As part of the Federal Government’s continued response around matters impacted by COVID-19, we have seen the Federal Treasurer, Josh Frydenberg make a temporary amendment for six months to the requirements set out in section 127(1) of the Corporations Act to provide clarity that the execution of company documents can be in electronic form and signed electronically by company officers.

Effective from 6 May 2020, The Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (“Determination”) modifies section 127(1) so that a company may execute a document without a common seal if 2 directors, a director and company secretary or the sole director/secretary of a proprietary company by signing a counterpart of the document in physical form or using an electronic communication which reliably identifies the person and indicated their intention to execute the document on behalf of the company.

The Determination outlines that the copy, counterpart or electronic communication must include the entire contents of the document but does not need to include the signature of another person signing the document.

With the definition of ‘document’ in section 127 of the Corporations Act being extended to include a document in electronic form, s.129(5) is modified to ensure that a reference to a document being signed in accordance with s.127(1) includes a document executed in accordance with s.127(1) as modified by the Determination.  For sole director/secretary companies, a person may also assume that the document has been duly executed by the company for the purposes of s.129(5) where signed by electronic means consistent with the Determination.

Therefore, this determination means that anything done in accordance with the modified operation on s.127 is as valid and effective for all purposes as if it had done before such modification had been made.

How can documents be signed?

As a result of the modified operation of s.127, the Determination makes it clear that the following methods of execution under s.127 are now (temporarily) allowed:

1. signatories can physically sign (wet ink) different copies of the document (split execution);
2. signatory #1 can print, sign (wet ink) and scan the document, and then send that document to signatory #2 who does the same (modified split execution); or
3. signatories can apply their e-signature to electronic versions of the document (electronic execution).  The explanatory note to the Determination states that there are a number of ways by which officers might sign a document electronically, such as:
   • pasting a signature into a document
   • signing a PDF on a tablet, smartphone or laptop using a stylus or finger; or
   • using a cloud-based signature platform such as Docusign or Adobe Sign.

Does this relate to SMSF Deeds?

The use of electronic signatures with deeds more generally has been a point of debate for some time.  Section 127(3) provides that:

A company may execute a document as a deed if the document is expressed to be a deed and is executed in accordance with subsection (1) or (2).

It is widely acknowledged that at common law, a deed must be on paper, vellum or parchment – the concept that a deed must be signed in ‘wet ink’.  Before the Determination, it was unclear whether s.127(3) displaced this common law rule.

Interestingly, the Determination does not expressly state that Deeds may be in electronic form and can be signed electronically.  However, the explanatory note does state that the Determination modifies s.127 for companies, directors of companies, company secretaries and any persons that have dealings with companies to allow for the use of an electronic signature to meet the requirements for a signature, and further states that

“the entire process of executing a document can be carried out using electronic communications”

It appears that the intention of the Determination is to facilitate electronic documents and electronic signing, which would seem to satisify that a deed in electronic form and signed electronically by a company satisfies the requirements of s.127.

For SMSFs, this would allow for the temporary electronic signing of establishing deeds, deeds of variation, bare trusts for LRBAs, changes of trustee, lost deeds, etc.  However, it would also be prudent to seek further legal advice within the relevant jurisdiction before determining to execute a deed electronically.

Does this extend to individual trustees?

No, deeds signed by individuals to whom s.127 does not apply will still be subject to the paper requirement unless it is modified by statute – an example of this is currently in Victoria where from 14 May 2020, the COVID-19 Omnibus (Emergency Measures) (Electronic Signing and Witnessing) Regulations 2020 now provides a modification to the Electronic Transactions (Victoria) Act 2000.  A similar situation also applies in NSW where the signing of contracts was amended through the Electronic Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020 (NSW) (commenced on 22 April 2020).

Ordinarily, a deed signed by an individual must be witnessed and attested in all jurisdictions except Victoria and the witness must be present when the individual signs – this applies in all jurisdictions, with the exception of any temporary relief put in place.

Changes are temporary

It should be remembered that the changes are only in effective for a period of 6 months from 6 May 2020 (i.e. to 5 November 2020).  The relief is only intended to provide short-term regulatory change to facilitate the continuation of business in light of COVID-19.

It does however provide some level of certainty around the uncertainties with s.127 with a view that it may provide a path for a more clear and permanent change in the future.