Socially Distanced Company Execution Requirements During COVID-19

UPDATE TO COMPANY SIGNING REQUIREMENTS DUE TO COVID-19

The Corporations (Coronavirus Economic Response Determination (No. 1) 2020 (Cth) (Determination) was released by the Treasurer Josh Frydenberg on 5 May 2020. The Determination states that it has been released in relation to COVID-19 and the disruption to company signing requirements resulting from social distancing requirements. However, the Determination also, perhaps inadvertently, solves questions around company signing requirements that have plagued the relevant provisions in the Corporations Act 2001 (Cth) (Corporations Act).

CURRENT CORPORATIONS ACT PROVISIONS

Section 127 of the Corporations Act, in conjunction with sections 128 and 129, provide some of the ways  in which documents can be executed by a company and for parties to be able to rely on a document being duly executed. In particular, for a company that has more than one director, execution can occur without a company seal being affixed to a document if two directors, or a director and a secretary, ‘sign’ the document. This has created issues where two directors (or a director and a secretary) are not physically in the same location.

For two directors (or a director and a secretary) that are not physically in the same location technically this approach does not satisfy the signing requirements in section 127 as the same document has not been signed by both directors (or a director and secretary).

Where it appears that the requirements of section 127(1) have been complied with when a director or secretary signs a document, section 129(5) provides a protection for other parties to assume that the document has been duly executed by the company and should be binding on that company.

THE DETERMINATION

The Determination provides that the requirements of section 127(1) of the Corporations Act for a company that is executing a document without a company seal will be taken to be complied with if execution has occurred as follows:

1. For physical execution - the directors or secretary have signed a physical copy or counterpart of the document; or

2. For electronic execution – the identify and intention of the person in the electronic communication has been established, in accordance with a method that is ‘as reliable as appropriate’ based on the circumstances, including the document itself.

The requirements in relation to electronic execution under the Determination also require that evidence must be available to prove ‘in fact’ that the identity and intention of the person has been ‘reliably’ determined.

Additionally, the Determination references the Electronic Transactions Act 1999 (Cth), section 10(1) of which is comparable to the provisions for electronic signing in the Determination. As such, whilst no further information is provided in the Determination in relation to the circumstances that would constitute a method that is “as reliable as appropriate”, the existing commentary on section 10(1) of the Electronic Transactions Act 1999 (Cth) should be applicable in this regard.

For both physical and electronic execution, the provisions of the Determination indicate that the ‘entire contents of the document’ must be signed.

REPEAL OF THE DETERMINATION

The Determination took effect from 6 May 2020, with it to be repealed six months from this date.

As such, any comfort provided by the Determination in relation to the signing of counterparts of documents representing valid execution under section 127 of the Corporations Act may only be temporary.

HOW CAN WE HELP YOU?

McInnes Wilson Lawyers can help you navigate company execution requirements during these uncertain times. In particular we can:

• provide advice on company execution requirements in a variety of scenarios, from electronic execution, counterpart and the effectiveness of using “platforms”;
• draft any corporate authorisation documents you may require, so that execution may be achieved outside of the Corporations Act.