The return of electronic execution for companies

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By Tim L’Orange, Partner, Hannah Marlton, Special Counsel, Maria Hoang, Law Graduate and Alexandra McGrath, Law Graduate

As of Saturday, 14 August 2021, companies can – once again – electronically execute documents under section 127 of the Corporations Act 2001 (Cth) (Corporations Act).

The new changes to the Corporations Act were implemented by the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 (Cth) (Act), which attained Royal Assent on Friday, 13 August 2021.

The changes introduced largely mirror those that were initially implemented by the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 during last year’s COVID-19 lockdowns.

In light of the current lockdowns around Australia aimed at slowing the spread of the highly contagious Delta Variant, company officers and practitioners alike have eagerly awaited the re-introduction of legislation permitting electronic – and split – execution by companies.  The much awaited introduction of the Act will, once again, ease pressure on companies having trouble facilitating wet-ink executions and will encourage continuity of business.

For now, the changes are a temporary stopgap – taking effect from 14 August 2021 (with no retrospective application) and automatically lapsing on 31 March 2022 (see section 1679F of the Act).  However, the Explanatory Memorandum issued with the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 makes clear that the Federal Government intends to implement permanent reforms to allow electronic execution under section 127 before the temporary measures reach their sunset date.

What (temporary) changes have been made to section 127?

Expressly contemplates execution by electronic means – the Act amends section 127 by inserting a new sub-section 127(3B), which provides that a copy or counterpart of a document may be signed by a company electronically, provided:

  • A method is used to identify the person signing and that method indicates the person’s intention to sign a copy or counterpart (section 127(3B)(a)):

Examples of how his requirement can be satisfied include:

  • by using a digital signing platform (such as DocuSign) which automatically inserts the signatory’s name and digital signature when signed;
  • by including in the document words to the effect of “electronic signature of me, [insert name], affixed on [insert date/time]” below the relevant signature. Those in the NSW Property Industry will be familiar with this phrasing as such words are currently required by Land Registry Services NSW for any electronically executed property dealings submitted for registration;
  • by signing the electronic document with a stylus tool, finger or mouse and the signatory returning the signed document to the company with a covering email acknowledging electronic execution and an intention to be bound; or
  • by the inclusion of a simple electronic execution clause in the contract which acknowledges that a copy or counterpart may be signed by the parties electronically (but provided each signatory’s name is also inserted below their signature to ensure that the signatory is appropriately identifiable).
  • The copy or counterpart signed includes the entire contents of the document (section 127(3B)(b)):

This is an important point to observe.  Often, particularly where a document is large in size, a company’s signatories may be sent a single page containing the execution block for signing.  In circumstances where the execution page is extracted from the larger document and signed in isolation, the requirements of section 127 will not be satisfied.

  • The method of execution used must be reliable for the purposes (or be proven in fact to have fulfilled the purpose) for which the document was generated (section 127(3B)(c)):

The Act takes a technology neutral approach and does not mandate the use of any particular means of execution as being “reliable”.  However, from reviewing the commentary provided in the Explanatory Memorandum, we consider that any method of electronic execution where a company officer applies their signature directly to the copy or counterpart (whether by using a stylus tool, finger or mouse to sign an electronic copy of a document, by copying and pasting their signature into an electronic copy of a document, by signing in wet-ink and scanning in or by using a digital signing platform), would be considered reliable for the purposes of section 127(3B)(c).

Note: These provisions are modelled on the conditions under the Electronic Transactions Act 1999 (Cth) (ETA) and, therefore, clarify that companies are able to sign electronically (and bind themselves accordingly) in the same manner as individuals and attorneys under the ETA.  However, unlike the ETA, the changes introduced to section 127 do not expressly require consent from a counterparty for the use of electronic execution.

Expressly permits split execution by companies – the Act amends section 127 by inserting a new sub-section 127(3C), which provides that a copy or counterpart of a document (whether signed in wet-ink or electronically) need not include the signature of another person signing the document.  This means that a company may execute, and bind itself accordingly, by having two directors or one director and a company secretary, sign two different counterparts (physical or electronic, or one of each) of the same document rather than the traditional requirement of both signatories have to execute a single, static physical document.

Assumptions applied to electronic execution – the Act makes a minor change to section 129 of the Corporations Act which clarifies that, provided the document appears to have been executed in accordance with section 127 (as amended by the Act), the assumptions that people dealing with companies are entitled to make under section 129 will also apply to electronically signed documents.

Practical tips and tricks for electronic execution by companies

The changes introduced by the Act provide flexibility for company officers when signing documents and entering into contracts.  Given that no particular method of execution has been mandated by the Act, company officers may use a wide range of methods to sign documents.  These methods include:

  • continued use of wet-ink execution of physical documents (whether in a single document or via split execution);
  • by each company officer using a digital or cloud-based signing platform (such as DocuSign) to apply their electronic signature;
  • by printing and signing the document in wet-ink and then scanning the document to a second signatory who also prints that counterpart (or, if using split execution, an unsigned copy of the document), signs in wet-ink and scans back the executed document to the company or counterparty;
  • by each company officer signing an electronic copy of the document with a stylus tool, finger or mouse (whether in a single copy of the document or via split execution); and
  • by copying and pasting into an electronic copy of the document an image of the signatories’ signatures (again, whether in a single copy of the document or via split execution); or
  • by a combination of the above methods.

No retrospectivity

The changes introduced by the Act have no retrospective effect and, therefore, the Corporations Act does not expressly permit electronic execution by companies between 22 March 2021 (after the lapsing of Determination (No. 3) 2020 (Cth)) and 13 August 2021 (prior to the commencement of the Act).

Other changes introduced by the Act

In addition to electronic and split execution by companies, the changes implemented by the Act also:

  • clarify that all documents may be electronically executed by a company under section 127, including deeds;
  • allow remote electronic witnessing of the affixing of a company seal;
  • provide that meetings of a company and its shareholders may be held virtually (be it a hybrid in-person and virtual meeting, or a wholly virtual meeting);
  • permit electronic communications/service of electronic notices; and
  • amend both the Corporations Act and the Australian Securities and Investments Commission Act 2001(Cth) to provide revised rules for continuous disclosure obligations for companies.

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