Update - Electronic executions are in, permanently

As foreshadowed in our article ‘ Wet-ink aside, electronic executions are (temporarily) back in![NFPi]’, the Federal Government has implemented permanent reforms to permit electronic execution under section 127 of the Corporations Act 2001 (Cth) (“Corporations Act”).

The permanent measures are made by the Corporations Amendment (Meetings and Documents) Act 2022 (Cth) (“Amending Act”) and commenced on 23 February 2022.

Temporary measures put in place for the COVID-19 pandemic under the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 (Cth) (“temporary measures legislation”) were due to expire on 31 March 2022 but the Federal Government had proposed that permanent reforms would be passed before the sunset date.

What are the permanent changes?

The Amending Act makes some changes to the temporary measures legislation and repeals the sunsetting provision so the temporary measures, as amended, now apply on a permanent basis.

Temporary provisions that dealt with electronic execution of documents separately from electronic signing of documents relating to meetings have been replaced with provisions that apply to signing documents more generally that are placed in a new division of the Corporations Act to allow room for future developments. The signing provisions reflect those of the Electronic Transactions Act 1999 (Cth) which do not apply to documents executed for the purposes of the Corporations Act.

The legislation also makes changes relating to the execution of deeds and execution of documents by agents and proprietary companies with a sole director.

These provisions apply to all companies registered under The Corporations Act including ACNC-registered charities.

Execution by electronic means

• Method

The new provisions (in sections 110, 110A and 110B) relating to “technology neutral” signing of documents (including deeds) apply to execution under section 127 and to notices required or permitted to be signed in relation to meetings and resolutions of members and directors (“relevant documents”). They are worded differently from the similar provisions in the temporary measures legislation.

A relevant document that is signed by a person in physical form by hand, or by signing an electronic form of the document using electronic means, will be valid if:

1. the method of signing identifies the person and indicates the person’s intention in respect of the information recorded in the document (the “intention requirement”); and
2. the method was either:

            (i) as reliable as appropriate for the purpose for which the information was recorded, in light of all the circumstances including any relevant agreement; or                                                            

           (ii) proven in fact to have fulfilled the functions described in paragraph (i) by itself or together with further evidence.                                                                                                              

This means that to be able to rely on an electronic signature, there must be an appropriate and reliable method to verify that the person who is named as the signatory did, in fact, sign the document. This may require you to review your technology as well as processes and procedures.

The provisions do not require all persons signing the document to use the same form or method of signing or to sign the same page or that all the information regarding the method of signing by a person is included. A person signing in more than one capacity may sign only once if the document requires or permits this and states those capacities.

The changes do not limit the ways in which a document, including a deed, can be signed.

• Entire contents

The new provisions do not include the specific requirement in the temporary measures legislation that the copy or counterpart of the document must include the entire contents of the document. While execution of an extracted execution page in isolation might be valid in some circumstances, for practical purposes, if the entire document is not included or attached or linked to the signature by some means (such as a link to an online document execution platform) its content cannot be identified so execution in that way seems unlikely to meet the intention requirement.

• Technology

As was the case under the temporary measures legislation, the permanent changes do not mandate the use of any particular technology. As well as technologies already in use such as online platforms and use of stylus tools to sign PDFs, the legislation is flexible enough to allow for use of new technologies.

• Lodgement of documents

Documents signed in accordance with the new measures must be accepted as validly signed if lodged with ASIC or the Registrar of Australian Business Registry Services.

• Execution of deeds

New sections 127(3A) and (3B) provide that a company may execute a document as a deed under section 127:

• without the execution being witnessed; and
• regardless of whether the document is in physical form (ie, the traditional “wet-ink” signature) or electronic form, or a combination of both,

and the deed need not be delivered. These amendments replace common law requirements for the execution of a valid deed that would otherwise apply.

Other changes

• Execution by agents

Section 126 has been amended to extend the ability of agents to execute documents on behalf of companies. Previously the section was restricted to agents making, varying, ratifying and discharging contracts but it now also allows the execution of documents, including deeds. An agent executing a deed need not be appointed by deed, the agent’s execution does not need to be sealed or witnessed, and delivery of the deed is not required. These amendments replace common law requirements for the execution of deeds that would otherwise apply.

The new electronic execution provisions apply to company agents signing under section 126.

• Execution by sole director companies

Section 127 has been amended in relation to execution of documents by a sole director of a proprietary company. While these companies are not required to appoint a company secretary, they have sometimes been forced to do so (by appointing either the sole director or another person) so parties they are dealing with can rely on the presumption of due execution under section 127. The amendments provide that only the sole director is required to sign a document if the sole director is also the company secretary, or the company does not have a company secretary. However, if another person is the company secretary, both are still required to sign in order to rely on section 127.

The assumptions that a person can make in relation to a document executed by a sole director company have been amended to reflect these changes (sections 129(5) and (6)).

Sole director companies that have appointed a separate company secretary solely for the purposes of section 127 may now consider revoking that appointment.

Time gap not addressed

Our article ‘Wet-ink aside, electronic executions are (temporarily) back in! [NFPi]’ noted that the temporary measures were not retrospective and did not contain transitional provisions relating to documents executed between 21 March 2021 (when the initial temporary measures lapsed) and 14 August 2021 when the temporary measures legislation commenced. That remains the case. The validity of documents executed electronically in that period will likely be determined by reference to the pre-COVID application of section 127.

Practical considerations

Where executing documents electronically, it is important to use a technology that can satisfy the elements of identification, intention and reliability. Given there are no legislatively approved or mandated electronic methods, companies (or parties dealing with them) may prefer to stick with traditional “wet-ink” signatures wherever possible.

The amendments do not alter existing requirements for companies to retain copies of executed documents. Companies must retain a copy of each executed counterpart, whatever method of signing was used, including the full document as separately signed (not merely the signature pages).

Watch this space

The permanent provisions, including those continuing in force under the temporary measures legislation, must be reviewed as soon as practicable after 22 February 2024 and a review report submitted to Parliament.

Queensland and other State and Territory legislation

The Justice and Other Legislation Amendment Act 2021 (Qld) was assented to in November 2021. The amendments include permanent changes to allow electronic execution of documents in Queensland in some circumstances including under the Property Law Act 1974 (Qld), Powers of Attorney Act 1998 (Qld) and Oaths Act 1867 (Qld) which have been proclaimed to commence on 30 April 2022. Equivalent laws have been passed in most other States and Territories.

State and Territory laws are also important to consider because the Commonwealth laws generally only deal with some documents signed by or on behalf of companies, whereas the State and Territory laws deal with documents signed by or on behalf of individuals (eg, sole traders, partners and guarantors) and specific documents (eg, statutory declarations and affidavits). 

Your document signing processes and procedures may need to comply with one or more Commonwealth, State and Territory laws, especially online applications and voting, if signatories may be located in different States or Territories. 

Takeaways

It will important to identify:

• whether the signing of a document falls under a Commonwealth, State or Territory law, or possibly both;
• when the document was signed, whether it was permitted to be signed electronically, and if not, what steps should be taken; and
• how your document signing technology, process and procedures (including online applications and voting) may need to be updated to obtain the benefit of these signing laws. Do you have an “appropriate” and “reliable method” to verify that the person who is named as the signatory and appeared to sign the document, did sign the document?

Disclaimer – Reliance on Content
The material distributed is general information only. The information supplied is not and is not intended to be, legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.

Link NFPi - Wet ink aside, electronic executions are (temporarily) back in