The Treasury Laws Amendment (2021 Measures No. 1) Act 2021 (TLA Act) came into effect on Saturday 14 August. The TLA Act modifies section 127 of the Corporations Act 2001 (Cth) (Corporations Act) to facilitate the electronic execution of documents.
It is now (once again) abundantly clear that corporations can electronically sign documents, and do so via "split execution", where different directors from the same company sign different counterparts of the same document.
Mark Burrows, Senior Associate in our Real Estate & Projects team, provided feedback to the Commonwealth Senate Economic References Committee (SERC) on behalf of the Law Institute of Victoria regarding the SERC's inquiry into the bill.
Below, Mark highlights some key takeaways from the TLA Act that businesses and their legal teams should be aware of.
1. Signing a copy (or counterpart) of a physical document is fine, provided each copy or counterpart includes "the entire contents" of the document.
New section 127(3A) of the Corporations Act clarifies that a document is taken to have been signed by a person if:
- the person signs a copy or counterpart of the document that is in a physical form, and
- the copy or counterpart includes the entire contents of the document.
It was already commonplace for parties to documents or transactions to exchange those documents in "counterpart" – though it was important for the document to contain what's known as a "counterparts clause" to expressly permit this. New section 127(3A) means this is no longer critical and clarifies that counterparts can exist in different forms, e.g. one party's counterpart could be physical, signed with "wet ink", and another party's counterpart could be electronic.
2. Electronic execution is (again) expressly permitted.
New section 127(3B) of the Corporations Act clarifies that a document is taken to have been signed by a person if:
(a) a method is used to:
- (i) identify the person; and
- (ii) to indicate the person’s intention to sign a copy or counterpart of the document; and
(b) the copy or counterpart includes the entire contents of the document; and
(c) the method used was either:
- (i) as reliable as appropriate for the purpose for which the document was generated or communicated, in light of all the circumstances, including any relevant agreement; or
- (ii) proven in fact to have fulfilled the functions described in paragraph (a), by itself or together with further evidence.
This provision largely replicates subsections 6(3) and (4) of the Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 (Determination) which expired on 21 March 2021.
Whilst section 127 was already technology-neutral, and would not prohibit the electronic execution of documents, this puts the matter beyond doubt – provided that the three criteria are met.
To avoid any arguments about:
- the veracity of the "method" that was used to identify a person
- whether that "method" adequately indicated that person's intention, or
- whether the method was "as reliable as appropriate"
We only recommend using a digital signing platform when electronically signing a document (such as DocuSign or AdobeSign).
3. Split execution is (again) expressly permitted
New section 127(3C) of the Corporations Act clarifies that, for the purposes of sections 127(3A)(b) and 127(3B)(b), a copy or counterpart of a document need not include:
- the signature of another person signing the document, or
- any material included in the document to identify another person signing the document or to indicate another person’s intention in respect of the contents of the document, or
- the seal, if a common seal is fixed to the document.
This provision largely replicates subsection 6(3) of the Determination that expired on 21 March 2021, and again resolves the uncertainty arising from Pickard which cast serious doubt about whether the (commonly adopted practice) of "split execution" was acceptable, i.e. having two directors or secretaries of one corporate entity themselves signing different counterparts.
It is now expressly clear that directors and secretaries of a corporation can themselves sign different counterparts of the same document.
4. Expiry on 31 March 2021?
New section 1679F(1) (Sunset Section) of the Corporations Act reads:
This Act has effect on and after 1 April 2022 as if the amendments made by Part 1 of Schedule 1 to the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 had not been made.
In other words, come 1 April 2022, the effect of the Sunset Section is that the abovementioned new provisions (s 127(3A), (3B) and (3C)) will effectively be made redundant, and corporations could well be back to square one (with the resulting uncertainty) if more permanent reform hasn't been implemented by 31 March next year.
However, a very well-hidden section in the Treasury Laws Amendment (Measures for Consultation) Bill 2021: Use of technology for meetings and related amendments (MFC Bill) provides that the Sunset Section, which bakes in the future redundancy of the TLA Bill's e-signing provisions, will itself be repealed when the MFC Bill is passed.
Whilst the MFC Bill is only at the "exposure draft" stage (with the first public consultation having ended on 16 July, and the second consultation ending on 10 September), it is hoped that the MFC Bill is legislated long before 31 March 2022, and that we're out of lockdown by then, so that the TLA Bill's e-signing provisions are not made redundant.
5. A new regime?
The most recent exposure draft of the MFC Bill foreshadows further updates to the e-signing provisions contained in the Corporations Act, which are based on the concept of "technology neutrality".
Proposed section 110A, if the MFC Bill is passed in its current form, will clarify that a person may sign a document:
- by signing a physical form of the document by hand, or
- by signing an electronic form of the document using electronic means
provided the method of signing:
- identifies the person and indicates the person’s intention in respect of the information recorded in the document, and
- the method was either:
- (i) as reliable as appropriate for the purpose for which the information was recorded, in light of all the circumstances, including any relevant agreement, or
- (ii) proven in fact to have fulfilled the functions above, by itself or together with further evidence.
Proposed subsections 110A(3) and (4) clarify what is not required to comply with the new regime.
The frequent and varied reforms in this area mean electronic signing remains an area for businesses to keep their eye on during the pandemic, and beyond.
All information on this site is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific legal professional advice. No responsibility for the loss occasioned to any person acting on or refraining from action as a result of any material published can be accepted.