Long awaited relief for companies as electronic signing now permitted (again)

Posted on: 24th September, 2021

By Jennifer Andrade and Matt Hansen

 In a technology-driven world, it has become increasingly out of date to have to sign documents in ‘wet ink’ in favour of electronic signatures. Despite many of us ‘WFH’ under mandatory lockdown restrictions, these antiquated legal requirements for physical document signing have burdened many companies trying to carry on business as usual.

However, the Treasury Laws Amendment (2021 Measures No.1) Act 2021 (Cth) (“Act”) commenced operation on 14 August 2021, providing relief for Australian corporations. Company directors everywhere can breathe a sigh of relief that the constant interruption by couriers with important documents to and from their homes can abate (notwithstanding anyone’s propensity for online shopping)! At this stage, the welcomed changes are only temporary and will expire on 1 April 2022.

Electronic Execution

The Act modifies s 127 of the Corporations Act to allow companies to use electronic means to execute documents. Many of these amendments replicate the provisions of the Corporations (Coronavirus Economic Response) Determination (No.3) 2020 which expired on 21 March 2021.

The Act’s insertion of s 127(3B) into the Corporations Act is the most notable amendment as it now expressly allows companies to sign documents electronically. However, before an electronic document is deemed validly signed by a company director or secretary, there must be the following:

  1. A method was used to identify the person and indicate their intention to sign the document or counterpart of the document (s 127(3B(a));
  2. The copy or counterpart includes the entire contents of the document (s 127(3B(b)); and
  3. The method was reliable for the purpose for which the document was created for or, can be proven to indicate the person’s identity and intention as above in point 1 (s 127(3B)(c).

These requirements can be easily satisfised through a variety of methods. Electronic signing can take place for instance by using a stylus to sign a PDF copy on a tablet or signing through applications including DocuSign or Adobe Sign.  One could even insert words alongside the signature to the effect of “electronic signature of [insert name] affixed on [date/time]”. The provision was drafted with the intention to be technology neutral, therefore, companies are not limited to only the above methods.

Note, ‘entire contents’ does not mean that a person must sign every page of the document, nor does it require several signatories to sign every counterpart. Instead, it means that all signatories must agree to the same terms by ensuring a counterpart has the same contents as the original document.

Documents in Counterpart

The Act also enables directors, secretaries, or witnesses, to sign a counterpart of an original document in a different form. Therefore, one party can sign a physical copy of the original document while another signs an electronic version. However, just as above, the counterpart must include the entire contents of the original document as per s 127(3A)(b).

Further, s 127(3C) of the Corporations Act outlines what does not need to be included to deem a counterpart of a document valid. These include:

  • The signature of any other person signing the document;
  • Methods of identifying the other persons or indicating their intention to sign; or
  • The seal if usually fixed to the document.

Witnesses are now also allowed to sign counterparts. Previously, they were required to sign the same document as the one to which a seal was affixed.

Documents to which the changes apply to

These changes apply to all documents executed by a company registered under the Corporations Act. This includes agreements, all deeds whether executed with or without a common seal, and resolutions and documents relating to meetings.

It should be noted that strictly speaking this Act does not apply retroactively. This means that any documents executed electronically between 21 March 2021 and 14 August 2021 will not be subject to the same certainty provided by the Act. That said, even prior to the Act coming into force, s.127 of the Corporations Act was already regarded as technology neutral and electronic signatures becoming more and more commonplace. However, there were uncertainties and differences in application, particularly when it came to deeds, and formal transactions such as property. Deeds for instance had strict requirements under common law for being ‘signed, sealed and delivered’.

The purpose of the Act is to provide clarity on a practice that was already being more widely adopted, and to address the legal uncertainties.

Moving Forward

As these amendments expire on 1 April 2022 as per s 1679F(1) of the Corporations Act, many companies may once again be back to these uncertainties. However, the explanatory memorandum to the Act suggests that the Federal Government intends to implement permanent changes to allow electronic signing by companies in the future. Given that the language used in the amendments predominately refer to a document as being deemed “signed”, explicit clarification on whether this signature amounts to proper execution of the document by a company could enhance understanding. Further, an alteration or a note expanding the meaning of ‘document’ to include those in electronic form could provide clarity. Overall, these changes ultimately bring more certainty for companies and those they contract with. However, hopefully public and commercial pressure leads to the Government developing more permanent changes.

Contact us

If you would like further information on the above and how it impacts on your business or that of your clients, please contact one of our experts below.