Electronic Signatures: What Should Companies Expect?

Electronic Signatures in Australia

Australia’s Electronic Transactions Act 1999 (Cth) stipulates that an electronic signature (e-signature) can generally validly execute a document. While e-signatures are important for modern and international businesses, there are some important and protective exceptions, such as for the signing of deeds. Crucially, for businesses operating under the Corporations Act 2001 (Cth), the Electronic Transactions Act doesn’t apply. Even in today’s modern business environment, corporations are required to effect agreements in writing. This is thought to better protect shareholders through robust business practices.

Current Company Signature Requirements

Current requirements for companies executing documents in accordance with the Corporations Act include the following:

Section 126 permits a person operating with express or implied authority and on behalf of the company to engage execute contractual documents without using a common seal.

Section 127(1) permits a company to execute a document without using a common seal if the document is signed by:

(a)  2 directors of the company; or

(b)  a director and a company secretary of the company; or

(c)  for a proprietary company that has a sole director who is also the sole company secretary – that director.

If the requirements contemplated in section 127 are met, then anybody who deals with the company can rely on assumptions included in section 129. Importantly, a person may then assume that any company rules and authorisations have been complied with.

Changes to Company Signature Requirements

Due to COVID-19, temporary provisions included in the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 permitted corporations to meet the requirements contemplated in sections 126, 127 and 129 through e-signature. While these provisions ended in March, companies reported positive experiences with e-signature, particularly through improved efficiency. As such, the Australian Government intends to implement permanent changes permitting electronic signature by mid-Sept 2021. The new Bill is called the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 (Cth) and, if passed, it will amend the Corporations Act to permit companies to validly execute documents and record meeting minutes. In the interim, companies are back to the previous requirement to execute documents and record meeting minutes in writing. This means that actions taken under sections 126, 127 and 129 of the Corporations Act again do not attract the Electronic Transactions Act. Thus, companies cannot presently rely on e-signatures.

Best Practice and Moving Forward

It is important to remember that the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 (Cth) is not yet passed. Thus, best practice for companies is to operate in accordance with pre-COVID requirements. This means that companies should not rely on electronic signatures at this time, and instead physically execute documents in writing.

Nonetheless, these changes come at the time that electronic signatures are becoming increasingly accepted in Australia. For example, Victoria has recently made permanent electronic signing and electronic witnessing of legal documents in their court processes. These changes suggest that COVID-19 has been a catalyst for further modernisation of legislative requirements across a range of sectors. While many such changes were introduced out of necessity, legal and business practitioners have welcomed the approval of new electronic practices.

If you are a director of a company or are considering directorship and have questions about meeting your obligations, including those surrounding electronic signatures, speak with one of our experienced business lawyers by calling us at (02) 4929 7002, emailing us or completing an enquiry form.