As part of the Federal Government’s broader package in response to COVID-19, Treasurer Josh Frydenberg published on 5 May 2020 a legislative instrument providing temporary changes to the Corporations Act 2001 (Cth) (Corporations Act) and Corporations Regulations 2001 (Cth).
The instrument, which took effect on 6 May 2020, will apply for six months until 6 November 2020 and will:
- Facilitate the electronic execution of documents by companies and expand the ability for parties dealing with companies to rely upon certain assumptions in relation to documents executed electronically; and
- Allow companies to provide notice of, achieve quorum at, and to hold meetings by utilising electronic means.
While the instrument is a welcome and much-needed advance in this area, particularly given the difficulties faced by many companies in executing documents as a result of impediments introduced by lockdown measures, there are gaps remaining in the framework which should be kept in mind.
Electronic execution under the instrument
The Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (Instrument) allows a company to electronically execute a document without using a common seal, and extends the benefit of reliance on a statutory assumption regarding the company’s due execution to documents that are executed in this manner.
The Instrument provides that a company may electronically execute a document in accordance with section 127(1), if the persons required to sign the document on behalf of the company use electronic means which reliably identify those persons and their intention about the contents of the document.
The Instrument also allows a company to execute a document by way of ‘split execution’ (where the relevant signatories of the company each sign separate counterparts), which has historically also been a point of contention. In practice, this means that one signatory to a document can sign and scan that document to the second signatory (who can then print and sign that document).
The Instrument makes it clear that companies can validly execute documents, including agreements, by electronic means; however, it is not made expressly certain that the Instrument applies to execution of deeds by companies.
Australian law (other than in New South Wales, as a result of recent legislative amendments) does not recognise the validity of electronic deeds, which are required to be on ‘paper, parchment or vellum’ (a feature of the common law requirements). There is a risk that deeds which are signed electronically, and therefore do not comply with this requirement, may not be validly executed under Australian law and it is unclear whether the Instrument displaces this requirement, despite commentary in the Explanatory Note to the Instrument which suggests that this is the intention.
We are of the view that it does; however, for key documents expressed as deeds, a conservative approach may be to still prefer a ‘wet ink’ signature where possible.
Practical considerations for electronic execution
Parties considering relying upon the Instrument to execute documents electronically should consider:
- If all parties executing the document are covered by the Instrument, as section 127 only applies to a ‘company’ for the purposes of the Corporations Act (which does not include foreign companies and other non-company entities such as statutory corporations);
- Whether or not a document is required to be a deed, or if it can be an agreement (and therefore can be executed electronically with the benefit of the certainty provided by the Instrument);
- Obtaining evidence that signatories have either applied or authorised the application of their signature. It would be prudent to obtain written confirmation from a signatory that their electronic signature was personally applied or applied by someone else with their authority;
- Methods to ensure that appropriate security measures are taken in relation to electronic signing, which might include:
- the pasting of an electronic signature into a document, provided that electronic signatures are kept securely and only provided to those people who have authority to apply them;
- signatories personally signing a touch screen by using a stylus or other instrument; or
- cloud-based platforms like DocuSign which provide signing certifications; and
- Issues associated with witnessing, such as where a company executes a document under a power of attorney which requires a witness (as a witness to a document would likely need to actually witness the application of a signature and the Instrument does not cover these circumstances).
The Instrument also allows for, in relation to company meetings (including shareholder meetings and creditor meetings):
- Notices to be provided via email (which must include details as to how to attend and participate in the meeting virtually);
- Quorum to be achieved for that meeting as a result of online attendance; and
- Meetings to be held online.
This additional flexibility is subject to the condition that those entitled to attend are given an opportunity to participate, speak and put questions forward. Votes must also be taken on a poll (not on a show of hands).
This is consistent with recently released guidance from ASIC regarding its no-action position in respect of annual general meetings which are delayed for COVID-19 related reasons, and its encouragement of the use of technology to facilitate shareholder meetings. The Instrument is timely, with hundreds of ASX-listed entities facing significant hurdles to comply with their legal obligations in relation to the holding of an annual general meeting.
We continue to monitor updates in this space, and their potential implications for future developments in Australian companies law, with great interest.
This article was written by Jamie Restas, Partner, Stewart Ebbott, Partner and Eloise Jolly, Associate.