23/09/2020

The Federal Government has made a new determination extending the operation of measures expressly allowing for documents to be electronically executed under section 127 of the Corporations Act 2001 (Cth) (Corporations Act). This determination has been introduced as part of the Federal Government’s response to the COVID-19 pandemic. 

Overview of section 127 Corporations Act

Section 127 of the Corporations Act allows companies to execute documents without common seal if it is signed by:

  • two directors;
  • a director and a company secretary; or
  • for proprietary companies with a sole director who is also the sole company secretary, by that director.

To date, there has been a divergence of opinion as to whether a document may be electronically executed under section 127.  As recently as November last year, comments by Stanley J in obiter in Bendigo and Adelaide Bank Limited v Pickard [2019] SASC 123 questioned the validity of split executions and electronic execution generally (that is, section 127 requires officers of a company to execute a single, static physical document). 

The Determination

In May, the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 was made by the Treasurer, Josh Frydenberg, using his emergency powers under section 1362A of the Corporations Act, which was a special power introduced by the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) in March to enable flexibility in addressing the financial and economic hardship caused by the COVID-19 pandemic. 

Update: On 22 September 2020, the Corporations (Coronavirus Economic Response) Determination (No.3) 2020 (Cth) (Determination) was registered, repealing and replacing the determination made in May. The Determination makes no substantive changes to measures set out in the May determination but has extended their operation.

Section 6 of the Determination provides that execution under section 127 can be done:

  • electronically – in which case, the method of electronic execution must be reliable and appropriate for the purposes (or proven in fact) to identify and indicate the person’s intention in respect of the contents of the document (which mirrors the approach under the Electronic Transactions Act 1999 (Cth)); and
  • where more than one signatory is required, permits the use of ‘split executions’ – where the two officers of a company execute separate counterparts of a document, whether in electronic or physical form.   

In each case, the signature (whether physical or electronic) must be affixed to the entire document, but does not need to include the signature of any other person who has/will be signing the document.  That is, the practice of signing an execution page that has been separated from the remainder of the document will not meet the requirements of the Determination.

  • The Determination also extends the statutory assumption under section 129(5) of the Corporations Act to documents that appear to have been executed in accordance with the Determination. 

Practical considerations

Under these new rules, a much wider range of methods can be used to sign documents, including copying and pasting a signature into a document and using cloud-based electronic execution tools.  As signatories do not need to sign the same copy of a document, it is now possible for 2 directors/company secretary to sign separate copies of the same document. 

The Determination does not relax the practical need for companies to retain a copy of executed documents, and where ‘split execution’ occurs, copies of each executed document should be retained.  Given the express requirements of the Determination regarding signatures being affixed to the entire document, the entire signed document should be retained (and not just the signature pages). 

The Determination does not change the existing position under section 127 for execution using a common seal.  The Determination also does not affect the laws or requirements of any other jurisdiction which may limit which documents can be executed electronically.  

The Determination also contains rules to allow for company meetings to be held electronically.  We discuss these changes in 'Virtual meetings including AGMs (temporarily) permitted under new government determination'.

The amendments facilitated by the Determination are now due to expire on 22 March 2021 (extending their operation from their original November expiry date under the May determination).

 

Authors: Andrew Hii, Jen Bradley and Sophie Bogard

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