Skip to content

  • Home
  • Expertise
  • Client results
  • News & Insights
  • People
  • Our DNA
  • Inclusion and Diversity
  • Join us
  • Contact Us
Home / NEWS & INSIGHTS / Blog / Lender Series / It’s a new decade – do financiers still need ‘wet ink’ signatures?
Insight / Lender Series 13 February 2020

It’s a new decade – do financiers still need ‘wet ink’ signatures?


The Lender Series publications are easy to read and practical ‘how to’ guides aimed at assisting lenders with typical issues  encountered when providing finance.


Summary

Execution of finance documents by way of electronic signatures offers many potential benefits, particularly in relation to procuring signatures from key individuals, who inevitably, are travelling or overseas during a period when it becomes time critical to sign documents. However, despite recent legislative and judicial developments to facilitate electronic execution, financiers (and their lawyers) have not yet embraced electronic execution with open arms. This article explains some of the reasons why electronic execution of documents continues to be approached with caution.

The law relating to the electronic execution of finance documents is complex (particularly in light of the myriad of relevant Commonwealth and State legislation) and is relatively untested. Given that most finance documents are executed by corporate obligors under section 127 of the Corporations Act 2001 (Cth) (the Corporations Act), this article focuses on the validity and enforceability of finance documents executed by way of electronic signatures under section 127.

What do we mean by ‘electronic signature’?

For the purpose of this article and in simple terms, an electronic signature is an electronic image of a person’s wet ink signature, such as a digital image file or typed text, transmitted electronically with no physically signed original. It differs to a digital signature (e.g. retina scans or fingerprint), which is beyond the scope of this article. Additionally, this article deals with the method of execution (specifically, execution by electronic signature), rather than place of execution and exchange of wet ink signed documents by facsimile or email. For further reading on the protocols relating to the place of execution (specifically, remote signing versus signing at a formal signing ceremony), please refer to the protocols agreed by The Walrus Committee[1].

Are finance documents executed by way of electronic signatures valid, binding and enforceable?

The answer is – sometimes.  It depends on a number of factors, such as the type of document being executed, how the document is executed and whether certain other requirements are met.

Generally speaking, electronic signatures are valid at general law.  This position has been validated by the Electronic Transactions Act 1999 (Cth) (ETA) and the various similar (but not identical) versions of that legislation in force across all States and Territories. Specifically, section 10 of the ETA provides that if the signature of a person is required under a law, that requirement is met in relation to an “electronic communication” if certain conditions are satisfied[2]. However, notwithstanding the position under general law and the protection offered by the ETA, there are certain risks that financiers should be mindful of in respect of electronic execution, as briefly outlined below:     

1.     Exclusion of certain documents and legislation from the operation of the ETA

The Corporations Act is exempt from the ETA, meaning that section 10 of the ETA does not apply where a party executes a finance document under section 127 of the Corporations Act. In that situation, without the assistance of the ETA, the question is then whether the electronically signed document was executed validly under general law.

2.     Formalities of execution of a deed may still apply

In examining the position under general law, it is relevant to consider whether the document being executed is a deed. Finance documents are often drafted as a deed (e.g. loan deed, general security deed, deed of guarantee and indemnity, intercreditor deed and power of attorney). At common law, a deed must be written on parchment, vellum or paper[3].  This raises the question as to whether the formalities of execution of a deed will be satisfied if the deed is executed electronically with no physical original.

Helpfully, the Court in Bendigo and Adelaide Bank Ltd v Pickard [2019] SASC 123 (Pickard)[4] held that electronic execution of a deed by a company under section 127(1) of the Corporations Act is possible (thereby suggesting that the other formal requirements for execution of deeds, such as execution on paper, are displaced if the deed is executed under section 127). However, this is subject to certain requirements being met, namely that:

  • there must be evidence of ‘personal authentication’ of the individual ‘signing’ the deed under common law; that is, the signatory personally affixed the electronic signature to the deed or specifically authorised his or her signature to be affixed to the deed. An assistant affixing a scanned copy of a director’s signature to a finance document may not satisfy this requirement unless it is specifically and clearly authorised by the individual in some way (e.g. a written confirmation or instruction); and
  • the signatories of a company apply their electronic signatures on a single electronic document (as opposed to different counterparts or separate copies of the same document). This reflects the current approach adopted by most financiers requiring both signatories for a company to execute on the same sheet of paper.

It can be inferred from the decision in Pickard that, if a deed is not executed under section 127 (e.g. if a deed is executed by an attorney pursuant to a power of attorney), then the formalities of a deed would usually apply (including that the deed be executed on paper) unless the ETA applies (and certain conditions are met). While this is beyond the scope of this article, it is worth noting that it is not clear from the available guidance or case law as to whether the electronic transaction legislation in each State and Territory apply to deeds and/or whether a print-out of a document executed electronically would satisfy the paper requirement.

Application of other requirements of government bodies, such as registration requirements

Despite the progress in electronic execution, certain government bodies continue to require that documents be written on paper and signed in wet ink. Most relevantly for financiers:

  • statutory declarations are excluded from the ETA
  • powers of attorney in certain States and Territories must be signed in wet ink;
  • the lodgement, service and filing of certain documents in connection with legal proceedings in certain States and Territories must be signed in wet ink;
  • while wet ink signatures are not required for a dealing for lodgement with the NSW Land Registry Services, certain land titles offices continue to require wet ink originals for some types of dealings; and
  • certain forms and documents that need to be lodged with the Australian Securities Information Commission or the Australian Stock Exchange are also often required to be physically-signed originals.
What is the market approach amongst financiers?

While electronic signatures are generally valid at law and the Courts appear to be increasingly willing to accept the use of electronic signatures, they can introduce an element of doubt as to the validity and enforceability of a document. In any case, it is useful to understand that, in certain situations, documents (including deeds) executed electronically under section 127 of the Corporations Act are valid if certain requirements are met (and the financiers are furnished with sufficient evidence that those requirements are met).

We expect that financiers and their lawyers will continue (at least in the short term) to take the tried-and-tested path and require wet ink signatures (whether at the time of financial close or shortly thereafter provided that copies have been provided for financial close) to mitigate any risks arising from electronic execution. We recommend that lenders engage early with their borrowers as to availability of signatories and financial close logistics to avoid any surprises at, or delays to, financial close.


[1] The Walrus Committee, “Remote Signing Protocols for Financing Transactions” (2015) 43 ABLR 497

[2] To summarise, the conditions are:

  • a method is used to identify the signatory and to indicate the signatory’s intention;
  • that method of identification must be reliable; and
  • the person to whom the signature is required to be given (e.g. the financier) consents to the electronic execution and the method of identification.

[3] Scook v Premier Building Solutions Pty Ltd [2003] WASCA 263 at [22].

[4] Whilst no appeal is on foot, the case decision is subject to treatment in subsequent judgements.


For further articles in series please click the links below:

Side Deeds – what, when and why?
In the financing world, side deeds (sometimes also referred to as tripartite deeds, consent deeds or direct agreements) are frequently the source of robust negotiations between parties. 

Ralan and pre-sale deposits – key message for financiers
A brief overview of what has happened at Ralan, the issues that have arisen for Ralan’s purchasers and how purchasers and financiers should (and in most cases do) protect themselves against those issues.

Stay for ipso facto events – one year on
In the twelve months following the introduction of these provisions, financiers, their advisors and industry groups have settled on generally accepted approaches to dealing with the stay for ipso facto events in certain finance documents. This article will take a look at three key ways in which finance documents and processes have been updated in response to this legislation.

What a mezzanine lender wants in an intercreditor deed
A brief analysis of some of the more common concessions requested by mezzanine lenders in intercreditor deeds.

For further information, please contact our authors below. 

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

About the authors

  • David Gilham

    Partner
  • Wei Lim

    Partner
  • Kirby Jukes

    Partner
  • Amy Tin

    Special Counsel

In other news

McCullough Robertson adds depth to growth industries in Government, Renewables and ESG, with key lateral partner hire in Brisbane, appointment of a new partner in annual promotions and development of ESG diversified business

4 July 2022Media, News

The DBP Act’s statutory duty of care under the microscope

29 June 2022Insight

2022-23 Queensland Budget

24 June 2022Insight

2022 EOFY trust distributions: handle with care

22 June 2022Insight

VIEW ALL NEWS & INSIGHTS

BRISBANE

Level 11, 66 Eagle Street
Brisbane QLD 4000
GPO Box 1855
Brisbane QLD 4001
Tel +61 7 3233 8888
Fax +61 7 3229 9949

 

GET IN TOUCH

    Contact form

    We handle your personal information in accordance with our privacy policy.

    Please do not send us any confidential information. By submitting this form, you agree that our review of the information you submit will not create a lawyer-client relationship between you and our firm (or any lawyer in our firm) and it will not prevent us from representing a party in any matter where the information you submit is relevant, even if that information could be used against you.

    sydney

    Level 32, MLC Centre
    19 Martin Place
    Sydney NSW 2000
    GPO Box 462
    Sydney NSW 2001

    Tel +61 2 8241 5600
    Fax +61 2 8241 5699

     

    GET IN TOUCH

      Contact form


      We handle your personal information in accordance with our privacy policy.

      Please do not send us any confidential information. By submitting this form, you agree that our review of the information you submit will not create a lawyer-client relationship between you and our firm (or any lawyer in our firm) and it will not prevent us from representing a party in any matter where the information you submit is relevant, even if that information could be used against you.

      melbourne

      Level 27, 101 Collins Street
      Melbourne VIC 3000
      GPO Box 2924
      Melbourne VIC 3001

      Tel +61 3 9067 3100
      Fax +61 3 9067 3199

       

      GET IN TOUCH

        Contact form

        We handle your personal information in accordance with our privacy policy.

        Please do not send us any confidential information. By submitting this form, you agree that our review of the information you submit will not create a lawyer-client relationship between you and our firm (or any lawyer in our firm) and it will not prevent us from representing a party in any matter where the information you submit is relevant, even if that information could be used against you.

        follow us

        CLIENT LOGIN

        newcastle

        92 Young Street
        Carrington NSW 2294
        PO Box 394
        Newcastle NSW 2300

        Tel +61 2 4914 6900
        Fax +61 2 4914 6999

         

        GET IN TOUCH

          Contact form


          We handle your personal information in accordance with our privacy policy.

          Please do not send us any confidential information. By submitting this form, you agree that our review of the information you submit will not create a lawyer-client relationship between you and our firm (or any lawyer in our firm) and it will not prevent us from representing a party in any matter where the information you submit is relevant, even if that information could be used against you.

          canberra

          Level 9, 2 Phillip Law Street
          Canberra ACT 2601

          Tel +61 2 6243 3669
          Fax +61 2 8241 5699

           

          GET IN TOUCH

            Contact form


            We handle your personal information in accordance with our privacy policy.

            Please do not send us any confidential information. By submitting this form, you agree that our review of the information you submit will not create a lawyer-client relationship between you and our firm (or any lawyer in our firm) and it will not prevent us from representing a party in any matter where the information you submit is relevant, even if that information could be used against you.

            © 2017 McCullough Robertson. Site map Disclaimer Privacy Policy Statement of Business Ethics Credit Reporting Policy

            X