Wet-ink aside, electronic executions are (temporarily) back in!
Following the passing of the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 (the Act) on 10 August 2021, electronic execution of company documents is once again permitted under section 127 of the Corporations Act 2001 (Cth) (Corporations Act).
The amendments made by the Act largely mirror those initially implemented under the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020, which subsequently lapsed on 21 March 2021.
In today’s climate of sporadic lockdowns and working from home, the return of electronic executions from 14 August 2021 has been a welcomed return.
Unfortunately, the amendments made by the Act only exist as a temporary measure from 14 August 2021 until 1 April 2022.
What (temporary) amendments has the Act made to section 127?
Execution by electronic means
Most notably, the Act reinstates the previously temporary amendments to allow for the electronic execution of documents.
New sub-section 127(3B) provides that where a document has been electronically executed, it will be held as valid if:
- a method is used to identify the person and to indicate the person’s intention to sign a copy or counterpart of the document; and
- the copy or counterpart includes the entire contents of the document; and
- the method used was either:
- reliable and appropriate for the purpose for which the document was generated or communicated; or
- proven in fact to have identified the person and indicated their intention to sign.
The Act does not define nor mandate the use of any specified platform. According to the Explanatory Memorandum accompanying the Act, there are a variety of methods that could be used to do this, including:
- using a stylus tool to sign a PDF document and then emailing the document back to the company; or
- using a platform such as DocuSign.
Importantly, the executed page must remain with the document and be signed together with the document in its entirety. This means that where an execution page is extracted and signed in isolation, the execution will not be valid. This does not mean that the person needs to physically print or sign every page. Rather it ensures that a document cannot be validly executed by signing a document that does not have the same content as the original document.
Reliable and appropriate
The Act does not provide any guidance for the determination of what means of execution could be considered “reasonable or appropriate”. The method must be as reliable as appropriate for the purposes for which the document was generated or proven in fact to have indicated the person’s identity and intention. It is likely a method of electronic execution where a signatory signs directly onto the copy or counterpart, would be considered reliable.
Split Execution of documents
The Act also amends section 127 by inserting a new sub-section 127(3C) which provides that a copy or counter part of a document (either signed in wet-ink or electronically) need not include the signature of another person signing the document.
As the Act still permits wet-ink executions, companies may use a combination of different methods to validly execute a document under section 127. For example, allowing two directors, or a director and the company secretary, to sign a document in separate counterparts (physically, electronically, or one of each), as opposed to the traditionally onerous requirement of both signatories signing the same physical document.
Remember, where a document is signed (either electronically or physical, or a combination of both), the entire document must be attached to the signature.
Doesn’t the Electronic Transactions Act 1999 (Cth) allow for electronic execution of documents?
Yes, section 10 of the Electronic Transactions Act 1999 (Cth) allows for the electronic execution of documents.
However, the Corporations Act is exempt from the operations of the Electronic Transactions Act 1999 (Cth). This meant that prior to COVID amendments and the Act, companies were required to execute documents through traditional wet-ink signature.
Understanding the time periods
The amendments made by the Act exist only as a temporary measure from 14 August 2021 until 1 April 2022.
Notably, the Act does not contain any transitional provisions that deal with documents electronically executed between 21 March 2021 (when the previous temporary amendments lapsed) and 14 August 2021 (when the Act takes effect).
Given the Act does not have retrospective application, the validity of documents executed during this period will likely be determined by reference to the pre-COVID application of section 127, which prohibited electronic executions and split execution.
Where executing documents electronically, it is important to use a platform that can satisfy the elements of identification, intention, and reliability. Electronic platforms such as DocuSign, which automatically insert the name and digital signature of the signatory, are likely to be accepted by the courts as an appropriate method of execution under the amended section 127.
The amendments do not alter the existing requirement for companies to retain copies of executed documents. Where a document is executed under split execution, the company must retain copies of each executed document. Further, noting the express requirement that signatures must be affixed to the entire document, the entire executed document should be retained, not merely the pages bearing signatures.
Whilst the amendments made by the Act are to facilitate greater flexibility and encourage the continuity of business in today’s COVID climate, it is important to remember that companies can continue to execute documents by traditional “wet-ink” signature methods. With no mandated method of execution provided under the Act, methods which may be used by company officers are broad.
Watch this space
Despite the temporary nature of the amendments, the Explanatory Memorandum issued with the Act makes it clear that the Federal Government intends to implement permanent reforms to permit electronic execution under section 127.
In Queensland, the Attorney-General has recently introduced the Justice Legislation (COVID-19 Emergency Response – Permanency) Amendment Bill 2021 to make permanent the temporary “Document Reforms” introduced during the COVID-19 emergency.
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.