Electronic execution of documents by companies

The Corporations Amendment (Meetings and Documents) Bill 2021 (Cth) (Amendment Act) was given royal assent on 22 February 2022 and has now come into force.

The Amendment Act has amended the Corporations Act 2001 (Cth) (Corporations Act) and builds on the temporary measures introduced last year by the Treasury Laws Amendment (2021 Measures No.1) Act 2021 (Cth) to deal with challenges of having documents executed during the COVID-19 environment (which we wrote about here).

These important changes will mean that all parties to a contract will now be able to execute documents virtually without having to rely on temporary legislation.

In broad terms, the changes clarify:

  • who can execute documents on behalf of a company; and
  • the standards for signing a document electronically on behalf of a company.

Points to note include:

  1. there have been some important changes to the amendments since the temporary measures were first introduced in 2021; and
  2. State laws still influence the ways documents can and cannot be signed. Some States have not (yet) embraced electronic execution particularly concerning documents dealing with land.

This article focuses only on the effect of the amendments to execution of documents in NSW.

It is important you seek legal advice specific to your circumstances prior to relying on anything in this article to execute a document.

Updates to who can sign

Sole directors who are not company secretaries

The Amendment Act amends section 127 of the Corporations Act.

Previously, only the following persons could execute a document in accordance with section 127 of the Corporations Act:

  1. 2 directors of the company; or
  2. a director and a company secretary of the company; or
  3. for a proprietary company that has a sole director who is also the sole company secretary – that director.

The amendments now authorise a person who is a sole director, where no-one has been appointed company secretary, to sign in accordance with section 127 as well.  In other words, a person who is the sole director of a company need not be appointed sole company secretary to be able to execute a document on behalf a company in accordance with section 127.

If the company signs in accordance with section 127 of the Corporations Act, the other party can rely on the beneficial assumptions under section 129 of the Corporations Act.  There are range of assumptions, which include:

  1. the person signing on behalf of the company is duly appointed; and
  2. the person signing on behalf of the company has complied with the company’s constitution.

Agents

The Amendment Act also permanently changes the way agents execute documents (including deeds) on behalf of companies under the Corporations Act.

The law now expressly permits an agent to:

  1. sign a deed on behalf of a company even if they are not appointed by deed;
  2. sign a deed without a witness and without sealing or delivery; and
  3. execute documents electronically.

These amendments will continue to be subject to State laws (NSW is discussed below).

Split execution and multiple types of execution

The changes also confirm that companies can now:

  1. sign by way of split execution, i.e. officers may sign different counterparts of the same document rather than one static original document; and
  2. sign by different execution methods, i.e., one officer can physically sign in “wet ink” whilst another officer signs by electronic means.

Technological neutral execution of documents

The amendments insert new “technology neutral” provisions for execution of documents.  Technology neutral means that one way of signing a document (e.g. by pen and paper) is not favoured over other ways of signing a document (e.g. electronically).

To execute in accordance with the Corporations Act, the method of execution must:

  1. identify the person signing;
  2. indicates the person’s intentions; and
  3. either:
    • be as reliable and appropriate for the purposes of the document, considering all the circumstances; or
    • be proven in fact to have fulfilled the functions of identifying the person executing and indicating that person’s intentions.

The method of execution does not need to identify or indicate the intentions of any other persons signing the document, only the person signing the document.

The requirements are similar to the requirements under the trial legislation.  The main change is that a company may now show that either the execution method was reliable and appropriate in the circumstances or demonstrate that the execution method fulfilled the function prescribed by the legislation, namely it did in fact identify the person and their intentions by signing the document.

These technology neutral amendments are ultimately designed to simplify and streamline the execution process by giving one standard against which all methods of execution are measured against. The standard is broad and flexible which will allow parties to adapt their execution processes to reflect the current developments in technology.

Interaction with the NSW Conveyancing Act

The amendments are fundamentally permissive rather than prescriptive.  This means the amendments allows companies to execute documents electronically, but the Corporations Act does not necessarily override other legislative requirements.  For example, the amendments are not intended to exclude or limit the concurrent operation of State laws (see section 5E(1) Corporations Act).

State laws usually contain additional requirements for execution of documents, particularly of deeds or where those documents deal in land.  This makes electronic execution of documents somewhat risky if parties are executing in different States with different requirements.

The most likely area in which conflict will arise is when deeds are executed electronically.  For example, the amendments to the Corporations Act explicitly permit execution of deeds otherwise than in accordance with common law rules that deeds must be:

  1. made on paper, parchment or vellum; and
  2. signed, witnessed, sealed and delivered.

But some State laws enshrine common law rules as legislation. For example, section 38 of the Conveyancing Act 1919 (NSW) (NSW Conveyancing Act) requires deeds to be signed, sealed and executed in the presence of a witness.

Which law applies then – the State laws or the federal laws?  The answer is both.

Section 109 of the Constitution of Australia states that in any cases of inconsistencies between State and Federal legislation, the Federal legislation will prevail. But in this case, the Corporations Act and the NSW Conveyancing Act are not necessarily inconsistent because the Corporations Act is permissive and not prescriptive.  In other words, it is possible to comply with NSW Conveyancing Act’s requirements for deeds to be signed, sealed and delivered and still also comply with the Corporations Act’s requirements that execution identify the person and indicate their intentions in relation to the document signed. This approach is confirmed by section 5E(1) of the Corporations Act.

This means you should continue observing the requirements of State legislation to ensure your documents are validly executed.

Practical tips

Our top tips for companies to ensure valid electronic execution are:

  1. decide on and document an approved process for electronic execution of documents by your company;
  2. update all necessary internal records such as the company constitution to reflect this change;
  3. check whether there is any State legislation that applies to the document you are signing;
  4. where the document involves another party signing, agree the electronic execution process with the other side/their lawyers (keeping State laws in mind);
  5. take steps to protect any scanned copies of physical signatures to prevent misuse/abuse (e.g. keeping the signatures in a secure location, using pdfs and reviewing metadata, etc.);
  6. ensure that the complete document, including any annexures or schedules, is included or attached when electronically executing (both before and after any physical signature); and
  7. if you have received an electronically executed document, take steps to:
    • ensure that the signatory has confirmed that they intend to be bound by their signature, for example by words such as “I, [insert name and capacity, e.g. Sam Smith, director of X Pty Ltd], electronically sign [this document/the attached document]”; and
    • prevent fraud, for example, by calling the signatory to confirm you have received the electronically executed document.

If you or your business needs advice on signing documents in the digital age, please contact David Greenberg, Commercial Partner or Victoria Caldwell, Commercial Associate.