Electronic company document execution
Electronic execution of documents is bedeviling lawyers across the country because of the complex interweaving of various statutes and the common law.
John and Mary have an SMSF and are the directors of the corporate trustee. They have recently changed the trustee of their SMSF from individual trustees to a corporate trustee. This was a requirement of the commercial lender providing finance to the SMSF which bought an off-the-plan property in NSW under a limited recourse borrowing arrangement.
With settlement being imminent within a week’s time, John and Mary are concerned that there is not sufficient time for the holding trust deed (which is required to be signed prior to settlement in NSW) to be executed by them in their capacity as the directors of the SMSF and the custodian company. This is because John lives in NSW and Mary is currently in the UK visiting her parents.
In the interest of time, John and Mary are wondering whether it is possible for them to execute the holding trust deed electronically.
Section 127 of the Corporations Act 2001 (Cth) sets out how a company can execute a document (including a deed) either with or without using a seal.
Section 127 does not limit the ways that a company can execute a document, including a deed. Therefore, a company may state in its constitution the method that the company is to use to execute documents. However, section 129 of the Corporations Act 2001 (Cth) provides a statutory protection for a counterparty and/or third party if that execution complies with a method specified in s127 of the Corporations Act 2001 (Cth) (i.e., a company executes a document through its sole director or two directors or one director and the company secretary).
The recent Treasurer’s Determination issued under the Emergency Powers granted to deal with COVID-19, permits a counterparty and/or third party to access the statutory protection otherwise afforded to them under s129 of the Corporations Act 2001 (Cth) where a company has executed a document electronically by the officeholders even if under s127.
Prior to the Determination (which came into effect on 6 May 2020 and is enacted for a period of 6 months) counterparties and third parties were hesitant to rely on and accept documents as being validly executed by a company despite being executed in accordance with s127 of the Corporations Act 2001 (Cth) if the document was executed electronically by the officeholders.
With the Determination now in place counterparties and third parties (such as banks, the state revenue offices and state land titles offices) can now rely on s129 of the Corporations Act 2001 (Cth) and be satisfied that a document that has been executed by the company electronically is valid, and they do not have to investigate further or be worried that the execution will be invalidated at a later time by the company officers saying they did not execute the document properly.
It should be noted that in executing the document electronically as directors John and Mary are not witnessing the execution but are part of the execution by the company. Therefore, the tricky issues that apply in all states regarding how you witness a document electronically are not relevant.
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