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‘Back to normal’ on section 127 – but not in a good way

22 March 2021 | Australia
Legal Briefings – By Stephen Dobbs, John Angus and Patrick Lowden

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In these unprecedented times, ‘getting back to normal’ has become a goal for individuals, organisations and governments. A symbol of beating the pandemic and resuming lives unaffected by the restrictions of the past 12 months or so.

However, not everything was better before the pandemic. In the electronic execution space, there has been a rush of welcome legislative and regulatory responses which have greatly facilitated the signing of contracts and deeds without the need for old-fashioned pen and ink. In some Australian jurisdictions (notably Victoria) concrete steps have been taken to make these facilitative changes permanent.

The current section 127 modifications have expired

Federally, various regulatory instruments have temporarily facilitated electronic execution of contract and deeds by companies under section 127 of the Corporations Act. Unfortunately, the most recent of these instruments (the Corporations (Coronavirus Economic Response) Determination (No. 3) 2020) expired on 21 March 2021 and can no longer be relied on.

While comprehensive permanent reform still appears to be on the cards, that will not be legislated until later this year at the earliest. It follows that on and from 22 March 2021, the rules around execution of documents under section 127 revert to the pre-pandemic position, which is that (based on the most recent relevant judicial authority):

  • ‘counterpart’ execution (where two officers sign separate copies of a document) does not satisfy section 127; and
  • accordingly the two officers need to sign the same physical instrument.

Remote execution is not necessarily precluded entirely

In principle, it should be possible to rely on general law rules relating to the use of facsimile signatures to satisfy the requirements for execution under section 127 by use of printed signatures on a printed document.

However, particular procedures would need to be followed for this to be valid, and not all counterparties and legal advisers will necessarily accept this approach.

Traditional wet ink is ‘Plan A’

Pending a further change in legislation, parties should plan for both officers to wet ink sign the same paper document in the traditional way unless an alternative approach is agreed in advance.

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