Changes to Company Electronic Execution

Background

The most common method by which a company may execute a document is that prescribed by s127 of the Corporations Act 2001 (Cth) (Corporations Act). By doing so, parties dealing with the company can be protected by relying on the assumptions listed in s129 of the Corporations Act when dealing with the company, including by assuming that a document is duly executed if it appears to have been signed in accordance with s127 Corporations Act.

As a result of the exclusion of the Corporations Act under the Electronic Transactions Act 1999 (Cth) and its regulations, it is generally accepted that executions under s127 of the Corporations Act can only be made in “wet-ink”. That is, before the changes summarised below were introduced and are now effective and will remain effective until 31 March 2022 (or later if determined otherwise).

COVID Determinations

Lockdown restrictions imposed by the Federal government have restricted movement and “wet-ink” execution by companies is not practical. In response to these challenges, the Federal Government initially introduced the Corporations (Coronavirus Economic Response) Determination (No.1) 2020 in May 2019 and later introduced the Corporations (Coronavirus Economic Response) Determination (No.3) 2020.  For convenience, this article refers to both first and third determinations as the Determination.

The Determination extended the protection ordinarily reserved for wet-ink executions to electronic executions of documents. Specifically, the Determination provided for the execution of documents in counterparts and the execution of documents by “electronic communication”, for instance by email. The Determination ceased to have effect on 21 March 2021 and is no longer in force.

What happens now?

Although the Determination was introduced as temporary relief, positive feedback from consultation encouraged the Federal government to reform the Corporations Act permanently, or at least attempt to do so.

As a result, on 17 February 2021, the Treasury Laws Amendment (2021 Measures No.1) Bill 2021 was introduced (Bill). As at the time of writing, the Bill has passed both houses and received royal assent and has come into force. It is now the Treasury Laws Amendment (2021 Measures No.1) Act 2021 (the New Act).

Schedule 1 of the New Act includes trial amendments to the Corporations Act which reflect the intent although not the words of the Determination. For example, the amendments allow execution of documents electronically where there is some method appropriate to the purpose of the document in light of all the circumstances to identify the person executing and their intention to execute that document, and provided the document “executed” includes the entire contents of the document.

The language of the New Act is very wide but substantially different to the Determination.  It could cover a variety of circumstances including execution by email or execution by hand witnessed over audio-visual conference (such as Zoom or Microsoft Teams).  Whether any particular method is valid will likely depend on the document to be executed and the particular circumstances of the parties.

How long will the trial of electronic execution last?

The trial will conclude on 31 March 2022.

Between now and then, it is expected that the government will take steps to implement more permanent reforms.  The reforms will likely be based on the current amendments but with any relevant changes in response to feedback from the Australian business community.

Article by Yanlie Leung, Victoria Caldwell and Winston Chu.