Corporate and M&A

Electronic Execution of Documents: Important Temporary Changes to the Corporations Act 2001 (Cth)

The inability to quickly and easily execute documents has been one of the increasing frustrations experienced by company officers as a result of at home work arrangements, sometimes limited access to printers and scanners and physical distancing rules.

Measures have been introduced this week that go some way to address these frustrations in the form of temporary modifications to the operation of s 127(1) of the Corporations Act 2001 (Cth) (Act) (which is regularly relied upon to allow execution of documents by a company other than by way of common seal) to specifically acknowledge the validity of certain electronic execution methods.

Differing views on electronic execution

Valid execution of documents by a company under s 127(1) of the Act provides certain protections for counter-parties by allowing the statutory assumptions under s 129(5) of the Act as to due execution to be relied on.

However prior to the recent modifications to s 127(1), there were differing views on whether certain methods of electronic execution met the requirements of s 127(1) of the Act, particularly in relation to the execution of deeds. In the absence of any authoritative judicial guidance, and given the potentially dire consequences of having a document deemed non-binding after execution, these uncertainties often led to practitioners erring on the side of caution when accepting a document signed by counterparties and providing advice to their own clients as to valid methods of execution.

It is widely accepted that where an entity has multiple directors (or two separate individuals occupying the office of director and secretary), the requirements of s 127(1) will be satisfied by its officers signing a hard copy of the document in wet-ink on the same signature block.

Some flexibility to this approach is often afforded in relation to execution of agreements, but prior to the recent modifications, there were differing views as to whether s 127(1) in its pre-amended form was satisfied by:

  1.  ‘split execution’, i.e. where two company officers wet-ink sign different copies of the document being signed, such that a single execution block is purported to be executed in counterpart by those officers (our view is that this does not satisfy the requirements of s127(1)); or
  2. modified split execution’, i.e. where a company officer wet-ink signs the document, and sends a copy of that document by fax or emailed PDF to another officer and that second officer then prints out the faxed or PDF copy and wet-ink signs it (our view is that this does satisfy the requirements of s127(1)).

Pure electronic execution of an agreement or deed is not generally considered a valid method of execution under s 127(1) of the Act, but simply failing to properly execute an agreement in accordance with s 127 does not necessarily mean a valid agreement has not been reached under common law. Therefore, electronic signing of an agreement is generally only done with the consent of the counterparty, who may not be entitled to rely on the assumptions pursuant to s 129 of the Act, but has otherwise independently satisfied itself of the authority of the signatories (for example by reviewing board minutes or the terms of the company's constitution).

When it comes to deeds, further uncertainty exists due to common law principles requiring that a deed be on paper and the lack of any clear judicial authority as to whether s 127(3) of the Act displaces this rule. As a result, pure electronic execution of a deed is not generally advised.

The above summary does not canvass all the views for and against each position, and it is also important to note that there are certain specific exceptions (such as the Conveyancing Act 1919 (NSW)), but the lack of any authoritative case law on the above electronic execution issues has been a source of difficulty for some time....

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