Electronic document execution here to stay following changes to the Corporations Act

The COVID-19 pandemic has led to welcome changes to the Corporations Act 2001 (Cth) (Corporations Act) in relation to the electronic execution of company documents.

In 2021, the Treasury Laws Amendment (2021 Measures No.1) Act 2021 (Cth) was passed by the Commonwealth Parliament in response to COVID-19 pandemic restrictions that adversely impacted the ability of companies to physically execute documents in accordance with section 127 of the Corporations Act.

Following stakeholder consultation, the Commonwealth Parliament has passed the Corporations Amendment (Meetings and Documents) Act 2022 (Cth) (Meetings and Documents Act) to create a permanent statutory mechanism in the Corporations Act for the electronic execution of company documents (including deeds).

Welcomed by businesses, the new mechanism will permit a more effective use of technology, which will be particularly beneficial in a post-pandemic hybrid working environment.

The Meetings and Documents Act has also amended the Corporations Act to make it easier for agents to execute documents on behalf of companies and to allow proprietary companies with a sole director and no company secretary to execute documents in accordance with section 127 of the Corporations Act.

Technology neutral signing

The Meetings and Documents Act has inserted a new Part 1.2AA into the Corporations Act in relation to the signing of documents. Division 1 of the new Part 1.2AA specifies how the following documents may be signed in a technology neutral manner:

• documents (including deeds) signed by a person exercising the powers of a company under section 126 of the Corporations Act (making of contracts and execution of documents by an agent);
• documents (including deeds) signed by a person under section 127 of the Corporations Act (execution of documents by a company);
• documents signed under the Corporations Act relating to certain meetings or resolutions of directors or members of a company; and
• documents prescribed by regulations.¹

It provides that a person may sign any of the documents referred to above by signing:

• a physical form of the document by hand; or
• an electronic form of the document by electronic means,

provided that the method of signing:

• identifies the person and indicates the person’s intention in respect of the information recorded in the document; and
• was either:
  • as reliable as appropriate for the purpose for which the information was recorded, in light of all the circumstances, including any relevant agreement; or
  • proven in fact to have identified the person and indicated their intention, by itself or together with further evidence.²

ASIC may not refuse to register a document signed in the manner set out above on the basis that the document has not been signed.³

To avoid disputes about whether a method of signing by electronic means satisfies the requirements above, a digital signing platform, such as DocuSign, should be used. Another advantage of using DocuSign is that, if all parties sign a document using the software, it can automatically provide a copy of the fully executed document to each party once the last person has signed, thereby eliminating the need to compile and distribute counterparts.

Split execution and hybrid execution permitted

Division 1 of Part 1.2AA of the Corporations Act does not require a person to:

• sign the same form of the document as another person;
• sign the same page of the document as another person; or
• use the same method to sign the document as another person.⁴

It therefore permits the common practice of having two directors or a director and company secretary sign separate counterparts of a document⁵ (i.e. split execution) on behalf of a company. It even permits a mix of electronic and physical signing (i.e. hybrid execution) of a document by counterparties, and by officers signing on behalf of the same company.⁶

Electronic execution of deeds

The Meetings and Documents Act also amends the Corporations Act to modify certain common law rules, and make it clear that a deed may be executed by a company or by an agent on behalf of a company:

• in physical or electronic form;⁷ and
• without the execution being witnessed.⁸

It also specifies that a deed does not need to be delivered, if it has been executed in accordance with the Corporations Act, in order for it to be validly executed.⁹

Care should be exercised when a deed is executed by a mix of companies and individuals as the law governing the execution of deeds is not uniform across all Australian jurisdictions.¹⁰

Execution of documents and deeds by agents

The Meetings and Documents Act has amended section 126 of the Corporations Act to:

• allow an individual to execute documents (including deeds), not just make, vary, ratify or discharge contracts, on behalf of a company; and
• allow that individual to do so even if they have not been appointed by deed, notwithstanding the old common law rule requiring appointment by deed to execute a deed on behalf of a company.¹¹

Execution of documents and deeds by sole director companies

The Meetings and Documents Act has also amended sections 127 and 129 of the Corporations Act to extend the Act's statutory execution mechanism, and related assumptions, to proprietary companies with a sole director and no company secretary.

It is estimated that there are 70,000 active proprietary companies with a sole director and no company secretary.¹² These companies may now validly execute a document (including a deed) if their sole director:

• signs the document; or
• witnesses the fixing of the company's common seal to the document.¹³

Benefits of $430 million per year

The Commonwealth Government estimates that the reforms in relation to the execution of documents outlined above will result in a regulatory saving of $430 million per year over 10 years.

For specific advice on how your company can take advantage of these reforms or electronic execution of documents, please contact Lander & Rogers' corporate team who have experience in Technology and Digital law.

² Corporations Act ss 110A(1) and (2)

³ Corporations Act s 110A(4)

⁴ Corporations Act s 110A(4)

⁵ Doubts were cast on the efficacy of split execution under the Corporations Act in Bendigo and Adelaide Bank Ltd & Others v Kenneth Ross Pickard & Another [2019] SASC 123, [70]

⁶ Note to Corporations Act s 110A(4)

⁷ Corporations Act ss 126(6)(b) and 127(3A)(b)

⁸ Corporations Act ss 126(6)(a) and 127(3A)(a)

⁹ Corporations Act ss 126(7) and 127(3B)

¹⁰ Legislation in Victoria and New South Wales expressly permits deeds to be created in electronic form (Electronic Transactions (Victoria) Act 2000 (Vic) s 12A and Conveyancing Act 1919 (NSW) s 38A)). Deeds signed by individuals and governed by New South Wales law must be witnessed (Conveyancing Act 1919 (NSW) s 38)

¹¹ Revised Explanatory Memorandum, Meetings and Documents Act, 10 and Powell v London and Provincial Bank [1893] 2 Ch. 555

¹² Revised Explanatory Memorandum, Meetings and Documents Act, 40

¹³ Corporations Act s 127