Company Law – Electronic document signing now a reality due to COVID-19 - Wolters Kluwer CCH
|
Covid-19

Company Law – Electronic document signing now a reality due to COVID-19

By June Ahern

It may have taken a pandemic to bring Australia’s antiquated laws, on the signature of company documents, into the twenty-first century. On 5 May 2020, the Federal Treasurer, Mr. Josh Frydenberg MP, issued the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (Determination) pursuant to powers in s 1362A of the Corporations Act 2001 (Cth).

The Determination came into effect on 6 May 2020 and expires on 6 November 2020. It temporarily amends the Corporations Act to permit companies to execute documents electronically.

The temporary measures allow companies, and their officers, to use electronic software, such as DocuSign, to execute their documents under s 127 of the Corporations Act, as well as allowing for “split execution” of documents, that is signing of different counterparts of a document, as opposed to the signing of a single document. Furthermore, if a company executes a document as a deed under the Corporations Act, the new Determination similarly extends to the company executing a deed electronically.

The amendments in detail

The Determination resolves some of the long-standing issues between the operation of the Corporations Act and the Electronic Transactions Act 1999 (Cth) (ETA). The ETA facilitates electronic signatures but does not mandate electronic execution. The ETA also did not apply to sections 126, 127 and 129 of the Corporations Act. The Determination now provides clarity on the interaction of the Corporations Act and the ETA.

Prior to the Determination, an Australian company could rely on s 127 of the Corporations Act for execution of their company documents. Section 129 of the Corporations Act contains a statutory assumption which permits a person to assume that a document has been duly executed by a company if the document appears to have been signed in accordance with s 127(1).

The Determination temporarily alters the operation of s 127 of the Corporations Act to give certainty that when company officers sign a document electronically, that document has been validly executed in accordance with the requirements of s 127.

The Determination also inserts a new definition of “document” for the purposes of s 127(1). This definition includes “a document in electronic form”. In addition, the statutory assumption in s 129(5), relating to due execution, is now available where a document has been signed electronically. However, the proviso remains that if a party knows, or suspects, that this assumption is incorrect, then the assumption is not available.

The Determination means that a company may now execute a document using an electronic communication which reliably identifies the person signing the document and indicates that person’s intention about the contents of the document. These reliability and identification requirements mirror those found in the ETA.

Section 6(3) of the Determination permits “split execution” of a document. This may occur where, for example, two officers of a company execute separate counterparts of a document.

Section 6(4) of the Determination states that the electronic method used for the execution of documents must:

  • Identify the person signing the document in the electronic communication and indicate that person’s intention in respect of the contents of the document; and
  • Be as reliable as appropriate for the purpose for which the company is executing the document.

The requirements of section 6(4) of the Determination mirrors the approach under the ETA.

Section 7 of the Determination extends the statutory “due execution” assumption under s 129(5) of the Corporations Act to documents which appear to have been electronically executed in accordance with section 6 of the Determination. This is important in permitting a party to rely on this assumption when receiving a document which has been signed electronically.

Amendments specific to New South Wales

For deeds governed by the law of NSW, parties will have the benefit of s 38A of the Conveyancing Act 1919 (NSW), which provides that deeds, whether or not affecting property, can be created in electronic form and electronically executed and attested in accordance with the Conveyancing Act 1919 (NSW). It should be noted that no other State or Territory has, to date, enacted an equivalent provision.

More recently, the Electronic Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020 (NSW), provides that witnessing and attestation of documents may now occur by audio-visual link. This Regulation commenced on 22 April 2020 and only applies to documents required by law to be witnessed, including Deeds, Affidavits and Statutory Declarations. The key features of the Regulation are:

  • The witness may observe the signatory signing the document over audio visual link in real time. This observation satisfies the requirement of seeing the face of the person signing the document.
  • The witness can confirm that the signature was witnessed by signing a counterpart of the document as soon as practicable after observing the signatory signing the document.
  • The witness must be reasonably satisfied that that document he or he has signed is the same document which the signatory has signed.
  • The witness must endorse the document, specifying the method used to witness the signatory’s signature.
  • The witness must attest that the document was witnessed in accordance with the Regulation; and
  • The link used must be both audio and visual, and real-time. This means that telephone calls alone are not acceptable, nor is the use of recorded video footage.

What is required for a valid electronic signature?

To comply, electronic executions must clearly identify the person signing the document and indicate his or her intention to be legally bound by the electronically executed document. The platform used for electronic execution of the document must be reliable for the purposes of executing the document and prove the identity of the person signing the document.

What exclusions apply?

Although the Determination appears to extend to a company executing a deed electronically, caution should still be exercised to ensure that all formalities are met in order to validly form a deed. This is particularly important, at least until further judicial guidance on the matter is available.

The Determination also only applies to Australian corporations registered under the Corporations Act. This may further complicate the approach in relation to deeds with foreign companies where a foreign company is still obliged to comply with a “paper, parchment or vellum” requirement, together with a wet-ink signature. This is a further incentive for parties to consider if their agreement does in fact need to be a deed.

Practicalities to consider

If there is any confusion or uncertainty about whether a document can, or has been, executed electronically, for caution, it is recommended that companies:

  1. Be mindful that the legislative changes are temporary only and will cease on 6 November 2020 in New South Wales, unless repealed earlier.
  2. Use only certified and approved digital signing platforms, such as DocuSign or AdobeSign.
  3. Ensure that you have stipulated and agreed the method of signing with the other party or parties.
  4. Avoid the use of deeds unless absolutely necessary; note that a deed is not required unless consideration or limitation is an issue
  5. Always retain a hard copy of any document which has been signed electronically; if the document is a deed, a hard copy is required by default.
  6. Keep in mind whether the reliability and identity requirements, for the signing of a document electronically, have been fulfilled. If there is any doubt as to the validity of a document, it has not been duly executed.

What does this mean for corporations?

These legislative changes are a welcome relief for corporations seeking new ways of carrying out business, particularly during the COVID-19 pandemic. The legislative amendments align with a common-sense approach to electronic execution of documents, and one which legal practitioners have long sought from the legislature. It facilitates a more streamlined approach to carrying out business and it is hoped that this common-sense approach can continue beyond the COVID-19 pandemic itself.

Further reading and sources

Corporations (Coronavirus Economic Response) Determination (No. 1) 2020

Electronic Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020 (NSW)

Please subscribe to our dedicated COVID-19 blog for all the latest updates on the COVID-19 pandemic. We are here to assist you and your company in navigating the ongoing legislative and regulatory changes in response to COVID-19.