‘Sign of the Times’ Electronic Execution of Documents Post-COVID-19
It’s time to pick that pen up again!
Execution of Company Documents During COVID-19
One of the major breakthroughs for companies during COVID-19 times in 2020 was the increased reliance on technology to cover the “interaction of people” gap resulting from social distancing measures. Governments introduced legislative instruments to adopt digital procedures for business operations, providing companies with flexibility and convenience. The big question is, are these measures permanent?
As of 21 March 2021, the Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 (Cth) (“Determination”) is no longer in force. The Determination provided relatively short-term regulatory changes to facilitate the continuation of business and mitigate the economic impact of COVID-19.
On 5 May 2020, the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 was introduced and allowed directors, company secretaries and persons having dealings with companies to execute documents, by way of electronic means. This legislative instrument received a short extension of life on 21 September 2020 through the Determination.
As COVID-19 brought various lasting changes to our daily life, it is uncertain when or if companies will ever return to “business as usual” as it was pre-COVID-19. There is a growing perspective that the corporate marketplace will permanently adopt certain COVID-19 measures and compel a modernisation of the law to bring business procedures into the 21st century.
COVID-19 paved the way for technology to facilitate the use of electronic processes in the continuation of business. Now that the Determination is repealed, what options are available to companies? Are things to return back to the way they once were? Or will the Government recognise all the benefits of the COVID-19 business laws and implement them permanently?
Although the changes were introduced as a temporary measure, many companies have embraced conducting business by electronic means. It is understandable that there are also concerns regarding the safety and security of electronic signatures. However, with the advancement in electronic signing provisions (such as multi-factor authentications), there is growing support for the permanency of the Determination.
Execution of Company Documents Now
What should companies be doing now? The Corporations Act 2001 (Cth) (“Act”) continued to operate during COVID-19, with the Determination providing the option for electronic signatures. With the Determination no longer in force, companies are guided by the existing requirements within the Act. As a company can, in accordance with s.127 of the Act, execute a document if the document is signed by:
- 2 directors of the company; or
- A director and a company secretary of the company; or
- The sole director and sole secretary of a proprietary company.
In any event, case law and section 127(4) of the Act, expressly states that s. 127 does not limit the ways in which a company may execute a document (including a deed). Section 126 of the Act provides power to an agent of the company, such as an employee, to execute documents on behalf of the company under express or implied authority. This means that an employee, with the company’s express or implied authority, may legally bind the company to a contract.
Execution of Company Documents in the Future
On 18 March 2021, a Federal Government Bill, the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 (“Bill”) was introduced and read for the first time in the Senate. The Bill contemplates allowing company documents to be executed using electronic means; directors meetings and shareholders meetings to be conducted by electronic means; documents relating to a meeting to be given electronically and signed electronically; and for minutes of meetings to be taken electronically. If passed, activities by electronic means would be allowed until 16 September 2021.
The Bill remains before the Senate. As at the date of this article, there is no provision for electronic signatures. With the introduction of the Bill and a generally positive response to electronic signatures from companies and their directors during the pandemic, there is potential for electronic signatures to be reinstated in the near future.
Where to from here?
If you need further information or assistance regarding the Determination and how this affects your business or clients, contact Gavin Parsons of Gavin Parsons and Associates on (02) 9262 4471 or at gavin@gpalaw.com.au.