Company electronic document execution has ended. What does this mean for you?

Who should read this article?

If you are an officeholder of a company, you should read this article.

The Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (Determination), which enabled companies to execute documents electronically ended on 21 March 2021.

If your company has been signing documents electronically relying on the Determination since its introduction on 5 May 2020, it must now revert to the traditional wet-ink signing pursuant to s127 of the Corporations Act 2001 (Cth) (Act), provided that none of the below alternative execution options apply.

Background on Execution of Documents under the Corporations Act

Section 127(1) of the Act (s127) provides that a document can be executed by a corporation if signed by:

  1. two directors, or
  2. a director and secretary, or
  3. for a single director company, by its sole director who is also the sole secretary.

The note to this section explains that if a document is so signed, ‘people will be able to rely on the assumptions in subsection 129(5) of the Act for dealings in relation to the company’. This includes that a person (including a corporation) may assume:

  1. that such a document was duly executed by the company; and
  2. that anyone who signs that document and states next to their signature that they are the sole director and sole company secretary of the company, occupies both offices.

In practice, a court may still find that a corporation is contractually bound even if a contract was not signed pursuant to s127.  Notably, s127(4) provides that s127 does not limit the ways in which a company may execute a document (including a deed).

Further, pursuant to s126 of the Act, an individual (including employees who are not officers of the company) can bind a corporation if they have actual or implied authority to do so. This means that an employee (or one director acting alone) could bind the company they represent if the other signatory obtains proof that such persons were authorised by the directors of that company to enter into binding contracts.

Background on the Determination

Approximately one year ago, the Treasurer made a Determination which introduced several ground-breaking changes.  In particular, companies would be able to rely on the Determination to execute documents electronically in accordance with s127.

In addition to modernising the rigid requirements under the Act and circumventing the fact that the Electronic Transactions Act 1999 (Cth) does not apply to the Act, the Determination also clarified the below long-standing debates in the legal industry regarding s127(1), by:

  1. eliminating the need to obtain wet-ink signatures on hard-copy documents – this simplified the use of electronic execution platforms such as DocuSign;
  2. confirming that company officeholders could sign different counterparts of the same document (split-execution). For example, a first signatory could sign and scan a document affixing his/her signature, email it to the second signatory who would then print and sign the same, or separate electronic signatures could be applied to a document’s electronic copy. Before the Determination, the general view was that split-execution would fall short of satisfying the requirements under s127(1).

Great changes… so what happened?

Although the changes introduced by the Determination were a breath of fresh-air, the Determination was initially drafted to afford temporary relief having an initial term of only 6 months, therefore ending on 5 November 2020.  The Determination was subsequently extended to expire on 21 March 2021 due to the prolonged effects of the pandemic.

In light of the imminent deadline, on 17 February 2021, the Treasurer announced that the Federal Government would introduce the Treasury Laws Amendment (2021 Measures No. 1) Bill (Bill) into Parliament ‘to extend the application of temporary relief measures introduced at the height of the coronavirus crisis relating to virtual AGMs and signing and sending electronic documents’. The Bill sought to extend the above deadline to 15 September 2021.

However, the Senate passed a resolution extending the date for the relevant Senate Committee to report on the Bill to 30 June 2021. Given no further changes were introduced by the Federal Parliament before the deadline, companies are no longer able to rely on the temporary measures provided by the Determination and will therefore need to revert back to the pre-Determination position when executing documents.

Given the above, we anticipate that measures analogous to those afforded by the Determination will be introduced in the future, so watch this space for further updates!

What should you do?

If you have any questions in relation to the execution of documents by your company, split-execution, and/or in relation to any other business matter, please get in touch with our Corporate and Commercial Team.

Massimo Di Maio
Special Counsel
(02) 6279 4335
Massimo.Dimaio@MVLawyers.com.au