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Back to the future on electronic execution, at least for now

31 August 2021 | Insight

As a response to the current pandemic, a series of regulatory instruments and legislative amendments have been put in place to facilitate electronic signing of contracts and deeds. In most (but not all) Australian jurisdictions these amendments have been temporary, albeit generally extended as the pandemic has continued.

At the federal level, however, the initial regulatory response facilitating electronic execution of contracts and deeds by companies under section 127 of the Corporations Act was allowed to lapse on 21 March 2021. This caused considerable irritation for businesses, not only because they had become used to the flexibility of electronic execution under section 127 but also because a resurgent virus during mid-2021 increasingly made traditional wet ink execution logistically difficult.

IN BRIEF

  • Electronic execution under section 127 is back: Thankfully recent legislation has reinstated electronic execution under section 127 as an option for companies.
  • The punchily-titled Treasury Laws Amendment (2021 Measures No. 1) Act 2021 (Cth) (the Amending Act) commenced on 14 August 2021 and amends the Corporations Act to allow companies to execute documents (including deeds) under section 127 in electronic form.

Key requirements

Existing section 127(1) sets out the well-known requirements that a company may execute a document without using a common seal if the document is signed by two directors of the company or by a director and secretary (or if there is a sole director who is also the sole secretary, that director).

The Amending Act inserts a new section 127(3B) (under the heading ‘signing an electronic copy or counterpart’) which provides that a document is taken to be signed by a person for these purposes if the following requirements are met:

  1. They must use a method which identifies them and indicates their intention in respect of the contents of the copy or counterpart.

    Implicitly, the electronic method used must indicate an intention to execute the document.
     
  2. The copy or counterpart must include the entire contents of the document.

    This is generally easy to meet with electronic versions of documents. The amendments make it clear this requirement excludes the signatures of other persons signing the document or any material included in the document to identify another signatory or their intentions).
     
  3. The method used must be ‘as reliable as appropriate’ for the purpose for which the document is generated or communicated (or be proven in fact to have fulfilled the required functions in (a) above as to identity and intention).

    This mirrors the language used in the electronic transactions legislation at both Commonwealth and state level. Whilst it may be unclear exactly what the first limb will require in this context, little is likely to turn on it in practice given the second limb.

The amendments also make it clear that in the case of a wet ink signing, the two corporate officers can sign separate copies or counterparts of the document (that is, they do not have to sign the same physical instrument).

Other implications

As with the previous temporary federal regime, the amendments do not expressly state that deeds can be in electronic form. However, it seems clear that their effect is to permit electronic execution of deeds by companies.

The existing s127(3) provides that ‘a company may execute a document as a deed if the document is expressed to be executed as a deed and is executed in accordance with subsection (1) or (2)’ and the amendments operate as confirming what constitutes execution in accordance with subsection (1).

Separately, the Amending Act adds an express note to s129(5) intended to make it clear that the assumption under that subsection will be available if (among other things) a document appears to have been executed in the manner permitted under the new section 127(3B).

Methods of electronic signing by corporate officers

Methods of execution by a director or company secretary which should in principle meet the requirements of the new section 127(3B) for execution by companies under section 127 include the relevant individual:

  1. signing an electronic document using DocuSign or a similar secure cloud-based service, whether by signing on-screen with a stylus or applying a stored copy of the person’s signature; or
  2. signing a local pdf or word copy on-screen with a stylus or by inserting a stored copy of their signature.

There also seems no reason why the director or secretary could not direct a PA, general counsel or other authorised person to insert a stored copy of their signature into a local pdf or word copy on their behalf, provided the direction is sufficiently specific. This was certainly relatively common practice under the previous temporary federal regime.

Amendments once again have an expiry date

The amendments made by the Amending Act expire on 31 March 2022. So there is not yet a permanent legislative fix to permit electronic signing (and counterpart signing more generally) under section 127.

However the government is consulting in relation to more comprehensive permanent amendments, which will hopefully be settled and enacted before the existing temporary amendments expire.

At the practical level, given the relative fluidity of the space at present (and the fact that not all practitioners adopt the same interpretation of the effect of the legislation) it will usually make sense to check with the other parties to the transaction in advance to confirm all are agreed on the signing methodology.  

Key Contacts