Where do I sign? Electronic execution is here to stay

Companies

On 23 February 2022, the Corporations Amendment (Meetings and Documents) Act 2021 (Cth) took effect, permanently amending the Corporations Act 2001 (Cth) (Corporations Act).  The amendment act has made permanent several temporary processes relating to company operations which were introduced in response to the COVID-19 pandemic.

As a result, the Corporations Act now provides clarity to companies who seek to effect the execution of documents and conduct director obligations through electronic means.

The amendments to the Corporations Act now provide for:

  • Electronic execution of company documents, including deeds.
  • Digital signatures to be used by companies, registered schemes and disclosing entities.
  • Electronic provision of meeting related documents.
  • The use of technology to facilitate the holding of meetings for companies and registered schemes.

The Corporations Act now permits:

Electronic execution under s127
  • Documents (including deeds) to be executed by companies electronically.
  • Documents (including deeds) to be signed by companies in either a physical or electronic form.
  • Counterparties to rely on several assumptions when companies electronically execute documents.
  • Proprietary companies which are comprised of a sole director and no company secretary to negate the need to appoint that director as sole secretary prior to signing of documents.
  • Companies to continue the use of s 129 of the Corporations Act when electronically executing documents.  However, for an electronic signature to be held as valid, the method of execution must:
    • identify the person;
    • identify the person’s intention in respect of information recorded; and
    • be reliable for the purpose.
Hybrid Signing
  • Documents to be executed by ‘hybrid signing’.  This involves one director signing the physical form of the document whilst another director may sign the electronic form.
Delivery of Documents 
  • Documents to be delivered either physically or electronically.  However, the document must be created in an accessible format for the recipient. 
Lodgement of Documents 
  • Documents lodged with ASIC may be signed electronically.


Electronic Execution

Where a document is executed electronically (whether by a company or an individual), steps must be taken to ensure that the electronic method of execution identifies the signatory and is as reliable as appropriate in the circumstances. Each party must consent to electronic execution. Practically, to satisfy these requirements we recommend that an in person (or video call) identity check of the signatories occurs and the document contains a provision permitting electronic execution.

Individuals

The COVID-19 Response and Economic Recovery Omnibus Act 2020 (WA) validated many workarounds to electronic execution and audio-visual witnessing during the pandemic.

Sections 22 and 23 of that Act provide for the execution of documents.  However, those sections do not apply to the Property Law Act 1969 (WA) (which is the Act that specifies the requirements for the execution of deeds in Western Australia).

This means that, with respect to the execution of deeds, the requirements of s 9 of the Property Law Act 1969 (WA) have to be complied with.  The consequence of that is that signatures to the deed must be in wet ink (not electronic) and must also be witnessed.  This witnessing also cannot be effected electronically.

Agreements (as opposed to deeds) do not require signatures to be witnessed.  For agreements to be enforceable, there must be ‘consideration’, such as the payment of money.

While an agreement does not require signatures to be witnessed, it can be prudent to have each individual signature witnessed.  A witness may provide vital evidence, where there is a claim that the document was fraudulently executed or similar.

As outlined above, where an agreement is executed electronically steps must be taken to ensure that the electronic method of execution identifies the signatory and is as reliable as appropriate in the circumstances.  Our recommended identification process serves a similar function to the conventional witnessing of a wet ink signature.

Generally speaking, the limitation period in respect of claims under an agreement is six years.  For deeds it is 12 years.  There are exceptions to these limitation periods that are not relevant to this discussion.

Therefore, a document that is normally structured as a deed could be restructured as an agreement provided there is consideration and the limitation period is not an issue for the parties.

Lavan comment

Documents which are incorrectly executed may mean the document is no longer enforceable.

The reform of the Corporations Act spurred by the prominence of COVID‑19 has helped to provide a contemporary method upon which companies may electronically execute documents.  

Currently, New South Wales and Victoria have enacted laws which enable individuals to sign deeds electronically, with Queensland soon to follow.  Western Australia needs to follow suit to keep pace with the other States.  This is a critical and logical reform that Western Australia needs to adopt in order to provide an environment that supports the orderly and effective carrying on of business.

Acknowledgement

Jay Bebbington, a lawyer and Rory Kendall, a law graduate in the Lavan property and leasing team, provided valuable assistance in the preparation of this publication.