COVID-19 changes to document signing rules
By James Deady, Ben Hamilton and John Gray
In response to the challenges created by COVID-19, the Federal Government has announced temporary changes to the Corporations Act 2001 (Cth) (Corporations Act) regarding electronic signing and document execution.
The changes are welcome and should make it easier for companies to undertake electronic and remote execution of agreements and other documents.
The Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (Cth) (Determination) was made by Josh Frydenberg, the Federal Treasurer, and registered on 5 May 2020.
The Determination takes effect from 6 May 2020 and lasts for six months – which will be until 6 November 2020.
The Determination has been made under COVID-19 specific provisions of the Corporations Act that enable the Treasurer to make temporary determinations that modify the Corporations Act or provide exemptions regarding compliance with the Corporations Act.
The changes to the Corporations Act in the Determination clarify that agreements and other documents that are signed electronically can have the benefit of the validity presumptions under sections 127-129 of the Corporations Act. These validity presumptions essentially deem a contract to be validly executed where it is signed by two directors of the company or a director and company secretary (or the single director of a sole director company).
To date, there has been significant uncertainty regarding whether these validity presumptions can apply where a document is signed electronically, which has made it challenging for companies to adopt electronic signing.
The Determination also clarifies that officers of the same company can sign counterpart copies of an agreement or other document (often referred to as ‘split execution’) and still have the benefit of these validity presumptions. This applies to both execution by electronic signing and execution of physical or paper documents.
Recent case law had created uncertainty regarding whether this type of ‘split execution’ could result in agreements or other documents being validly executed under these sections of the Corporations Act.
While there are still complexities and challenges in this area, these changes will:
- provide better certainty and legal protection for companies and their counterparties using electronic signing for agreements and other documents; and
- assist companies where directors or other company officers need to sign agreements and other documents remotely.
Although the Determination is only temporary, hopefully these changes will be legislated on a permanent basis, to provide some ongoing certainty in this area.
Hall & Wilcox has extensive experience advising on electronic signing and other document execution issues. For more information, please contact our Technology and Digital Economy team.