19 March 2021

Back to the future: Signing contracts electronically may get harder for companies

This article was written by Dale Rayner and Helena Busljeta.

Temporary measures introduced by the Federal Government to allow company officers to sign documents electronically under s127 of the Corporations Act are about to expire.  It is not clear if they will be extended before they expire.  This alert sets out what it means if the temporary measures are not extended.

Background

In the wake of the COVID-19 pandemic, the Federal Treasurer issued a legislative instrument to allow company officers to sign documents electronically.  The Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (“Determination”) modifies the operation of s127 of the Corporations Act 2001 (Cth) (“Corporations Act”) to make it clear that an agreement or deed can be in electronic form and signed electronically by company officers.

What you need to know

The Determination expires on 21 March 2021.  It is not clear if the temporary measures under it will be extended before this date.  The Federal Government has proposed an extension but it may not be in place before the Determination expires (see below).  If the temporary measures are not extended, the pre COVID-19 position on electronic signing under s127 will apply.

Current status of temporary measures

  • Draft legislation to extend the temporary measures in relation to s127 until 15 September 2021 was introduced in the House of Representatives: see the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 (“Bill”).
  • The Bill continues the existing arrangements made under the Determination. It also allows company officers to witness the fixing of a company's common seal to a document by electronic means.
  • On 16 March, the Senate agreed to refer the Bill to the Economics References Committee for inquiry and report by 30 June 2021, with no debate on the Bill in the Senate until August 2021.
  • This means that the Bill may not be passed before the Determination expires.

What happens if the temporary measures are not extended?

If the temporary measures are not extended, the pre COVID-19 position on electronic signing and split execution under s127 will apply.

Electronic signing

Before the introduction of the Determination, there was uncertainty and differing views in the market as to whether an agreement or deed in electronic form and signed electronically satisfies s127: see our previous alerts on COVID-19: Practical tips on how to sign contracts electronically and An update: More practical tips on signing contracts electronically.  The Determination addressed these issues although some firms and commentators in the market expressed varying degrees of uncertainty or hesitation as to whether the Determination allowed companies to create electronic deeds: see our previous alert Signing contracts electronically just got easier for companies.

The expiry of the Determination puts those uncertainties back into play. However, since the introduction of the Determination, an amendment has been made to the Corporations Act which may affect the analysis.

One of the reasons for the uncertainty as to whether s127 allows agreements and deeds to be executed electronically was that it was unclear whether a “document” for the purposes of s127 must be a paper document.  However, the recent addition of a new definition of “document” to the Corporations Act by the Corporations Amendment (Corporate Insolvency Reforms) Act 2020 (Cth) extends the definition to electronic documents,

The new definition of “document” could provide scope to argue that s127 allows an agreement and deed to be executed electronically.  However, the new definition was inserted to support reforms expanding the situations where documents relating to the external administration of a company may be given electronically and permitting documents relating to the external administration of a company to be signed electronically.  The extent to which the new definition could be used to justify electronic agreements and deeds under s127 is uncertain.  In the case of deeds, there may be a greater risk that the Courts will find that this intention is not sufficiently clear given the historical significance of the common law requirement that deeds be in paper, vellum or parchment. 

Split execution

Before the introduction of the Determination, it was also unclear whether split execution satisfied the requirements of s127.  Split execution is where the officers of a company wet-ink sign different copies of the document.  The expiry of the Determination raises again the uncertainty over split execution.

What does this all mean?

If the Determination is not extended, it is safest to assume that the pre COVID-19 position on electronic signing, and split execution, under s127 applies.  For an outline of the pre COVID-19 position, see our previous alerts.

Please contact us if you have any questions or would like to discuss. 

 

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