In response to the ongoing COVID-19 lockdowns across Australia, the Federal Government has once again decided to temporarily allow electronic execution of documents by companies in accordance with section 127 of the Corporations Act 2001 (Cth) (Corporations Act). The changes take effect from 14 August 2021 and will lapse on 31 March 2022.
Execution of documents pursuant to section 127 of the Corporations Act is one of the most common methods of execution by companies due to the assumptions it affords, such as parties to a document being able to assume that it has been duly executed by a company.
However, the Corporations Act is excluded under the Electronic Transactions Act 1999 (Cth), meaning that previously, execution under section 127 of the Corporations Act could only be made in ‘wet-ink’ on a physical document.
The new changes implemented, largely mirror those that were initially implemented during the COVID-19 lockdowns of 2020 and are sure to be a welcome change and relief for companies who have had to change the way they conduct business because of the restrictions of the ongoing pandemic. Which has in turn, presented difficulties for companies attempting to comply with the traditional wet-ink execution of physical documents.
What (temporary) changes have been made?
Electronic execution of documents by a company under section 127 of the Corporations Act is permittedfrom 14 August 2021 (noting that there is no retrospective application), provided the following criteria is met to ensure that the execution is valid and effective:
1. A method is used to identify the person signing and that method indicates the person’s intention to sign a copy or counterpart.
Companies should therefore consider using digital signing platforms which insert names and digital signatures to show the signatory’s intention to sign the document and/or including express provisions in a document which acknowledges electronic execution and an intention of the signatories to be bound by that document.
2. The copy or counterpart signed includes the entire contents of the document.
A signatory cannot extract and sign the execution page of a document in isolation from the rest of the document.
3. The method of execution used must be reliable for the purposes (or be proven in fact to have fulfilled the purpose) for which the document was generated.
The changes do not prescribe any particular method of execution and therefore most, if not all, methods of electronic execution are reliable.
The changes also permit the split execution of documents by companies, meaning that a company may have two officers sign different counterparts of a document pursuant to section 127 of the Corporations Act, as opposed to having to execute a single physical document.
It is also important to also note that:
- as the changes are not retrospective in effect, the Corporations Act does not expressly permit electronic execution by companies between 22 March 2021 (after the lapsing of the previous amendments permitting electronic execution) and 13 August 2021 (the date the new amendments came into effect); and
- the changes clarify that all documents may be electronically executed by a company under section 127 of the Corporations Act, including deeds.
What about the future? A shift to a more practical approach?
While the relief and flexibility provided by the changes is only temporary (lapsing on 31 March 2022), the Federal Government intends to implement permanent reform with respect to electronic execution of documents under section 127 of the Corporations Act prior to lapsing date of the current changes.
This a promising sign for the business community in Australia who would welcome comprehensive and lasting changes that embrace a more practical and flexible approach to reflect how business is now conducted in Australia and across the world.
If you would like advice or assistance in relation to regulatory compliance, Corporate Law or any other Commercial matters, please contact our accredited business law specialists and Partners Justin Thornton on jthornton@marsdens.net.au and Rahul Lachman on rlachman@marsdens.net.au or otherwise by calling them on (02) 4626 5077.
The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.
