Electronic document execution by directors

Because of the current COVID-19 restrictions, it has been inconvenient and even impossible (in some cases) for directors to sign documents in what’s known as “wet-ink”.  In order to address this issue the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (Cth) (Determination) has been published by the Federal Government.  The Determination modifies the operation of section 127 of the Corporations Act 2001 (Cth) (the Act) and other legislation in relation to the conduct of meetings and the execution of documents by companies.  The meaning of “Document” has been amended to include a document in electronic form.

Changes to method of execution of documents by companies

Section 6 of the Determination modifies subsection 127(1) of the Act by defining a document as one that can be in electronic form.  Subsection 6(3) and (4) provide:

“(3)  A company may also execute a document without using a common seal if each person specified in paragraph 127(1)(a), (b) or (c), as the case requires, of the Act either:

(a)  signs a copy or counterpart of the document that is in a physical form; or
(b)  complies with subsection (4) of this section in relation to an electronic communication (within the meaning of the Electronic Transactions Act 1999).

The copy, counterpart or electronic communication must include the entire contents of the document, but need not include the signature of another person signing the document nor any material included in the document because of subsection (4) of this section.

(4)  A person complies with this subsection if:

(a)  a method is used to identify the person in the electronic communication and to indicate the person’s intention in respect of the contents of the document; and
(b)  the method:

(i)  is as reliable as appropriate for the purpose for which the company is executing the document, in light of all the circumstances, including any relevant agreement; or
(ii)  is proven in fact to have fulfilled the functions described in paragraph (a), by itself or together with further evidence.”

According to the Explanatory Statement to the Determination the electronic signature of a document by a company officer can be completed by:

“pasting a copy of a signature into a document;

signing PDF documents with a finger or stylus on a smartphone, tablet or laptop; or

using a cloud-based signature platforms like DocuSign.”^[1]

The Explanatory Statement also states that:

“signatories do not need to sign the same physical document. Instead, a document could be signed and scanned by the first signatory and then printed and signed by the second signatory, or separate electronic signatures could be applied to fully electronic versions of the document.  If these elements are satisfied, then an electronic signature applied under section 127 will be effective to execute a document.”^[2]

This means that most of the contracts signed during the period covered by the Determination will acquire the benefits of the assumptions, as listed in section 129(5).  The Determination applies on a temporary basis until 6 November 2020.

Split Execution

For purposes of section 127(1) of the Act, the Determination also provides for company officers to sign various copies of the same document.  This modification means a document is allowed to be signed and scanned by the first signatory and then printed and signed by the second signatory, or separate electronic signatures could be applied to fully electronic copies of the document.  This enabled flexibility for each respective company officers to sign their own copy or counter part of the document in different locations.

Do these changes apply to deeds?

Uncertainty arises as to whether the modification of the common law position applies to physical deeds.  It is noted that there is no explicit reference made to deeds in the Determination.  The Explanatory Statement has however indicated that section 127 of the Act is modified to ‘allow use of an electronic signature to meet requirements for a signature’ with no specifications of the type of document to which this modified rule takes in effect. The modified rules set out by the Determination were made by the Treasurer on 5 May 2020 and came into effect on 6 May 2020.

Takeaways

Practical relief for the requirement of companies executing documents is provided under section 127(1) of the Act, where document signing process for company officers are simplified.  These changes made by the Determination apply for six months and will be repealed on 6 November 2020.

Legislation

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

Corporations Act 2001 (Cth)

Explanatory Statement to the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020

Cases

Bendigo and Adelaide Bank Limited (ACN 068 049 178) & Ors v Kenneth Ross Pickard & Anor [2019] SASC 123

Further information

If you need assistance with the legal practicalities of doing business, please telephone me for an obligation free and confidential discussion.

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

[1] Explanatory Statement to the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 page 4, para 2.

[2] Explanatory Statement to the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 page 4, para 2.

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