Update 13 August 2021: royal assent was provided on 13 August 2021 and the amendments in the Bill are effective on and from 14 August 2021

Electronic execution and split execution of documents under section 127 of the Corporations Act 2001 (Cth) (Corporations Act), will once again be permitted following the passing of the Treasury Laws Amendment (2021 Measures No.1) Bill 2021 (the Bill) on 10 August 2021.  The Bill also permits the remote witnessing of the fixing of a company seal for the purposes of execution under section 127 of the Corporations Act.  

The Bill will take effect once Royal Assent is provided, which is expected to occur imminently.  Unfortunately, rather than making these changes regarding electronic and split execution permanent, these new rules only apply temporarily and are due to automatically expire on 31 March 2022 (see section 1267F). 

The Bill was first introduced to Parliament on 17 February 2021. At that time, the Bill was expected to pass ahead of 21 March 2021 when the existing temporary rules that permitted electronic execution and split execution of documents under section 127 were due to expire. However, as discussed in our March article, the Bill failed to pass before Parliament’s last sitting day in March and as a result, since 21 March 2021, section 127 of the Corporations Act has had to be read without the benefit of the temporary rules.

What amendments does the Bill make to section 127?

The Bill makes amendments to section 127 so that:

• execution under section 127(1) may now be done electronically – in order to be effective, the method of electronic execution must:
  • identify the person and indicate their intention to sign the document;
  • be on a copy or counterpart of the document that includes the entire contents of that document; and
  • be reliable and appropriate for the purposes (or be proven in fact to have fulfilled that purpose).

These provisions mirror the approach under the Electronic Transactions Act 1999 (Cth).

• where a company executes a document with a common seal under section 127(2), remote witnessing of the fixing of the seal is permitted.  To be effective:
  • the witness must, by electronic means, observe the fixing of the common seal;
  • the witness must sign the document (which may be a copy of the document without the common seal affixed); and
  • the document must contain a statement that the witness observed the fixing of the seal by electronic means.

This is a new measure introduced under the Bill and was not included in the previous temporary rules.

When signing electronically, or by split execution (whether physical or electronic), the signature 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 in counterpart or by split execution.  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 section 127.

What about documents executed after 21 March 2021 but before the Bill takes effect?

The Bill does not contain any transitional provisions dealing with documents executed electronically or by split execution after 21 March 2021, but before the Bill takes effect.  Whether or not those documents were validly executed will fall to be determined by reference to the pre-Covid application of section 127 (see our March article).

Practical considerations

These measures permit a much wider range of methods to be used to sign documents under section 127, from copying and pasting a signature into a document to using cloud-based electronic execution tools.

However, the amendments do not change the practical requirement 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 requirement of the amendments regarding signatures being affixed to the entire document, the entire signed document should be retained (and not just the signature pages).

We note that in respect of the remote witnessing of the affixing of a common seal, the Bill is not prescriptive in terms of how remote witnessing must occur.  Unless further detail is provided in regulations, the surest method of remote witnessing will mirror traditional methods of witnessing, including:

• remote witnessing should occur in real-time over an audio-visual link (that is, not by way of a video recording or an audio-only link);
• the face of the person affixing the common seal should be visible as well as their hands when they affix the common seal;
• the witness should ensure that the document they sign is identical to the one that is sealed;
• the witness should sign a copy of the document immediately after witnessing occurs; and
• a copy of the document that is sealed as well as the document signed by the witness should be retained by the company.

Future reforms

Given the Bill will only have temporary application, there is an opportunity for the Government to improve upon a number of aspects of the way the section 127 amendments have been drafted under the Bill.  We note a few of these possible improvements below:

• a clear statement that the reference to “document” in section 127 includes a document in electronic form (see, for example, the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020);
• clarify that a document will be executed (and not merely signed) when signatories sign different copies of a document.  The language used in section 127(3A)-(3C) refers to a document having been signed.  However, there has never been a question as to whether a document has been signed by a signatory when split execution or electronic signatures are used.  The question is whether those signatures amount to proper execution of the document by the company.  While we are of the view that the legislative intent behind these amendments is clear (and would therefore resolve any ambiguity in favour of permitting split execution and electronic execution), we do think the language used in the law could be made clearer to put this question beyond doubt; and
• including the description of at least one, non-exhaustive method by which remote witnessing of the affixing of a common seal may occur.  The Electronic Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020 is one example of this (see our article New regulations facilitate remote witnessing and attestation in NSW in response to COVID-19). 

Other amendments

In addition to the above, the Bill also amends the Corporations Act to reintroduce measures to permit electronic meetings and amends both the Corporations Act and the Australian Securities and Investments Commission Act 2001 (Cth) to provide revised rules in respect of corporations’ continuous disclosure obligations.  Please see our article on the continuous disclosure reforms here.

Authors: Andrew Hii, Jen Bradley and Sophie Bogard