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Signing contracts electronically just got easier for companies (again)

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This article was written by Dale Rayner and Helena Busljeta.

The Federal Government has just passed the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 ("the Bill") to facilitate the electronic execution of documents under s127 of the Corporations Act 2001 (Cth).

This is a welcome development particularly for businesses operating in lockdown as a result of the COVID-19 outbreak in several States. The Bill is awaiting Royal Assent. The Bill comes into effect on the day after it receives Royal Assent and ceases to apply on and from 1 April 2022.

Background

Historically, there has been uncertainty and differing views in the market over whether an agreement or deed can be in electronic form and signed electronically by company officers under s127: see our previous alerts  here and here. In 2020, the COVID-19 pandemic prompted the Federal Government to introduce temporary measures to make it clear that company officers could sign documents electronically under s127. The Bill was introduced to the House of Representatives on 17 February 2021 to extend these temporary measures but failed to pass before the temporary measures expired on 21 March 2021.

The Bill amends temporarily amends s127 to provide a statutory mechanism for companies to execute documents electronically.  The changes are in substance similar to the temporary measures of 2020.

What you need to know

The Bill provides as follows:

Change

More details

The fixing of a common seal can be witnessed electronically

If a company executes a document by fixing a common seal, the person witnessing the fixing of the seal may do so electronically by:

  • using electronic means such as videoconferencing to observe the person fixing the seal to the document;
  • signing the document or a copy of the document (either physically or electronically); and
  • stating in the document that they have observed the fixing of the seal by using electronic means.

A document in physical form may be signed using split execution

A document is taken to have been signed by a person if the person signs a copy or counterpart of the document that is in a physical form and the copy or counterpart includes the entire contents of the document.

A director, secretary or witness may electronically sign a document (or a copy or counterpart of the document)

A document will be taken to be signed if:

  • a method is used to identify the person and to indicate the person's intention to sign a copy or counterpart of the document;
  • the copy or counterpart includes the entire contents of the document; and
  • the method used was either as reliable as appropriate for the purpose for which the document was generated or communicated or proven in fact to have indicated the person's identity and intention to sign.

A copy or counterpart need not include all signatures

A copy or counterpart of a document need not include:

  • the signature of another person signing the document;
  • any material included in the document to identify another person signing the document or to indicate another person's intention in respect of the contents of the document; or
  • if a common seal is fixed to the document—the seal.

The Explanatory Memorandum makes the following statements:

  • Section 127, including the amendments under the Bill, applies to deeds. This means that companies may execute deeds by following the process outlined in s127 and do not need to follow the process for signing, sealing and delivering a deed under the common law.
  • A person can use various methods to indicate the person's identity and intention to sign including using a stylus tool to sign a PDF document and then emailing the document back to the company or using a platform such as DocuSign.
  • The requirement for a copy or counterpart to include the entire contents of the document does not mean that the person needs to physically print or sign every Instead, it is intended to reflect the common law position that the signatories must agree to the same terms.

What about permanent reform?

While the amendments are temporary, it is worth noting the following:

  • The Treasury Laws Amendment (COVID-19 Economic Response No. 2) Bill 2021 has also been passed by both Houses. It reintroduces a temporary mechanism for responsible Ministers to change arrangements for documentary requirements under Federal legislation, including requirements to witness and sign documents in response to the challenges posed by COVID-19. This mechanism will have effect until 31 December 2022. It gives the Federal Government additional flexibility to respond COVID-19 developments and presumably, will enable the Treasurer to issue temporary determinations in relation to 127 after 1 April 2022 if required (and thus hopefully avoid a repetition of the situation which arose earlier this year when the temporary measures expired without any replacement legislation in place).
  • In July 2021, Federal Treasury conducted a consultation on exposure draft legislation to support companies and their officers to use technology to satisfy Corporations Act 2001 (Cth) requirements (including electronic execution under s127).
  • The Federal, State and Territory Treasurers have agreed to prioritise working together towards a common approach for document execution across Australia. The Federal Treasurer confirmed in a press release last night that the Federal Government will now seek to introduce permanent reforms later this year to give companies the flexibility to use technology to sign documents.

Please contact us if you have any questions or would like to discuss. 

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