Electronic execution: where are we now?
A sigh of relief for Australian companies
In August, the Federal Government passed legislation allowing companies to electronically execute documents (including deeds) under section 127 of the Corporations Act. The Treasury Laws Amendment (2021 Measures No 1) Act 2021 (Act) was enacted on 14 August 2021 to temporarily amend the Corporations Act 2001 (Corporations Act) until 31 March 2022. While this temporary amendment is reassuring, it is also likely to be alarming for some company directors unaware that this type of legislation was not already in place.
In response to both the COVID-19 pandemic and ongoing uncertainty about companies signing documents electronically, the Federal Government had previously introduced temporary determinations that specifically permitted the electronic execution of documents (and split execution) under section 127 of the Corporations Act. The Corporations (Coronavirus Economic Response) Determination (No1) 2020 and Corporations (Coronavirus Economic Response) Determination (No3) 2020 were in place from 6 May 2020 through to 21 March 2021. However, the Act has no retrospective application, meaning there is a clear gap in time from 21 March 2021 to 14 August 2021 when there is likely to be a return to the judicial and market uncertainty around the electronic (and split) execution of documents by companies during this period.
Moving forward, we are unlikely to see this type of uncertainty return. The Federal Government has released draft legislation (Treasury Laws Amendment (Measures for Consultation) Bill 2021: Use of technology for meetings and related amendments), to introduce permanent reform allowing Australian companies to electronically execute company documents (including deeds) under section 127 of the Corporations Act. While the Government was still seeking stakeholder views on the exposure draft legislation up to 10 September 2021, we anticipate that these reforms will make permanent the temporary measures put in place during the COVID-19 pandemic. Not only does this include the electronic (and split) execution of company documents, but also facilitates the use of technology for company meetings and sending company meeting-related documents, such as notices and minute books (noting that many of these processes are also facilitated under the Act). We anticipate that this permanent reform will be in place before the Act reaches its sunset date at the end of March 2022 (yet this remains to be seen).
How can a document be signed electronically?
In order to rely on a company’s electronic execution under the Act, you must be satisfied that:
(a) a method is used to identify the person and indicate their intention to sign the document;
(b) the copy or counterpart includes the entire contents of the document;
(c) the method used was reliable and appropriate for the purposes (or be proven in fact to have fulfilled that purpose).
In practice, various methods can be used to ‘identify the person and indicate their intention to sign’. Platforms such as DocuSign and AdobeSign, are becoming more widely used to achieve this authenticating intention. However more improvised methods, such as signing with a stylus tool, mouse (or even a finger on a touch screen) have also been accepted.
The electronically signed document can then be electronically returned to the company with a covering email acknowledging an intention to be bound. While there is no wording that must be adopted in all cases, in some instances specific wording will be required. For example, Land Registry Services NSW requires the words ‘electronic signature of me, [insert name], affixed on [insert date/time]’ to be included below the relevant signature for any electronically executed property dealings.
Separately, it goes without saying, that the cavalier approach of signing the execution page of a document and sending it on to your counterparts as a single page will not satisfy the requirements for electronic execution under the Act.
Electronic executions remain inconsistent requiring the need to be alert
Broadly speaking, you can be confident that the method of electronic execution is not prescriptive. Instead, the ongoing barrier is likely to be the question of whether your specific type of document can be signed electronically in the first place. Inconsistencies will continue for individuals and companies across Australia notwithstanding the temporary changes to the Corporations Act.
For example, Land Titles transfer forms in Queensland still require ‘wet-ink signatures’, even if the transferor or transferee is a company. Similarly, in Queensland and New South Wales, certain mortgage documents should not be signed electronically (whether by a company or an individual), however in Victoria the permanent changes to the Electronic Transactions (Victoria) Act 2000 (Vic) confirm that mortgages can be in electronic form.
Additionally, while the prospect of permanent reform is encouraging for companies, individuals seeking to execute a document in their own capacity cannot rely upon these electronic execution measures that have been put in place for companies. For individuals needing to execute agreements, deeds (which are complicated by the fact that they usually require a witness) and other documents, the rules around electronic execution remain very challenging.
For individuals, the electronic execution of deeds is particularly problematic. The process for creating deeds and statutory declarations across Australia is different depending on the governing jurisdiction and whether the document is being signed by an individual or a company. Additionally, in some jurisdictions at least, there continues to be a ‘wet-ink’ signature requirement and a need for a witness which makes the execution of deeds and statutory declarations by individuals particularly challenging in the current COVID-19 environment.
For example, an individual in Queensland can currently electronically sign a deed without a witness, but only until 30 April 2022, noting that this sunset date was originally set for 30 September 2021 and was only recently extended under the Public Health and Other Legislation (Further Extension of Expiring Provisions) Amendment Bill 2021 (which took effect on 9 September 2021). A further bill was introduced on 15 September to effectively make these emergency responses permanent, although this is yet to progress through Parliament. In New South Wales, a deed may be made on paper or electronically, and until 31 December 2021 the required witnessing of a deed can be done by audio visual link under the Electronic Transactions Act 2000 (NSW). While similar provisions apply in Victoria to allow individuals to electronically execute a deed, in most other Australian jurisdictions a deed to be signed by an individual must be in writing, on paper and wet-ink signed with a witness (who is usually required to be physically present). For the signing of statutory declarations the rules are different again across Australia’s States and Territories.
The result is a confusing and changing legislative and policy framework, despite Government attempts to simplify the process.
Practically, we see difficulties where a deed is to be signed by a company and an individual. Under the Act the company is now in a position to confidently execute the deed electronically. However, for the individual involved, the position remains unclear.
Harmonisation to come?
The Commonwealth, State and Territory Treasurers announced in June this year, a decision to prioritise working together towards a common approach for document execution nationally. Recognising that deeds and statutory declarations are common in many commercial transactions, the intention is to streamline document execution across Australia. Consultation on these plans is currently open until 8 October 2021.
While we await a common approach to the electronic execution of documents nationally and permanent reform under the Corporations Act, companies and individuals will need to actively check whether the document they are about to sign can be executed electronically. Unfortunately, the legislation has not caught up with modern commercial practice in this regard.
The practical steps have not changed
In Volume 72 — Number 5, of Governance Directions, McCullough Robertson published an article about practical considerations for electronic execution which included a list of practical steps to take if you are considering executing electronically (you can read the full article here). Despite the continuation of the COVID-19 pandemic and a plethora of legislation from the Commonwealth and state governments with aspects that are specifically targeted at allowing electronic execution, somewhat frustratingly our original list of practical steps to take remains relevant. These include:
- engage early to ensure that all parties are comfortable with the proposed manner of execution;
- obtain consent to any proposed electronic communication before relying on it
- minimise fraud, ideally by signing documents electronically using a platform with inbuilt identification verification
- reconsider deeds and if possible convert your deed to an agreement (yes, we are still here, especially if your deed needs to be signed by an individual and the governing law is not a jurisdiction on the eastern seaboard)
- appoint attorneys ahead of the completion of a transaction
- appoint alternate directors where certain documents (e.g. most land titles forms) still require wet-ink signatures
- obtain personal authentication whenever electronic execution is used.
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.