Electronic execution of documents – practical impacts on businesses

The new norm – permanent authorisation of electronic execution of documents

Originally introduced as a COVID measure, the temporary changes to the Corporations Act 2001 (Cth) (Corporations Act) enabling the electronic execution of documents will continue following the passing of legislation to make them permanent.

Under the provisions of the Corporations Amendment (Meeting and Documents) Act 2022 (Cth) companies will be able to continue utilising technology and adopting more flexible approaches when executing company documents and holding meetings.

Under the new laws, companies can execute contracts, deeds, agreements and other company-related documents electronically, while also being able to hold hybrid or wholly virtual meetings.

What is the purpose of the changes?

The changes will allow companies to conduct business more efficiently and in a more cost-effective manner, particularly where the parties are located across different states or even across international borders.

However, the new rules have also imposed strict requirements on the procedure for executing certain documents by electronic means. This is to ensure there is a sufficient level of security for identifying the signatory and confirming the intent of the parties to be bound by the document.

For this reason, it is extremely important to be aware of the specific procedural requirements under the legislation, as failure to comply may result in the documents being legally unenforceable.

What are the new rules for Companies?

The changes include inserting Section 110A into the Corporations Act which allows a person to sign documents (including deeds) on behalf of a company by signing the document via electronic means. Signing a document by electronic means will only be valid if the method of signing:

• identifies the person signing;
• indicates the signatory’s intention to be bound by the document; and
• is reliable for the purpose.

To ensure the execution method is compliant with the above requirements, the document should indicate on the signing page the execution method used (i.e. pursuant to s 127(1) of the Corporations Act) and the capacity in which the signatory is signing (i.e. as a director of the company). Additionally, using electronic platforms such as DocuSign can be an effective way of dealing with third requirement above, as it captures and records the relevant data for each person signing.

From a practical perspective, the legislative amendments explicitly provide that the new laws do not require the person to sign the same form or page of the document as another party, nor does the person need to use the same method of signing as any other signatory. This effectively means the document can be signed by the parties using a combination of physical and electronic signatures.

This provides companies with an added degree of flexibility in the technology they use when executing documents, while also promoting more pragmatic solutions especially where documents are executed across different states and countries.

Changes to the execution of deeds by Companies

The new rules have also altered the way companies can execute deeds under the Corporations Act, discarding some of the outdated formality requirements in favour of a more modern approach.

Specifically, the amendments confirm that deeds executed by a company in accordance with section 126 or 127(1) of the Corporations Act do not need to be witnessed. Furthermore, authorised representatives of a company are now permitted to execute deeds on behalf of the company pursuant to the amendments to section 126.

What are the rules for electronic execution in an individual capacity?

The rules governing the electronic execution of documents by individuals may vary state-to-state and will depend on the respective jurisdiction.

While there is no legislative requirement in Victoria for deeds executed by individuals to be witnessed, it is common practice for individual signatories to have their signature witnessed for evidentiary purposes, including to confirm the identity of the person executing the deed.

Under the new state legislation, deeds executed by individuals are considered transactions under the Electronic Transactions Act (Vic) 2000, which permits electronic execution and witnessing via audio-visual link.

If a deed is to be executed by an individual in Victoria and witnessed via audio-visual link, the following strict requirements must be complied with under section 12(2) of the Electronic Transactions Act (Vic) 2000:

• the witness actually sees the signatory sign the document;
• the witness is reasonably satisfied that the document signed as the witness is the same document or a copy of the document;
• all requirements for witnessing by audio visual link occurred on the same day;
• any other prescribed requirements in the document (if any); and
• a statement is included on the document that all requirements of section 12(2) of the Electronic Transactions Act (Vic) 2000 have been met.

The key takeaways

Going forward, companies should review their policies and processes for electronic execution to ensure they are compliant with the relevant legislation.   Companies should ensure those new processes are then followed when preparing and executing documents by electronic means.

Our experienced Corporate & Commercial team at Coulter Legal are able to advise you on the types of company documents you can execute electronically, along with the practical steps you can take to ensure any future agreements or deeds entered into are compliant with the relevant legislation.