06 May 2020

Signing contracts electronically just got easier for companies

This article was written by Helena Busljeta.

The Federal Treasurer has issued a legislative instrument to allow company officers to sign documents electronically.  This provides welcome certainty as in the wake of the COVID-19 pandemic, it has become increasingly difficult for paper documents to be signed in wet-ink because signatories are working from home in lockdown, self-isolation or quarantine and may not have access to scanners or printers.  However, the changes only apply for a temporary period of 6 months.  They also don’t apply to foreign companies and other entities such as statutory corporations, governments and partnerships of non-companies. 

What does the Determination say?

The Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (“Determination”) modifies the operation of s127 of the Corporations Act 2001 (Cth) to make it clear that an agreement or deed can be in electronic form and signed electronically by company officers.

The Determination is made under s1362A of the Act.  It takes effect on 6 May 2020 and will be repealed in 6 months.

The Determination provides as follows:

  • Section 127(1) is modified so that a company may execute a document without a common seal if 2 directors, a director and company secretary or the sole director/company secretary of a proprietary company either:
    • sign a copy or counterpart of the document in physical form; or

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

The copy, counterpart or electronic communication must include the entire contents of the document but need not include the signature of another person signing the document.

  • The definition of “document” in s127 is extended to include a document in electronic form.
  • Section 129(5) is modified so that a reference to a document being signed in accordance with s127(1) includes a document executed in accordance with s127(1) as modified by the Determination.
  • If a document is executed by a person by means of an electronic communication which complies with the Determination and the electronic communication identifies them as the sole director or sole company secretary, a person may also assume that the document has been duly executed by the company for the purposes of s129(5).
  • Anything done in accordance with the modified operation of s127 is as valid and effective for all purposes as if it had done in accordance with s127 as if it had not been modified in operation.

What does this mean?

As noted in our previous alerts on COVID-19: Practical tips on how to sign contracts electronically and An update: More practical tips on signing contracts electronically, there has been uncertainty and differing views in the market as to whether an agreement or deed in electronic form and signed electronically satisfies s127.

The Determination makes it clear that the following methods of execution are permitted under s127:

  • Split execution — where the officers of a company wet-ink sign different copies of the document.
  • Modified split execution — where an officer of the company wet-ink signs the document and then faxes or emails a PDF copy of it to the other officer at a different location, and the second officer then prints and wet-ink signs that faxed or PDF copy.
  • Electronic execution — where separate electronic signatures are applied to electronic versions of the document (on the condition that a method as reliable as appropriate in the circumstances is used to identify each person and their intention to execute the document on behalf of the company). The Explanatory Note to the Determination states there are a wide variety of means by which officers of a company might sign a document electronically including:
    • pasting a copy of a signature into a document;
    • signing a PDF on a tablet, smartphone or laptop using a stylus or finger;
    • cloud-based signature platforms like DocuSign.

What about deeds?

Section 127(3) provides that:

A company may execute a document as a deed if the document is expressed to be a deed and is executed in accordance with subsection (1) or (2).

Before the Determination, it was unclear whether s127(3) displaced the common law rule that a deed must be on paper, vellum or parchment.  In Bendigo and Adelaide Bank Limited (ACN 068 049 178) v Kenneth Ross Pickard [2019] SASC 123, Stanley J appeared to accept the reasoning of Croft J in Bendigo and Adelaide Bank v Laszczuk [2018] VSC 388 as authority for the proposition that s127 overrides all other requirements for execution of deeds, including that it extinguishes or modifies the paper requirement.  However, the cited paragraph in Laszczuk does not refer to the paper requirement and neither case sets out any detailed reasoning on whether s127 displaces the paper requirement for deeds. 

The Determination does not expressly state that deeds may be in electronic form and signed electronically.  However, the Explanatory Note to the Determination states that the Determination modifies s127 for companies, directors of companies, company secretaries and any persons that have dealings with companies, to allow use of an electronic signature to meet requirements for a signature and further states that “the entire process of executing a document can be carried out using electronic communications”.  It is clear that the intention of the Determination is to facilitate electronic documents and electronic signing.  In light of this, we consider that a deed in electronic form and signed electronically by a company satisfies the requirements of s127.  

However, deeds signed by individuals and other entities to whom s127 does not apply will still be subject to the paper requirement unless the requirement is modified by statute (eg see s38A of the Conveyancing Act 1919 (NSW).  Also, a deed signed by an individual must be witnessed and attested in all jurisdictions except Victoria and the witness must be physically present when the individual signs in all jurisdictions except NSW (see our previous alert on Signing contracts electronically just got easier in NSW).

So is everything now fixed?

The changes made by the Determination are welcome but are subject to the following limitations.

  • Foreign companies and entities other than companies are not covered. Section 127 only applies to a “company” as defined in the Corporations Act.  A “company” means a company that is registered under the Corporations Act (see s9).  The following entities do not fall within this definition and so s127 does not apply to foreign companies, individuals and other entities such as statutory corporations, governments and partnerships of non-companies will all. This means that any deed signed by such entities will still be subject to the general law and need to be in paper and signed in wet-ink unless the requirement is modified by statute (eg s38A of Conveyancing Act 1919 (NSW).  However, if any other party to the deed is a “company” as defined under the Corporations Act, they can execute a counterpart of the deed electronically.
  • The changes are not retrospective. The changes will not validate any documents which have purported to be electronically executed under s127 before 6 May 2020.  However, if there are concerns about due execution of such documents, parties can ratify the execution electronically in accordance with the Determination. 
  • The changes are only temporary. As noted above, the changes will only be in effect for 6 months as they are intended to provide short-term regulatory changes to facilitate continuation of business or mitigate the economic impact of COVID-19.  However, the changes resolve long standing uncertainties around s127 and it would be beneficial to businesses if the changes were made permanent.

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

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COVID-19: Implications for Business

The spread of Coronavirus (COVID-19) has forced us to think and act differently. Beyond the human response, now is the time to think about what the consequences may be on your business, and how best you can prepare for those.

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