May 5, 2021
You could be forgiven for thinking that there is legislation that provides for the effectiveness of electronic execution by a company (or its directors).
What’s more, on 21 March 2021, the Corporations Act temporary rules introduced as a response to COVID-19 and permitted electronic execution by companies expired.
Surprising to some, and as a matter of bemusement to many of those who are aware, no permanent legislation has been passed to date, which facilitates electronic execution by a company.
At first blush, the Electronic Transactions Act 1999 (Cth) (ETA) would appear to deal with this issue. However, hidden away in the Electronic Transaction Regulations 2020 (Cth) (ETR) is an exclusion of the bulk of the provisions of the ETA (including the provisions which relate to electronic signatures) from the Corporations Act 2001 (Cth) (Corporations Act). In other words, the electronic signature provisions in the ETA don’t apply to the Corporations Act.
While the ETA’s exclusion from the Corporations Act does not necessarily invalidate all electronic signatures, it causes problems for those who hope to rely on section 127(1) of the Corporations Act (which outlines how a company may sign documents), and then by extension the statutory assumption created by section 129(5) of the Corporations Act (i.e. that where a document is signed in accordance with section 127(1), you can assume that the document has been duly executed and the companies constitution has been complied with).
The Australian Government introduced the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 (Cth) (Bill), which among other matters, was intended to be a stop-gap that temporarily amended the Corporations Act until 16 September 2021 to provide certainty that company officers could electronically execute a document.
Unfortunately (noting the expiry date of the former temporary measures and the proposed expiration date of the Bill), the Bill has been referred by the Senate to the Senate Economics References Committee, whose report is not due until 30 June 2021.
Let me stop you for a minute; didn’t they fix these problems in response to COVID-19 sometime last year?
Well, yes… but at the same time, no. The Federal Treasurer, Josh Frydenberg, introduced the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (Determination), which dealt with both electronic company signatures and electronic meetings (we have previously written about the Determination here).
This Determination, originally scheduled to expire on 6 October 2020, was repealed and replaced with the Corporations (Coronavirus Economic Response) Determination (No. 3) 2020, which expired recently on 21 March 2021.
So, where are we now?
From 21 March 2021 (the expiry date for the temporary rules) until whenever the new interim legislation is enacted, there is a black hole in respect of legislation that confirms the validity of electronic execution for companies.
The Bill’s explanatory memorandum confirms that the government still intends to implement a permanent fix for electronic execution, a position that is consistent with the government’s commitments in the 2020 federal budget. With this being said, we are yet to see any legislation, bill, or detailed plan on a permanent fix to electronic execution implemented.
Do these changes affect signing deeds?
In short, yes.
We have previously drafted an article on the requirements of a deed in Queensland here. The Queensland position is relevant to the execution of deeds by individuals. By way of brief update on this previous article, the provisions discussed have been extended until 30 September 2021.
To summarise, one of the difficulties of electronically signing a deed is the requirement that it be made on parchment, paper or vellum.
The Determination resolved this issue for Corporations Act “companies” by providing that documents in an electronic form could be executed in accordance with section 127(1) of the Corporations Act. From here, section 127(3) of the Corporations Act, set out below, provides the small leap required to satisfy the requirements of a deed:
‘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 subsection (1) or (2).’
The Bill also states that electronically executed documents fall within the ambit of section 127(1) of the Corporations Act.
HOW CAN WE HELP YOU?
We can assist with a whole host of commercial matters, including but not limited to:
- advice on the currently legally effective methods of companies and individuals signing documents;
- advising whether your agreement with another party should be documented by way of contract (often referred to as an agreement) or deed (there are important consequences to understand);
- negotiating the terms of and drafting agreements and deeds (i.e. business sales, loan agreements, licence agreements, service agreements etc.);
- provide advice on execution requirements in a variety of scenarios from electronic execution, counterpart and the effectiveness of using various signature and execution “platforms”; and
- draft any corporate authorisation documents you may require so that execution may be achieved outside of the Corporations Act.