By Gerry Cawson and Taylor Moore
It took a global pandemic but, as from 6 May 2020, companies can now have confidence that the use of electronic signatures on their documents is valid to ensure binding agreements; but only for the next six months!
The Treasurer has issued Corporations (Coronavirus Economic Response) Determination (No.1) 2020 (‘Determination’), in accordance with his temporary powers to provide short term relief to those who are unable, due to the Coronavirus, to meet their obligations under the Corporations Act 2001 (‘Act’). The Determination aims to assist the use of electronic means for both signing documents and for holding meetings under the Act.
The uncertainty in executing documents electronically
The signing of documents under section 127(1) of the Act is a broadly used means of execution by Australian companies. This is because the Act provides that a document signed in accordance with section 127(1) may be assumed to have been duly executed. Unfortunately, the question of what is a ‘document’ and how the signatures required by section 127(1) are to be applied has caused many lawyers to question the validity of execution by companies using electronic means, particularly on deeds.
In addition, in a recent South Australian Supreme Court decision handed down in July of 2019, Justice Stanley cast doubt on the validity of signing through ‘split execution’ (where two of a company’s officers sign separate identical counterparts of a document) or ‘modified split execution’ (where one officer signs a document and subsequently scans that document to another officer to print and add their signature). Modified split execution, in particular, has been commonly used in the corporate world and of even greater importance given the social distancing required by the Coronavirus.
Determination addresses these concerns
Thankfully, the Determination addresses these issues by modifying section 127 of the Act to allow the use of an electronic signature to meet the requirements for a signature under the Act, and specifically providing that a document includes a document in electronic form (avoiding the need for a ‘single static document’ as suggested by Justice Stanley).
The Determination also extends the presumption of due execution under section 129(5) to include a document executed in accordance with the amended provisions of section 127.
The Determination provides that a company may execute a document if each person required to sign the document on behalf of the company either:
- signs a copy or counterpart of the document in physical form; or
- uses electronic communication which reliably identifies the person and indicates the person’s intention about the contents of the document.
In both cases, the physical or electronic communication must include the entire contents of the document (although the document does not need to include the signature of another person).
What electronic means of execution is allowed?
The explanatory memorandum that accompanies the Determination notes that there are a wide variety of means by which officers of a company may sign a document electronically. These include:
- pasting a copy of a signature into a document;
- signing a PDF on a tablet, smartphone or laptop using a stylus or finger;
- cloud-based signature platforms like DocuSign.
The only requirement is that the method of electronic execution must be as reliable as appropriate to the circumstances to identify each person who ‘signs’ the document and their intention to execute the document on behalf of the company.
What should you do next?
If you’d like to understand how to apply these new provisions in practice, please contact Gerry Cawson. Unfortunately, the Determination automatically ceases to apply from 5 October 2020. So, while it will provide relief for this intervening period, you should bear in mind that unless there is a permanent change to the law, we’ll go back to the previous position and concerns about electronic execution from that date. We’re hopeful that the legislature will look to make these changes permanent before we regress to 19th-century execution methods in early October.