Electronic execution in Australia: a new norm?

After much delay, the law around electronic execution is set to finally catch-up with the increasingly accepted norm of practice. 

The Corporations Amendment (Meetings and Documents) Act 2022 (the Act), now law, has made permanent the temporary relief introduced last year.

The Act allows companies to adopt technology neutral and flexible approaches in executing documents.

Under the new rules, a company may execute a document by using the traditional method of putting wet-ink to paper or by signing an electronic form of the document. The methods a company may use are not limited, provided:

• the method identifies the person signing and indicates their intention in respect of the information in the document; and
  
  
• the method is either as reliable as appropriate for the purpose for which the information is recorded, or proven in fact to have indicated the person’s identity and intention to sign.

These requirements ensure that the integrity of the signatures are maintained, regardless of the form a document is executed in, and is included in all past temporary reliefs and is modelled on the well understood Commonwealth Electronic Transactions Act.

An electronic signing platform such as DocuSign is a prudent method for executing documents electronically given it is able to satisfy the requirements of identification and reliability if set up properly. Although other platforms, such as AdobeSign, are also now becoming more common.

When executing documents under the new rules, different signatories are not required to use the same method of signing and documents may be signed in counterparts.

Who may sign documents electronically?

The new rules apply to both agents signing on behalf of companies under section 126 and directors and company secretaries signing under section 127 of the Corporations Act.

Execution under section 126

An agent may now execute documents (including deeds) on behalf of a company with the company’s express or implied authority.

The agent does not need to be appointed under a deed to exercise this power. This is a change to the previous requirement under common law for agents to execute deeds on behalf of a company.

Notwithstanding this, counterparties may still require execution under section 127 to take benefit of the assumption of due execution under section 129.

Execution under section 127

A company may execute a document electronically with its directors and company secretaries, or by fixing its common seal. The fixing of the common seal may be witnessed via electronic means provided that it is indicated in the document.

For proprietary companies, a sole director may now also execute a document by themselves where the company has no company secretary.

The new rules also allow a person who is signing a document in more than one capacity to be treated as different persons in each such capacity. This codifies and provides certainty on an already existing practice where one person, if their positions allow, could sign on behalf of multiple entities. In the context of the amendments (and considering section 127(1)(c)), it should not be taken that a document could be signed in satisfaction of section 127 where one director (who is also the company secretary) signs twice, where the company has other directors.

Electronic execution of deeds

The intention of the Commonwealth has been that deeds should be permitted to be executed electronically on the same footing as agreements. Whether this intention manifests through the relief enacted is a different question. The new rules clarify this issue.

Under the Act, deeds may be executed regardless of whether they are in a physical form or electronic form. The Act expressly notes that documents may be executed under the Act without the use of paper, parchment or vellum despite any common law rule.

Separately, the Act provides that deeds may be executed without the need for a witness. Companies should be cautious in adopting this approach in relation to execution by agents as a number of states and territories have legislated requirements for individuals to sign deeds in the presence of a witness.

Ordinarily, a law of the Commonwealth prevails over a law of a state to the extent there is any inconsistency between the two. The Corporations Act, however, is unique in that it contains provisions designed to avoid such inconsistency and, in certain circumstances where this is not possible, the effect of these provisions is that the law of the states and territories prevails over the Corporation Act.

The requirement for individuals to sign deeds in the presence of a witness may, therefore, prevail over the lack of the same in the Corporations Act in relation to agents. Before executing deeds under section 126 without a witness, legal advice should always be sought to ensure it is valid in the relevant state or territory whose laws govern the deed (the cautious approach being to use a witness where uncertain).