Update on Electronic Signatures under Section 127 of the Corporations Act

Electronic execution of documents is once again permitted under section 127 of the Corporations Act 2001 (Cth) ("Corporations Act"). On 10 August 2021, the Treasury Laws Amendment (2021 Measures No.1) Bill 2021 ("the Bill") passed both Houses of Parliament, approving an extension of relief for the electronic execution of documents. These changes are set to take effect once the Bill receives Royal Assent, expected to occur later this month. Given that the pandemic has forced many businesses to work online, the Bill brings about some much needed sensible and practical ' changes to the electronic execution of documents. Unfortunately, these amendments are temporary and are set to expire on 1 April 2022.

What are the changes?

The Bill alters the operation of section 127 of the Corporations Act to give greater certainty, when electronically signing a document, to company officers and counterparties entering into contracts with them. To ensure that the electronic signature is valid:

• a "method" must be used to identify the person and to indicate their intention to sign a copy or counterpart of the document;
• the copy or counterpart that is electronically signed must include the entire contents of the document; and
• either:
  • the "method" must be reliable and appropriate for the purpose for which the document was generated or communicated; or
  • the "method" must be proven in fact to have identified the person and indicated their intention to sign.

A "method" of electronic signature has not been defined in the legislation. An ordinary interpretation would suggest that a system or procedure for electronic signatures is required.'  We expect that electronic signing tools (DocuSign etc.) would qualify as an appropriate "method". In terms of non-electronic signing (physical signing) the Bill permits split execution. This means that a combination of different methods can be used to execute a document under section 127 of the Corporations Act. For example, one director can physically sign the document and another director can sign electronically. Importantly, when signing a document (electronically or physically), the entire contents of the document must be attached to the signature. The Bill also allows remote witnessing to occur where a company executes a document under section 127(2) of the Corporations Act by affixing a common seal. For remote witnessing to be valid, the following requirements must be met:

• the witness observes the fixing of the seal by electronic means (e.g. via a videolink application such as Zoom);
• the witness signs the document; and
• the document includes a statement that the witness observed the fixing of the seal by electronic means.

Key Takeaways

These changes bring greater certainty for businesses and those with whom they contract that need to execute documents electronically under section 127 of the Corporations Act. It is important to remember that the changes are facilitative in nature, and that a company may continue to execute documents with a traditional "wet ink" signature. A notable omission from the Bill is that it does not contain any provisions that deal with documents executed electronically between 21 March 2021 (when the previous temporary amendments were repealed) and when the Bill takes effect. For more of our thoughts on the law relating to electronic signatures in the absence of legislative changes, you can see our recent article which is available here. Overall, the changes in the Bill are welcome and will provide businesses with some much needed flexibility when signing agreements during the pandemic.

Need more guidance?

If you would like to discuss the best way to ensure your documentation is appropriately executed, or need guidance or assistance to ensure compliance with the changes, please' contact us' for further information.

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~ with' Peter Huang,' Graduate at Law