Legal development

Back to the future Another round of temporary changes to how Australian companies execute documents

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    The Treasury Laws Amendment (2021 Measures No.1) Act 2021 (Cth) (the Amendment Act) is a temporary step forward in clarifying and modernising the law that governs how Australian companies execute documents, including by electronic means. The relevant provisions have now come into effect.

    What you need to know

    • The Amendment Act makes changes to ss 127 and 129 of the Corporations Act that provide some welcome clarity around the use of electronic signatures by Australian companies to execute documents, including deeds. 
    • The changes are temporary and due to expire on 31 March 2022.
    • Further reform is still to come. The Government has released for consultation draft legislation to make these changes permanent and further refine the way Australian companies can sign documents. 

    What you need to do

    • Consider your policies on electronic execution, and the manner in which directors or company secretaries are permitted to apply electronic signatures when executing documents under s 127 of the Corporations Act.
    • Keep an eye out for further legal reforms in relation to electronic signatures in the coming months. 

    The story so far 

    The COVID-19 pandemic has highlighted the uncertainty and lack of flexibility under Australian law regarding the use of technology to sign documents.  As a temporary solution, some of these concerns were addressed by way of Ministerial Determinations which modified the operation of relevant provisions of the Corporations Act.

    Following the expiry of the most recent Determination earlier this year, the legal position around electronic signatures and so-called 'split execution' (where officers sign different counterparts) has not been certain, particularly in relation to deeds. 

    The Amendment Act brings a measure of clarity to this area of law, at least until the relevant provisions expire on 31 March 2022. It is expected the reforms will be made permanent before then (see "The next chapter awaits us" below).  

    How does the Amendment Act affect document execution by an Australian company under s 127?

    Section 127 now expressly provides that:

    • documents can be signed under s 127(1) by the relevant director or company secretary applying an electronic signature; 
    • when two directors or a director and company secretary sign a document under s 127 (whether in paper or electronic form), they need not sign the same counterpart or copy, allowing for 'split execution'; and
    • the fixing of a company seal under s 127(2) may be observed by electronic means.

    When a document is taken to have been signed under s 127

    Under the new provisions a document, whether in paper or electronic form, is taken to be signed under s 127 if certain requirements are met.  One important requirement is that the copy or counterpart signed includes the entire contents of the document.  In the case of electronic documents, there are additional requirements relating to the reliability of the method used and whether it identifies the person and their intention to sign the document.

    When the fixing of a common seal is taken to have been witnessed

    Similarly, the fixing of a common seal to a document under s 127(2) is taken to have been witnessed if specified requirements are met.  These requirements are that the relevant person observes the fixing of the seal by electronic means, that they sign the document - which may be a copy or counterpart - and that the document includes a statement that the person observed the fixing of the seal by electronic means.

    Deeds 

    The changes permit deeds to be signed by electronic means in a manner that complies with the amendments made to s 127 of the Corporations Act. 

    The next chapter awaits us

    The Amendment Act is a step forward, but we expect to see further reform in this area.  The Government recently consulted on draft legislation that proposes to make these changes permanent and allow for single director companies that do not have a company secretary to execute documents under s 127. 

    That proposed draft legislation also presents an opportunity for the Government to refine some of the drafting of s 127.  It would also be helpful if a clear mechanism could be included in those proposed future amendments to the Corporations Act for foreign and statutory corporations to execute deeds governed by Australian law. 

    In addition, the Federal Parliament has passed the Treasury Laws Amendment (COVID-19 Economic Response No. 2) Act 2021 (the Response Act), which took effect on 11 August 2021.  The Response Act permits responsible ministers to make determinations amending laws relating to document execution.  This power (and any determination made under it) expires on 31 December 2022.  This gives the Government another option to deal with document execution issues on a temporary basis should the changes made by the Amendment Act lapse before they can be made permanent.

    Finally, a recent decision by Commonwealth, State and Territory Treasurers to prioritise working together on a common approach for document execution may lead to further reform of State and Territory legislation in this area.  

    If you have an questions about the Amendment Act or the ongoing reforms in relation to document execution, please get in touch with one of the Key Contacts below or your usual Ashurst contact.

     

    Authors:  Jock O'Shea, Partner; Tony Ryan, Partner; Paul Richter, Expertise Counsel; Christine Baumberg, Expertise Counsel.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.