In addition to the key amendments discussed in our previous article, the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) has also granted the federal Treasurer new powers to modify the Corporations Act 2001 (Cth) (Corporations Act) via legislative instrument. The Treasurer may modify the Corporations Act if they are satisfied that:
- it would not be reasonable to expect compliance with certain provisions of the Corporations Act because of the impact of COVID‑19; or
- the modification is otherwise necessary or appropriate in order to:
- facilitate continuation of business in circumstances relating to COVID‑19; or
- mitigate the economic impact of COVID‑19.
The Treasurer has recently used these new powers to issue the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (Determination) in relation to the electronic execution of documents by a company. The Determination clarifies that the requirements of section 127 of the Corporations Act will be satisfied where a document is signed using electronic signatures or in counterparts by company directors or secretaries.
Requirements for execution of documents by a company
Section 127(1) of the Corporations Act provides that a company may execute a document without using a common seal if the document is signed by:
- 2 directors of the company; or
- a director and a company secretary of the company; or
- for a proprietary company that has a sole director who is also the sole company secretary–that director.
Further, and pursuant to section 129(5) of the Corporations Act, a person may assume that a document has been duly executed by a company if the document appears to have been signed in accordance with subsection 127(1).
However, section 127 of the Corporations Act makes no reference to electronic signatures. Due to this, as well as recent case law, there is some uncertainty as to whether electronic signatures satisfy the requirements of section 127.
Wording of the Determination
The Determination states that a company may also execute a document without using a common seal if the directors or secretary of the company, as the case requires, either:
- sign a copy or counterpart of the document that is in a physical form; or
- in respect of an electronic communication:
- a method is used to identify the person in the electronic communication and to indicate the person’s intention in respect of the contents of the document; and
- the method:
- is as reliable as appropriate for the purpose for which the company is executing the document, in light of all the circumstances, including any relevant agreement; or
- is proven in fact to have fulfilled those functions, by itself or together with further evidence.
The Determination also clarifies that section 129(5) of the Corporations Act will also apply where a document is signed in accordance with the Determination.
Effect of the Determination
The term ‘electronic communication’ is defined in the Electronic Transactions Act 1999 (Cth) and refers to communication of information in the form of data, text or images by means of guided and/or unguided electromagnetic energy. Further, the explanatory statement to the Determination (Explanatory Statement) confirms that the Determination modifies section 127 of the Corporations Act to allow use of an electronic signature to meet requirements for a signature.
Accordingly, and pursuant to the Determination, section 127 will be satisfied where electronic signatures of company directors and/or secretaries (where relevant) are applied to electronic versions of a document. The Explanatory Statement acknowledges that a document may be signed electronically using a variety of methods, including:
- pasting a copy of a signature into a document;
- signing a PDF on a tablet, smartphone or laptop using a stylus or finger; or
- cloud-based signature platforms like DocuSign.
The Determination also clarifies that section 127 will be satisfied where:
- company directors or secretaries use wet-ink to sign separate copies of the same document; or
- a director uses wet-ink to sign a document and then emails a PDF copy to the other director or secretary of the company who then prints and signs the PDF copy of the document using wet-ink.
Application of Determination
The Determination came into effect on 6 May 2020, and will apply for a period of 6 months from that date. However, as the Determination clarifies any uncertainty with respect to electronic signatures that existed before the onset of the COVID-19 pandemic, it is expected that the Government will move to make the changes effected by the Determination permanent. It is worth noting that the Determination is not retrospective, so will not apply to documents executed prior to 6 May 2020, and does not apply to the execution of documents by foreign companies.
If you have any questions or concerns regarding the effectiveness of electronic signatures on documents, please do not hesitate to contact us.