UPDATE: Electronic execution of documents here to stay – Royal Assent received

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By Tim Downing, Partner and Prue Tyson, Law Graduate

The electronic execution of documents has finally been afforded a place of permanency in the Corporations Act. Partner, Tim Downing and Law Graduate, Prue Tyson, provide a high-level summary of three key takeaways as a result of the new provisions.

As a follow up to our article on 18 February 2022 on the Corporations Amendment (Meetings and Documents) Bill 2021 (the Bill) (see below), the Bill received Royal Assent and commenced on 22 February 2022.  As detailed below, the new law provides a statutory mechanism for the electronic execution of company documents (including deeds) under sections 126 and 127 of the Corporations Act 2001 (Cth).

In addition, changes have been made to enhance the flexibility of sole director proprietary companies and corporate groups in executing documents (whether electronically or in wet-ink).

Electronic execution of documents here to stay

On 10 February 2022, both Houses of Parliament passed the Corporations Amendment (Meeting and Documents) Bill 2021 (the Bill).

Once the Bill takes effect (namely, on 1 April 2022 or the day it receives royal assent), it will make permanent in the Corporations Act 2001 (Cth) (the Act) (and in some cases, modify) several measures temporarily introduced last year, including to legislate the validity of executing documents electronically under section 127 of the Act.

Takeaway 1: electronic and split execution of documents allowed

The Act has been amended to enshrine the validity of the electronic execution of documents (including deeds) by or on behalf of companies (Company Documents) under both section 126 and section 127 of the Act.

Under the new section 110A of the Act, a company or its agent will be taken to have validly signed a Company Document by using an electronic method, provided that the electronic method:

  1. identifies the person and indicates the person’s intention in respect of the information recorded in the document; and
  2. is either as reliable as appropriate for the purpose for which the information was recorded or factually proven to have fulfilled the functions described in (a).

Section 110A(4) of the Act also makes clear that the use of ‘split executions’ is now a permanently valid method of execution, in particular, for the purposes of section 127 of the Act. In other words, company officers for a company will be able to sign two separate versions of a Company Document, rather than both officers needing to sign the same physical copy (as was previously required to confidently ensure compliance with section 127 of the Act).

The note to section 110A(4) provides an example of what this may look like in practice:

For example, a company may execute a document by one director signing a physical form of the document by hand, and another director signing an electronic form of the document by electronic means.

Section 110A(4) of the Act also makes clear that execution will be valid where a signatory signs a stand-alone execution page (i.e. without having the entire contents of the document attached).

Takeaway 2: valid execution by proprietary companies with a sole director and no company secretary

The Act will also remove a long existing anomaly in relation to sole director companies where they also needed to be the sole company secretary for signing under section 127 of the Act to be valid. The Act will make expressly clear that execution of Company Documents by a sole director of a proprietary company which has no company secretary is in compliance with section 127 of the Act. This means that the assumptions set out in section 129 of the Act will be able to be relied upon in that situation.

Takeaway 3: persons can sign in different capacities

The Act will also be amended to include a new section 110A(5) that confirms that a person is allowed to sign a Company Document once, but have that signature apply to multiple capacities in which the person is signing. This will be valid if the Company Document requires or permits the person to sign in more than one capacity and the Company Document states the capacities in which they are signing the document.

This will be of particular benefit to corporate groups sharing the same company officers when multiple entities are signing the same document as they will no longer need separate execution blocks for each group entity (provided the name of each group entity, and the capacity in which the person is signing for that entity, is stated).  This is made clear in an example given under the new provision:

Example 2: If a signature block in a document requires or permits a person to sign once on behalf of 2 companies as an agent for both those companies, the person may sign the document as an agent for both those companies by signing that signature block.

For further information, please do not hesitate to contact us.

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