Good News For Companies Regarding Electronic Signatures

Good News For Companies Regarding Electronic Signatures

Recent times have probably been the strangest that any of us have experienced due to Covid-19, and many aspects of our lives have had to adapt. That includes our laws, and we are pleased to say that our legislators have taken some positive steps in some aspects of consumer law.

One area in particular which has recently seen commercial law take account of not just the pandemic, but also modern technology, is electronic signatures by companies, and in particular its directors. Electronic signatures are created by an individual signing their name in a way that does not involve them putting pen to paper and signing in ink.

Signing Company Documents

Until recently the signing of documents was covered by section 127 of the 2001 Corporations Act. This act stated that company documents had to be signed by either:

A] Two directors of the company

Or

B] One director of the company and the company secretary

Or

C] Where a proprietary company had a sole director, who also is the company’s secretary, that person could sign.

A further point to note is that when company documents were signed in any of the above three ways, the company seal was not necessary, although it could be added, and if so, the person signing would act as witnesses to the seal being affixed.

Covid-19 strikes

Where the stipulations regarding signing company documents came grinding to a halt was when Covid-19 struck. To try to contain it measures were introduced such as lockdowns, isolations, quarantines and working from home. All of these meant that the practicalities of having two company officers being able to sign a document in person and ink made it nigh on impossible to comply.

Thankfully, legislators were able to take steps to overcome these impracticalities by introducing Corporations Coronavirus (Economic Response Response) Determination (No.1) 2020. This ‘determination’ applied for 6 months until Nov 5th, 2020, and permitted companies to execute their documents legally, provided two criteria were met:

1) They were executed by electronic means

2) Where a document was to be executed by two individual company officers, each could sign a separate document provided that each document was identical in terms of the contents of those documents.

As it became clear that the Covid-19 pandemic was not going away anytime soon, the determination relating to company documents was extended beyond November 5th, 2020, until 21st March 2021. This meant that the new determination relating to the signing of company documents had been in place for 1 year. However, once the date in March arrived, there was a period of uncertainty as no further determinations were made.

The Next Stage

The government realised there was a problem and introduced The Treasury Laws Amendment (2021 Measures No.1) Bill 2021, however, it took several months for it to be passed into law. This bill only applies to March 2022, but it seems by all the indications given by legislators that it will continue beyond that date.

The main change that the legislation makes is to add electronic signatures to how a company document can be legally executed by its officers. Some stipulations and conditions apply such as the generation of electronic copies of any documents for all parties, and that clauses should be included stating that even though the contract is signed electronically, both parties are legally bound by it.

A slight change also references the previous scenario when documents were split for two company officers to sign. Now, the same electronic document can be used, given that it is an electronic file and not a physical document. Company seals can also be added electronically to an electronic company document, and witnessing can take place remotely, for example, via video conferencing.