Executing company documents electronically

The Federal Treasurer has used COVID-19 emergency powers recently given to him to modify provisions in the Corporations Act 2001 (Cth) (the “Corporations Act”) relating to the execution of company documents.

Section 127(1)

Section 127(1) of the Corporations Act sets out a way in which a company can execute a document without using a common seal by having two directors sign, or a director and a company secretary sign. For a sole director company where the director is also the company secretary, the sole director can sign.

The main benefit of executing a document under section 127(1) is that if the document appears to have been signed in accordance with section 127(1), a person may assume that the document has been duly executed by the company. You don’t need to confirm that the signing has been authorised by the company and is within the power of the persons signing.

When directors sign a document electronically it was unclear whether you could still make this assumption about due execution, because section 127(1) does not refer to electronic signing, and the Corporations Act is exempt from the Electronic Transactions Act 1999 (Cth), which provides for electronic signing.  For that reason, when companies are executing under section 127(1), it has usually been advised that both directors should sign a single paper version of the document, rather than attaching electronic signatures. In the current lockdown where directors may not be physically present to sign, this has obviously created difficulties.

The Determination

The Corporations (Coronavirus Economic Response) Determination (No 1) 2020 (Cth) (the “Determination”) issued by the Treasurer on 5 May 2020 modifies section 127(1) of the Corporations Act so that a company may execute a document without using a common seal if two directors or a director and secretary (or sole director, as applicable) either:

• sign a copy or counterpart of the document in a physical form; or

• use electronic communication which reliably identifies the person and indicates the person’s intention about contents of the document.

A further condition which applies in both cases is that the copy, counterpart or electronic communication must include the entire contents of the document – not just the execution page. However, it need not include the signature of another person signing the document.

The modification of section 127(1) means that the signatories do not have to sign the same physical document. It allows for a document to be signed electronically by two directors attaching their electronic signature to an electronic version of the complete document. It would also allow one director to physically sign the document, then scan it and send it electronically to another director to print out and sign the document.

The changes made in the Determination are only temporary and will end on 6 November 2020. If the changes work, it is possible that the Government will decide to make the change permanent – updating section 127(1) for the electronic age is long overdue.

Does the Determination apply to deeds?

Section 127(3) of the Corporations Act says that a company may execute a document as a deed if the document is expressed to be executed as a deed and is executed in accordance with section 127(1) (or section 127(2), which relates to execution under common seal).

A deed is a special form of document. The common law rule is that a deed must be executed on paper, parchment or vellum, but recent court cases have supported the view that section 127(3) overrides this common law requirement.

The Determination modifies section 127(1) to enable electronic execution. Therefore it seems that a deed can be executed electronically by a company using the new electronic procedure, relying on section 127(3).

Nonetheless, some legal commentators have expressed doubt as to whether the changes made to section 127(1) by the Determination will now permit companies to execute deeds electronically.

Company meetings

The Determination also includes other modifications of the Corporations Act in relation to company meetings to enable notice of annual general meetings to shareholders by email, a quorum to be achieved with shareholders attending online, and the holding of annual general meetings online.

Other related reforms

New South Wales recently made regulations under its Electronic Transactions Act 2000 (NSW) to allow for documents that require a witness when signing to be witnessed by audio visual link. Documents covered include wills, powers of attorney, enduring guardianship appointments, deeds and agreements, affidavits and statutory declarations.

The person witnessing the signing of a document by audio visual link must observe a person signing the document in real time, and attest or otherwise confirm that the signature was witnessed by signing the document or a copy of the document. The witness must also be reasonably satisfied that the document signed by the witness is the same document, or a copy of the document signed by the signatory, and must endorse the document or copy with a statement specifying the method used to witness the signature and that the document was witnessed in accordance with the regulation. 

Unless extended, the New South Wales regulation will expire 6 months from 6 April 2020.

Patrick Dwyer and Kathleen Harris

Legal Directors