The COVID-19 pandemic has resulted in a rapidly changing working environment, which has required companies to constantly pivot and adapt. In particular, signing paper documents in accordance with the law has become particularly challenging. However, the Federal Treasurer issued a legislative instrument which will make it significantly easier for companies to sign documents over the coming months as the pandemic plays out.
On 5 May 2020, the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 was issued by the Federal Treasurer. The Determination modifies the operation of section 127 of the Corporations Act 2001 (Cth). It allows for agreements to be signed by companies in electronic form. The Determination was made under s1362A of the Act and took effect on 6 May 2020. The effect of the Determination will be repealed in 6 months.
The Determination amends section 127 of the Corporations Act, to enable companies to meet the requirements of the section in a period where physical signing and travel has become more difficult. It permits a company to execute a document without a common seal if 2 directors, or a director and the company secretary, or the sole director of a proprietary company do the following:
- sign a copy or counterpart of the document in its physical form; or
- uses an electronic method to sign the document
In order to sign the document electronically, there must be a method used to identify the person in the electronic communication and an indication that the person intended to be bound by their signature in relation to the document. The method must be appropriate considering the purpose for which the company is signing the document.
The determination also extends the definition of ‘document’ under section 127 of the Corporations Act to include a document in its electronic form. Previously, this has been an area of uncertainty as to whether section 127 of the Corporations Act covered electronic documents.
The impact of the Determination will make it much clearer for companies that section 127 permits:
- split execution, whereby company officers sign different copies of the same document;
- modified split execution, whereby one company officer signs a document and then electronically transmits an electronic copy to the next company officer to sign, so that there is a copy of the document that contains all relevant signatures; or
- electronic execution, whereby parties comply with the Electronic Transactions Act 1999.
It is not completely clear from the changes whether the Determination modifies the common law requirements for deeds that they must be signed ‘wet ink’ on paper. However, the Explanatory Statement to the Determination allows an electronic signature to ‘meet requirements for a signature’ with no limitation as to the types of document that the Determination applies to. Presumably, the changes are intended to apply to deeds during the pandemic period, however as this has not been tested by the Courts, best practice may to still apply wet-ink signatures in relation to deeds.
The changes only apply to companies registered under the Corporations Act 2001. Therefore individuals, or companies that are not registered under the Act will need to refer to any relevant legislation to determine whether electronic signature or split execution is allowable. For example, that the COVID-19 Omnibus (Emergency Measures) (Electronic Signing and Witnessing) Regulations 2020 (Vic) made changes which allow deeds not signed by companies to be signed electronically.
It is worth noting that outside of the pandemic period, the Electronic Transactions Act 1999 specifically states that it does not apply to section 127 of the Corporations Act 2001. This means that following the sunset of this Determination, companies are not permitted to electronically execute documents.
Whether split or modified split execution are permissible under the Corporations Act 2001 has long been unclear, and this will still remain an issue following the sunset of the Determination.
We welcome the Determination made by the Treasurer to assist companies to carry on business as usual during the pandemic period.
If you have any questions about how these changes might apply to your company, please do not hesitate to contact us to see how Hunt & Hunt can assist you.