The uncertainty surrounding split and electronic execution of documents has caused difficulties for Australian companies during the ongoing COVID-19 pandemic, particularly following the expiry of temporary measures under the Corporations (Coronavirus Economic Response) Determination (No.3) 2020 (Cth) on 21 March 2021.
It is welcomed news that the Treasury Laws Amendment (2021 Measures No.1) Act 2021 (Cth) (Amendment Act) was passed on 10 August 2021, which now temporarily permits electronic and split execution under section 127 of the Corporations Act 2001 (Cth) (Corporations Act). These changes came into effect on 14 August 2021 and will expire on 31 March 2022 unless further determinations are made by the Treasurer. Hopefully by that time, some permanent measures will be in place.
What types of electronic execution are permitted?
The Amendment Act introduces s 127(3B) to the Corporations Act which permits the electronic execution of a document or counterpart by a director, secretary or witness, provided that the following requirements are met (for documents with or without a common seal):
- Electronic means: an electronic method of execution is used to identify the person and to indicate the person's intention to sign;
- Entire contents: the copy or counterpart includes the entire contents of the document (reflecting the common law position that the signatories must agree to the same terms, however, every page of the document need not be signed or physically printed by the signatory); and
- Reliable method: the electronic method of execution used was either as reliable as appropriate for the purpose for which the document was generated or communicated, or otherwise proven in fact to have fulfilled the functions described in paragraph (a).
The introduction of s 127(2A) to the Corporations Act now permits electronic witnessing for the fixing of a common seal in circumstances where:
- the person observes the fixing of the seal by electronic means (such as by videoconferencing);
- the person signs the document (either physically or electronically); and
- the document includes a statement that the person observed the fixing of the seal by electronic means.
The above amendments are technology neutral, allowing companies to execute documents electronically in a number of different ways. For example, by affixing a digital image of a signature, using a finger or stylus to sign a PDF document or using an electronic signature software (such as DocuSign).
Notably, consent by the recipient is not a condition to electronic execution in contrast to the Electronic Transactions Act 1999 (Cth).
How is split execution permitted?
The changes now also facilitate the split execution of documents, that is, a single counterpart, whether physical or electronic, does not need to include all signatures of directors, secretaries and/or witnesses of a party. In particular, the Amendment Act introduces s127(3C) to the Corporations Act, which provides that a copy or counterpart of a document need not include:
- the signature of another person signing the document;
- any material included in the document to identify another person signing the document or to indicate another person's intention in respect of the contents of the document; or
- if a common seal is fixed to the document—the seal.
While execution in the traditional manner by applying a wet signature to a physical document continues to be permitted, these changes also permit a combination of methods to execute different counterparts of the same document. For example, one director of a company could use electronic means to execute a document while the company secretary could apply a wet signature to a physical copy of the document. Furthermore, for documents executed with a common seal, a witness does not need to sign the same document as the one to which the seal was affixed. The changes reverse the common law position in Adelaide Bank v Pickard  SASC 13 that all persons need to sign the same single static document.
What documents do the changes apply to?
The split and electronic execution changes brought by the Amendment Act applies to all documents executed by companies under s 127 of the Corporations Act, that is, both documents executed with a common seal and documents executed without a common seal. Additionally, s 127 of the Corporations Act, including the changes under the Amending Act, applies to deeds, so the process for signing, sealing and delivering a deed under the common law does not need to be followed.
As the execution provisions under s 127 of the Corporations Act only applies to companies registered under this legislation, foreign companies cannot execute documents in accordance with this section and the new changes.
Extension of assumptions
The Amendment Act also introduces notes to s 129 of the Corporations Act making it clear the assumptions that people dealing with companies are entitled to make under section 129 continue to apply in accordance with the new changes.
While these changes do bring certainty for split and electronic of documents by companies, it is important to note that these are only temporary changes and that such changes do not have retrospective effect. The good news, however, is that the Australian Federal Government has indicated that it will seek to introduce permanent reforms later this year.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.