Federal Government Bill
On 22 February 2021, the Treasurer announced the Government was extending the current temporary relief until 15 September 2021 in relation to:
- electronic execution of documents by companies under s127 of the Corporations Act 2001, and
- virtual meetings of shareholders in companies and of investors in managed investment schemes.
The current relief was achieved by a series of determinations by the Treasurer under emergency enabling legislation expiring on 21 March 2021.
The Government introduced a bill in Parliament effecting the announced changes. In addition, as also announced by the Treasurer, the Bill deals with directors' liability in relation to continuous disclosure.
The changes in relation to directors' liability will be permanent, with no expiry date. But the provisions with respect to execution and meetings expire on 15 September 2021.
For virtual meetings the Treasurer said the relief will expire on 15 September 2021, but announced a 12-month opt‑in period for companies to hold hybrid annual general meetings 'to enable a proper assessment of shareholder benefits of virtual meetings'.
In relation to electronic execution, he said the intention is to finalise permanent changes before 15 September.
The drafting of the Bill in relation to electronic execution is a bit different to the drafting of the Determinations and is developed from an exposure draft released in October 2020. It amends s127 of the Corporations Act (which sets out some ways in which companies execute documents) and s129(5) and (6) (which allow counterparties to assume companies have duly executed documents which appear to have been executed under s127).
In general terms the new language seems to do the trick. In particular:
- it clearly allows electronic execution by companies under s127 (which will get the benefit of the assumptions in s129);
- it allows remote witnessing of the affixation of a company’s common seal;
- it seems clear that it applies to deeds (not everyone in the market accepted that the Determination achieved this); and
- it allows 'split execution' (eg when two directors sign separate counterparts of a document).
One change that helps ensure the sections apply to electronic documents was made under amending legislation last year. The definition of 'document' applying to the Corporations Act was significantly expanded by the Corporations Amendment (Corporate Insolvency Reforms) Act 2020.
There are aspects of the drafting of the amendments in the new Bill that could be improved:
- It says a 'copy or counterpart of a document' can be executed electronically, but seems to assume there is still some separate original document. We will suggest further clarification is needed.
- It requires copies and counterparts to include 'the entire contents of the document'. This means when documents are emailed to be printed out and signed by a director, it may not be safe to simply print out and sign signature pages only. We have pointed this out before, but we gather this is a deliberate policy decision to ensure people are fully aware of what they are signing.
Further, the coverage is narrow. Sections 127 and 129 only apply to companies, not foreign or statutory corporations. In relation to deeds, this leaves a gap, as current state and territory legislation dealing with the execution of deeds commonly excludes corporations.
Victoria is first off the blocks in proposing legislation to achieve permanent reform.
On 17 February 2021 it introduced a bill that, among other things, provides expressly:
- that deeds and mortgages can be electronic;
- for split execution (ie with signatories signing separate counterparts of documents), and
- for remote witnessing or making of instruments such as powers of attorney, affidavits, statutory declarations and the like.
In relation to electronic execution and remote witnessing of contractual documents, the drafting is broadly consistent with the approach adopted in the current emergency regulations introduced by the Victorian Government. In this respect, the Bill operates by amending the Electronic Transactions Act 2000 (Vic).
The relevant provisions are clear and should be accepted by the market as achieving their aims. There are a number of procedural requirements in relation to remote witnessing of contractual documents, though these are simpler than some requirements in other states. These are set out in the proposed s12(2) to be inserted in the Electronic Transactions Act.
One difficulty with such requirements is if they are not satisfied the document may be invalid. A party relying on that document may not be able to check that some of the requirements are satisfied. In particular, the proposed s12(2)(b) goes to the state of mind of the witness. It requires that 'the witness must be reasonably satisfied that the document signed as a witness is the same document or a copy of the document'.
Paragraph (e) requires a statement by the witness that all the requirements of the section have been met. It would be very helpful if the Bill provided that other parties may rely on that statement in the absence of notice or suspicion to the contrary.
In relation to deeds the Government has missed the opportunity of following the example of the Queensland temporary regulation in reforming a number of aspects. In particular, the law should provide that foreign and statutory corporations can execute deeds through their officers signing, without a common or official seal. Without that change they may have difficulty executing deeds electronically. And the requirement that a deed is necessary to authorise an agent to execute a deed could usefully be removed.
The New South Wales position
It is worth bringing this site up to date in relation to New South Wales. In September 2020, New South Wales passed an act effectively extending the then current temporary relief to have remote witnessing, as a pilot scheme to expire on 1 January 2022. It did this by repealing the relevant emergency regulation and replacing it with amendments to the Electronic Transactions Act 2000 (NSW) to expire on that date.
New South Wales has not introduced any new legislation in relation to electronic deeds. There is still a gap in New South Wales relating to deeds signed by statutory and foreign corporations. Before the pandemic, it had introduced s38A of the Conveyancing Act 1919 (NSW) expressly providing that individuals can sign deeds electronically. This includes where the individuals are signing as attorneys for corporations. If the Federal Government Bill is passed into law, companies incorporated in Australia will be able to execute documents electronically under s127. That still leaves statutory and foreign corporations except where an attorney is signing for them.
New South Wales needs to legislate to clarify that all deeds can be electronic and, we suggest, following the Queensland example in a number of other respects, including removing the requirement that the execution of deeds be witnessed.