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‘Click here’ – electronic execution of documents is here to stay

The COVID-19 pandemic not only brought with it changes to how we live our lives, but also clarified the validity of some increasingly common business processes. One of those innovations relates to the way in which documents may be executed by companies.

Prior to March 2020, the validity of documents executed in split form or electronically was unclear subject to Court consideration. The safest approach to ensure that a document was properly executed in accordance with the Corporations Act 2001 (Cth) was to have all parties sign a single physical document. However, with the COVID-19 pandemic came lockdowns, closure of state borders and, as a necessity, a new approach to how business could be conducted.

Introduction of electronic execution laws

Early in the pandemic, the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) was introduced to address numerous issues. That legislation granted emergency powers to the Treasurer under the Corporations Act to deal with financial and economic hardship caused by the pandemic.

With states closing borders and populations around the country going in and out of lockdown, the process of having any documents executed in person was quickly becoming difficult and slow. The flow-on effect was that many businesses were prevented from operating as closely to normal as they otherwise could.

The first exercise of the emergency corporations power came in May 2020, with the introduction of the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020. Part 3 of that Determination modified the operation of subsection 127(1) of the Corporations Act to specifically validate execution of electronic documents signed so long as:

a) 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
b) the method:
i. 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
ii. is proven in fact to have fulfilled the functions described in paragraph (a), by itself or together with further evidence.

In addition, the determination allowed for documents to be signed in counterpart, or a split form. The legislation also made clear that the same assumptions could be made about a document that appeared to have been duly signed in accordance with those requirements subject to subsection 129(5) of the Corporations Act.

The Determination was extended a number of times, in September 2020, in March 2021, and finally in August 2021, as the country continued to experience COVID-19 waves and state borders would close and reopen.

Electronic signing of documents now permanent

Although a level of stability has been reached, the desire to retain clarity around the validity of electronic and split form execution has remained. In response to this, and to keep the law consistent with what is now common practice, the Federal Government passed the Corporations Amendment (Meetings and Documents) Bill 2021.

Coming into effect on 23 February 2022, this legislation permanently amended the Corporations Act to allow companies to execute documents, including deeds, by the insertion of Part 1.2AA. The new Part provides comprehensive guidance on the requirements for signing a document under the Corporations Act. This new part makes clear that a document may be:

  • signed in counterpart;
  • signed electronically, so long as the person signing has confirmed their identity and their intentions with respect to the information in the document.

Meetings may now be conducted online

In addition to the changes relating to signing of documents subject to section 127 of the Act, the Bill also allows meetings to be conducted electronically, and meeting related materials to be provided electronically. These practices, of course, also became commonplace during the pandemic, when people were unable to meet in person and postage services slowed.

Execution of deeds

Finally, the changes allow deeds to be executed by authorised representatives and remove the requirement for a deed executed under the Corporations Act to be witnessed.

Conclusion

The changes to the Corporations Act provide much needed consistency between current market practice and the law by streamlining the processes and embracing electronic signing technology.

If you want more information or you would like some guidance on how the new laws effect your business, please contact Ian Tait on 08 9422 8111 or email buslaw@taitlegal.com.au.