Can companies sign or execute a deed electronically? — Part 1

Historically, deeds could not be executed electronically but rather by wet ink and only on paper (or parchment or vellum). However, recent changes authorise electronic execution, as discussed below.

This is ‘Part 1’ of an article that focuses on company execution. We are planning to prepare more articles on individual execution in the coming months.

New legislation allowing companies to execute deeds electronically

Companies can execute documents using electronic means under s 110A of the Corporations Act 2001 (Cth), which expressly authorises a document (including a deed) to be signed using electronic means.

While this change may appear a more convenient option there are some limitations that must be followed for documents to be validly executed electronically. These include:

• that the electronic method identifies the person and indicates the person’s intention in respect of the information recorded in the document; and
• that the electronic method is as reliable as appropriate for the purpose for which the information was recorded, in light of all the circumstances, including any relevant agreement.

Failure to comply with these limitations can result in the document not being legally enforceable.

The two bullet points above come directly from the legislation, but what do they mean in practice? There is always a concern that although the parties to a deed may intend to abide by the legislative requirements, the court may take a stricter approach. An example of this can be seen in Re Curtis [2022] VSC 621 where in witnessing a document being signed via video, the hand of the person signing was not visible on the screen. The court deemed that the document (in this case a will) was not properly witnessed. This conservative approach by the court regarding documents being signed/witnessed via electronic methods should act as a cautionary tale.

It is easy to make the mistake of only interpreting legislation in a way that best suits your situation. With regard to the second dot point, what does ‘reliable as appropriate’ mean for you when you are signing on behalf of your company? While you may have an answer to that, can you be certain that the court will have the same view? This is still a relatively new change to the law and we are yet to see how the courts will interpret it.

Does your constitution authorise electronic signing?

Some constitutions, particularly older ones, do not have provisions to authorise electronic execution. There may also be uncertainty if the express provisions of the constitution conflict with s110A. To minimise risk, it is recommended that companies update their constitutions. Click here for DBA Lawyers’ update service that allows for companies to sign electronically.

Where an individual is also a party

It is common for documents — particularly deeds — to have one or more individuals in addition to a company as a party. In this situation, the relevant State or Territory’s legislation must also be considered.

This is where things become complex, given we have six states and two territories in Australia with different rules. Moreover, not all jurisdictions have enacted legislation authorising a deed to be executed electronically by a natural person (eg, Victoria has — see s 12A of the Electronic Transactions (Victoria) Act 2000 (Vic) — but Tasmania has not). Some jurisdictions only allow the traditional common law position of ‘wet ink’ signatures on a deed.

Note that s 110A of the Corporations Act 2001 (Cth) allows the parties to sign a document without necessarily signing the same form or using the same method. This means that one director could sign the physical version of the document, have it scanned, and another director can sign that same document electronically. It is tempting to think that this method could also be used by a natural person (at least where a deed can be signed electronically in certain jurisdictions). However, this is risky thinking unless the deed or legislation of the relevant jurisdiction provides an explicit basis for such action.

Best practice

It is for the above reasons that DBA Lawyers recommends exercising caution in this area and retains a strong preference for the old fashioned ‘hardcopy’ wet ink method where, among other things, each party signs in wet ink a full version of the document in hardcopy, preferably with the same pen in the same room.

Related articles:

• Electronic execution of deeds by companies
• Electronic execution of deeds by individuals
• Guide for electronic execution
• Constitution Update Service
• The constitution requires two directors yet, there’s only one director — what do I do?
• Why is it important to have a good company constitution?
• Preserve the intended control of a company using successor directors
• What to do if a company’s constitution is lost?

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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2001 (Cth).

Note: DBA Lawyers presents monthly online SMSF training. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.

By Daniel Butler ([email protected]), Director, Bryce Figot ([email protected]), Special Counsel and Nick Walker ([email protected]), Lawyer, DBA Lawyers

DBA LAWYERS

21 July 2023