Practical considerations for electronic execution

COVID-19 has brought many challenges to the commercial landscape, including the execution of documents when parties may not, because of the requirement to self isolate, be able to receive, sign and exchange hardcopy documents. Electronic execution can be used in many cases so that transactions may progress, however not all documents can be executed electronically.

This article sets out what kind of documents can be electronically executed and what to consider to minimise risks. For further information on the law underlying electronic execution, see our earlier Insight here.

Documents that can be executed electronically

• an agreement (by an individual). Generally, an agreement by an individual can be executed electronically, as any witness requirement is only to minimise risk of fraud.
• an agreement or a deed (by a company). However, a counterparty to a document electronically executed by directors of a company is unable to rely on the assumptions about valid execution under 129 Corporations Act 2001 (Cth). To minimise risks:
  • make further enquiries about the signatories’ authority (i.e. check a current company search);
  • obtain ‘personal authentication’ from the signatories (i.e. an email and ideally verbal confirmation that they applied or consented to the application of their signature); and
  • review a resolution of the director(s) and the company’s constitution.

Documents that cannot be executed electronically

• a deed (by an individual). A deed executed by an individual must be witnessed to be effective, and case law is unclear on whether witnessing electronically is effective. If the Conveyancing Act 1919 (NSW) applies, execution of a deed electronically may be permissible, however as these provisions are untested by courts specific advice should be obtained.
• a power of attorney. In virtually all cases, powers of attorney (whether granted by a company or an individual) should be prepared as a deed, executed and witnessed in ‘wet ink’. Electronic execution of these documents should be avoided without specific advice.
• a document for which one fully executed original is required. Certain agencies such as land registries, ASIC, ASX and Courts may have specific requirements for ‘wet ink’ or original execution, and may not accept counterparts. Specific advice should be obtained about whether electronic execution is appropriate for these documents.

PRACTICAL STEPS TO TAKE

If you are considering executing electronically, or accepting any document executed electronically, you should:

• engage early. Discuss with all parties (including any party who will be reviewing or relying on the document, such as a financier) as soon as possible, to ensure that all parties are comfortable with the proposed manner of execution and that any risks are understood and, if possible, minimised.
• obtain consent. If information is required by law to be given (for example, a disclosure statement), obtain express written consent from the party to whom the information is being given to the electronic communication before the giving of that information.
• minimise fraud. Sign documents electronically using a platform with inbuilt identification verification (there are many on the market today), rather than the insertion of a scanned signature or image, to minimise the risk of fraud.
• reconsider deeds. If possible, convert any deed to an agreement, noting that this may not always be achievable or desired, and will depend on the nature of the transaction and the document involved.
• appoint attorneys. Consider appointing an attorney (either for an individual or company) as soon as possible.
• appoint alternate directors. For companies if directors may be unavailable, consider appointing alternate or additional directors so that more signatories will be available.
• obtain personal authentication. Whenever electronic execution is used, but particularly for companies, obtain evidence that the signatory has affixed their electronic signature themselves, or has specifically authorised another person to do it for them. This should ideally be both email and verbal confirmation with that signatory.

We are seeing a greater level of acceptance of electronic execution to assist the continuation of business operations, with parties and their advisors making genuine efforts to permit electronic execution wherever possible. However, this is a rapidly evolving area of law, and until now has been a matter of convenience and efficiency rather than one of commercial imperative, and parties should ensure that risk positions are effectively managed.

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.