’s relied on in a dispute. By then nobody is asking what you meant; they’re reading what the document says, and it says something that isn’t true.
There’s also a practical problem. Most documents are now signed electronically, and the signing platform records exactly when each person signed. A contract dated two years ago with an audit trail from last Tuesday doesn’t fool anyone. It just makes them wonder what else has been dated creatively.
For solicitors the position is even simpler. Backdating a document to mislead someone is dishonesty as far as the regulator is concerned, and solicitors have been struck off for it. I won’t do it, and any solicitor you instruct should say the same.
An effective date does the same job honestly
The date at the top of the agreement should be the date it’s signed. Then a clause along these lines does the rest:
“This agreement takes effect on [the earlier date] (the Effective Date). The parties agree that it records the terms on which they have dealt with each other since the Effective Date.”
A short recital explaining the background helps too, for example that the parties have worked together since the earlier date and are now recording their arrangement in writing. Between the two parties, you’re free to agree that terms apply to your past dealings, and courts will generally give effect to that. What you can’t do is use it to change the position of people who aren’t party to the contract, or to alter anything that depended on formalities being completed at the time.
It’s also worth being honest with yourselves about what was actually agreed back then. If the old arrangement didn’t include a restrictive covenant, a new exclusivity clause or a change to the price, those new terms should apply from signing, and the agreement should say so. This is the sort of thing worth getting right when the document is drafted, whether it’s a commercial contract or your standard terms and conditions.
Some things can’t be made retrospective
A few things can’t be fixed with an effective date, however carefully it’s worded. Tax positions are the obvious example: if the date of an agreement changes how a payment is taxed, HMRC will look at what actually happened and when. Share issues and transfers need the right paperwork at the time, and the company’s registers should reflect when things really happened. Rights of third parties who relied on the position as it was don’t change just because two parties have now agreed something different.
The same principle applies to company records. Never write up minutes of a board meeting that didn’t happen. If a decision should have been made and wasn’t, the directors (or shareholders, depending on the decision) can make it now and, where appropriate, ratify what was done in the meantime. That’s a normal and legitimate part of company law work, and it leaves a record that stands up to scrutiny.
What to do now
Make a list of the arrangements your business relies on that aren’t properly documented: contractors, key suppliers, customers on old terms, anything between the company and its shareholders or directors. Get each one written up and signed with today’s date and an effective date that reflects when the relationship really started. If you’re planning to sell in the next year or two, this is one of the most useful bits of tidying up you can do, because a buyer’s due diligence will ask for these documents, and an honestly dated agreement signed last month is far better than no agreement at all, whereas a backdated one found halfway through a deal can cause more trouble than having nothing. My due diligence questionnaire is a reasonable checklist of what to gather.
I help business owners get their contracts in order, including before a sale. Get in touch if you’d like some help.
Written by Steven Mather, a business solicitor acting on company sales and purchases. This is general information about the law, not legal advice on your situation.
Written by Steven Mather, a business solicitor acting on company sales and purchases. This is general information about the law, not legal advice on your situation.
