The law again catches up with reality: Electronic signing of documents by companies

On 13 August 2021 the Treasury Laws Amendment (2021 Measures No.1) Bill 2021 (the Bill)  finally received Royal Assent. It takes effect on and from 14 August 2021. Company directors will breathe a (temporary) sigh of relief as they will be able to, again, electronically execute documents that would normally require execution under section 127 of the Corporations Act 2001 (Cth) (the Act).

Overview of the Changes on Company Execution

The amendments set out in Schedule 1 of the Bill:

• enable a company to validly execute a document electronically under section 127 of the Act;
• allows ‘split execution’ of documents;
• allows remote witnessing of the affixing of a company’s common seal via electronic means.

Companies signing under section 127 of the Act

Section 127 of the Act allows execution of a document by a company by:

• two directors,
• a director and a company secretary,
• for a proprietary company with a sole director who is also the sole company secretary, that director.

A company is able to execute in this way with or without the company seal. When using the common seal, company officers would sign as witness to the affixing of the seal. Anyone receiving a document executed pursuant to section 127 can also rely on the assumptions in section 129(5) of the Act, including that a person who has signed under section 127 of the Act is signing on behalf of the company, and that a person stating next to their signature that they are the sole director and sole company secretary, holds both of these offices.

Then along came 2020 Lockdown

COVID-19 lockdown in 2020 made the execution of documents by companies in ‘wet ink’, impractical. It meant that directors had to sign the same document in wet ink. This was often impractical and not time effective. Leaving aside COVID-19 lockdowns, it did not reflect current general commercial reality where electronic execution is often the preferred and most expedient means for execution of documents.

Practical Relief

On 5 May 2020, as we grappled with the challenges that COVID-19 lockdown brought to our doors, the Treasurer introduced the Corporations Coronavirus (Economic Response Response) Determination (No.1) 2020 (Cth) (the Determination). For a period of 6 months to 5 November 2020, the Determination allowed for documents executed under section 127 of the Act to be deemed legally executed where:

• they were executed electronically, and

• where there was split execution of a document by a company i.e. if there is more than one company officer signing a document, each company officer could sign a separate document (as long as that separate document included the entire contents of the document).

This relief was extended on 21 September 2020 to 21 March 2021[i]. After 21 March 2021 however we were in limbo. The Treasury Laws Amendment (2021 Measures No.1) Bill 2021 was introduced to Parliament with the intention of extending the application date beyond 21 March 2021 before its expiry, however, it was not passed by Parliament before 21 March 2021.

Hot off the Press

The Treasury Laws Amendment (2021 Measures No.1) Bill 2021 was passed and given Royal Assent on 13 August 2021. However, these measures also have an expiry date, and only apply to 31 March 2022. Will they be extended beyond that expiry date? That remains to be seen, but there are indications that this may be the case.[ii]

The Position Now

A company execute a document:

• using the ‘traditional method’, i.e. wet ink signature on a physical paper document; or
• by electronic means; or
• using a combination of both methods.

A company may also execute a document electronically under section 127 of the Act and a party receiving the document may enjoy the assumptions under section 129(5), on the following basis:

1. An electronic copy of the document can be executed provided:
   
   (a) a method is used to identify the person signing and indicate their intention to sign a copy or counterpart of the document, The Explanatory Memorandum to the Bill indicates for example, this can be done via DocuSign or using a stylus tool to execute a PDF document (the methods are not mandated as it is recognised new technology may be developed). In terms of demonstrating intention, it may also be prudent to include a clause indicating that electronic execution is permitted and that the parties intend to be bound by the document using such means;
   
   (b) copy or counterpart of the document must include the entire contents of the document. While it is not explicit, use of the words ‘entire contents’, suggest just signing and returning just the execution page may not be sufficient;
   
   (c) the method used must be either as reliable and appropriate for the purposes for which the document was generated or proven in fact to have indicated the person’s identity and intention in signing.
    
2. The reforms in respect to execution in this way, extend to deeds.
    
3. A copy or counterpart of the document can be validly executed by way of split execution. This means that the company officer (director, company secretary) signing, does not need to sign the same document as their fellow director but may sign a copy or counterpart as long as that copy of counterpart includes the entire contents of the document (so split execution is permitted);
    
4. If a document is to be executed using a common seal, remote witnessing of the affixing of the seal is acceptable via electronic means (for example, by a video conference), as long as the relevant signatory has:
   
   (a) seen the seal being affixed to the document;
   
   (b) signs the document or a counterpart physically or electronically; and
   
   (c) the document includes a note that the person has observed the affixing of the seal by electronic means.

A welcome respite

The passing of the Bill and royal assent is a welcome relief. It does however leave a time gap between 21 March 2021 and 14 August 2021 as it does not address any transitional issues. Therefore, section 127 of the Act as it previously stood before any changes allowing electronic and split execution, stands. However, these changes are still welcome as it allows technology to be used to facilitate regulatory compliance.

How can we help?

If you have questions or require assistance with execution or review of documents, please do not hesitate to contact a member the Coleman Greig’s Commercial Advice Team who would be more than happy to assist you.

This material is provided by Coleman Greig Lawyers as general information only in summary form on legal topics current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters.