Easing Execution of Documents – Electronic and Split Signatures for Companies

When transacting with a company, section 127 of the Act provides statutory comfort that a company will be bound by a document where certain conditions are met (e.g. the document is signed by two directors of the company).

The amendments to the Act confirm a document will still be executed in accordance with section 127 of the Act by:

• Witnessing the Common Seal: the fixing of a common seal to a document in accordance with section 127(2) of the Act being witnessed electronically, where:
  • the person observes the fixing of the seal by electronic means;
  • signs the document; and
  • includes a statement that they observed the fixing of the seal by electronic means

(section 127(2A) of the Act).

• Physical Copy or Counterparts: signing a copy or counterpart of the document in a physical form which includes the entire contents of the document (section 127(3A) of the Act).  This means each party should always sign and deliver the full document, not just the signature page.
• Electronic Copy or Counterparts: a document is taken to have been signed by a person if a reliable and appropriate method is used to identify the person and to indicate the person’s intention to sign a copy or counterpart of the document.  The copy or counterpart must include the entire contents of the document (section 127(3B) of the Act).

The amendments further clarify that:

• Split Signatures: a copy or counterpart of a document does not need to include the signature of another person signing the document or any material relating to another person’s signature (section 127(3C) of the Act).  This means (for example) two directors may sign separate counterparts on behalf of the same company)
• Deeds: the provisions allowing electronic witnessing of the common seal, electronic execution of documents and split signatures also apply to the execution of deeds (section 127(3) of the Act).

The COVID-19 pandemic has highlighted the logistical difficulties which often arise when obtaining signatures with wet-ink from parties located in different state, or even different countries.  This challenge is further exacerbated when split execution (i.e. two directors signing separate counterparts on behalf of the same company) is not allowed.

The temporary amendments will be welcomed by the business community, as the ability for companies to execute documents electronically makes it significantly easier for parties transact in the digital world.  Hopefully, the amendments will be replaced with more permanent reforms, to provide ongoing certainty around execution of documents by companies.

It is very important, when executing documents electronically, to ensure the legal requirements for enforceable electronic signatures are met.  This includes drafting documents to facilitate the use of electronic signatures and using two-factor authentication to identify the person signing the document.

This article was co-written by Emily Taylor.