Execution: permanent reform has finally arrived
On 10 February 2022, the Federal Government passed long-awaited legislation making permanent the (originally temporary) measures regarding electronic execution by an Australian company, being measures that were first introduced in response to the COVID-19 pandemic.
Specifically, the Corporations Amendment (Meetings and Documents) Bill 2021 (Cth)(Bill) provides permanent reform under the Corporations Act 2001 (Cth) (Corporations Act) allowing companies to execute documents electronically, use technology to hold physical, hybrid and (potentially) wholly electronic meetings, and send company meeting-related documents, such as minute books and notices.
These welcome changes, arguably bring Australia’s Corporations Act into the 21st century and reflect the significant role that technology plays in modern society, enabling businesses to take advantage of the flexibility and efficiencies that technology offers. Notably, the Australian Treasury has reported that these changes will result in savings of approximately $450 million in unnecessary red tape costs per year. The Bill is a victory for all players in the Australian corporate landscape, bringing significant advantages and an important degree of certainty for various stakeholders; including directors, company secretaries, law firms, accounting firms and business professionals as a whole.
Status and temporary measures
The Bill is currently awaiting assent, however companies can continue to rely on the current temporary measures when signing documents electronically until the Bill is enacted. You can refer to our earlier article here regarding the current temporary measures in place for companies. These temporary measures will remain in place until the end of March 2022 and we anticipate that the Bill will be enacted before this end date.
Permitting electronic measures
The Bill broadly implements the same changes that the temporary measures currently allow for. Specifically, Australian companies will be able to:
- electronically execute company documents (including deeds) under section 127 of the Corporations Act;
- execute company documents via split execution (i.e. with office holders signing separate (full) counterparts);
- hold physical, hybrid, and (if expressly permitted by a company’s constitution) wholly virtual meetings; and
- send company documents, such as notices and minute books, in hard or soft copy.
- The requirements surrounding electronic execution remain the same as set out in the temporary measures. In order to rely on a company’s electronic execution, you still need to be satisfied that:
- a method is used to identify the person and indicate their intention to sign the document;
- the copy or counterpart includes the entire contents of the document; and
- the method used was as reliable as appropriate for the purposes (or be proven in fact to have fulfilled that purpose).
Other welcome changes
The Bill also brings welcome relief for execution by companies with a sole director and no secretary, with section 127 being expanded so that the assumptions under section 129 can be relied upon where that sole director has executed. This closes what was a frustrating and often confusing gap under the former drafting of section 127 and its operation following the removal of company secretary as a mandatory role. Importantly, if a company has a sole director and a different company secretary, both will still need to sign to get the benefit of section 129 of the Corporations Act.
The Bill also includes provisions prohibiting ASIC and the Registrar from refusing to receive or register a document on the basis it has not been signed where the document has been signed electronically (and certain criteria satisfied), but only where the document is prescribed by regulations (either specifically or as a class). The regulations and further ASIC guidance will be needed before these provisions (at Part 1.2AA) can be relied upon, and it is yet to be seen how these amendments will interplay with Chapter 2P of the Corporations Act, which governs how documents can be lodged with ASIC, regardless of whether they are signed in wet ink or electronically. As there are a number of ASIC documents which may only be lodged by post, it is hoped that these changes might permit those documents to be lodged by email or through ASIC’s online services in the future – if executed electronically in accordance with the Bill.
A word of caution
Despite the Bill, care should still be taken when executing documents electronically. Some of the key considerations include:
- ensuring that all parties to the document, or seeking to rely on the document, understand and accept the electronic execution method proposed;
- 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 and to ensure that it is ‘as reliable as appropriate for the purposes’; and
- checking any registry requirements where a document is required to be lodged, as many may have their own particular requirements.
If you have any queries in relation to the Bill, or electronic execution more broadly, please contact a member of our team here.
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.