Signing, made easy

Small but significant changes to the way that companies execute documents are about to come into effect. The Corporations Amendment (Meetings and Documents) Bill 2021 (Corporations Amendment Bill) was passed by both Houses of Parliament on 10 February 2022. We expect royal assent imminently. It is a welcome step in providing greater certainty regarding the execution of documents by companies.

Background

Section 127 of the Corporations Act is the fundamental section outlining how companies may execute documents. Not only does it set out requirements for how companies may execute specific types of documents, such as deeds, it also gives a party the comfort to rely on statutory assumptions that the document is valid and binding.

Unsurprisingly, the Covid-19 pandemic demonstrated the practical difficulties and legal uncertainties regarding the execution of documents by electronic means. This was exacerbated given the difficulty of holding in-person meetings and having multiple persons at the same place at the same time to have documents correctly executed and witnessed. Something needed to be done.

Temporary Guidance

As a result of these challenges, the Treasury Laws Amendment (2021 Measures No.1) Act 2021 (Cth) (Amendment Act) was passed as a temporary step to address this issue by way of amendment to, among others, section 127. Most relevantly, the Amendment Act allowed for:

• documents to be signed under section 127(1) by the relevant director and / or company secretary applying an electronic signature;[1]
• when two directors or a director and company secretary sign a document under section 127 (whether in paper or electronic form), they need not sign the same counterpart or copy;[2] and
• the fixing of a company seal under section 127(2) to be observed by electronic means.[3]

Despite the Amendment Act being a step in the right direction, the changes to section 127 were temporary and due to expire on 31 March 2022.[4]

Permanent Changes

Alongside the operation of the Amendment Act, the Government undertook a consultation process on draft legislation which proposed to make the changes under the Amendment Act permanent and also to allow for single director companies without a company secretary to execute documents under section 127.[5] This is why the Corporations Amendment Bill is important. The key (and permanent) changes brought about by the Bill are as follows:

• a sole director of a company no longer needs to simultaneously hold the role of company secretary in order to execute documents and deeds under sections 127(1)(c) and 127(2)(c). This is achieved by amending these provisions to allow a sole director to execute a document or deed on behalf of a company if they are also the sole company secretary or there is no company secretary. This change resolves an anomaly that has existed since December 1995, namely when sole director companies were allowed, and yet the role of company secretary was abolished for private companies notwithstanding that role was still required to execute documents and deeds under section 127;[6]
• the fixing of a company seal under section 127(2) may be observed by electronic means or in person.[7] Further, the document to which the common seal is affixed no longer needs to include a statement that the person observed the fixing of the seal by electronic means;[8] and
• the execution of a document as a deed under section 127(1) no longer needs to be witnessed and may take place whether in physical or electronic form.[9]

What does it all mean?

The changes to section 127, as outlined above, will apply to any document or deed that is expressed to be executed in accordance with section 127.  This should solve a number of practical difficulties as well provide legal certainty for third parties (such as lenders) who rely on assumptions under the Corporations Act about the effectiveness of companies’ execution of documents, including deeds.

Queries

If you have any questions about this article, please get in touch with an author or any member of our Banking & Finance or Corporate & Commercial teams.

Disclaimer

This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.

[1] Section 6, Part 1, Schedule 1 of the Amendment Act, which inserts a new section 127(3B) into the Corporations Act.

[2] Section 6, Part 1, Schedule 1, which inserts a new section 127(3A) into the Corporations Act.

[3] Section 3, Part 1, Schedule 1, which inserts a new section 127(2A) into the Corporations Act.

[4] Part 3, Schedule 1, which inserts a new Part 10.52 into the Corporations Act. See section 1679F(1) of the Corporations Act.

[5] The present drafting of sections 127(1)(c) and 127(2)(c) requires that a sole director of a proprietary company who proposes to execute documents under any of those provisions must also be the sole company secretary.

[6] Sections 5 and 8, Schedule 1 of the Corporations Amendment Bill, which amend sections 127(1)(c) and 127(2)(c) of the Corporations Act.

[7] Section 9, Schedule 1 of the Corporations Amendment Bill, which amends section 127(2A)(a) of the Corporations Act. The current drafting of this provision only refers to the observation taking place by electronic means.

[8] Section 9, Schedule 1 of the Corporations Amendment Bill, which amends section 127(2A)(c) of the Corporations Act. The amendment will operate so that “a method” can be used to indicate that the person observed the fixing of the seal to the document.

[9] Section 11, Schedule 1, which amends section 127(3A), (3B), and (3C) of the Corporations Act.