Caution: electronic execution under the Corporations Act suspended - Contracts and Commercial Law

The temporary measures enacted by the Australian Government to permit electronic execution of documents under the Corporations Act 2001 (Cth) (Corporations Act) expired as of 21 March 2021, with the proposed bill to extend its operation delayed. Without a clear solution in sight, companies must reconsider how to validly execute documents.

Expiry of the temporary measures

The temporary measures enabling companies to execute documents electronically were contained in the Corporations (Coronavirus Economic Response Determination (No.3) 2020 (Cth) (Determination) (the effect of which is discussed here). While the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 (Bill) was introduced on 17 February 2021 to extend and expand on the measures of the Determination until 16 September 2021; unfortunately, due to disagreement between the major parties over amendments to the Bill, it was not passed last week.

This means the Determination expired on 21 March 2021 and the Treasurer no longer has the power to extend the term of the Determination.

Consequently, without the Determination or the passing of the Bill, the statutory assumptions as to due execution under the Corporations Act will not be available for documents that are executed electronically by companies.

The Law Council of Australia recognises this and is seeking the Australian Government to invoke an emergency response to avoid the creation of a systemic risk that documents are not validly executed. Unless and until such action is taken, we recommend companies take a cautious approach.

Can companies rely on state and territory instruments?

Many states and territories have enacted interim legislative instruments as a response to COVID-19. Several of these allow for electronic execution of documents. In the interim period between 21 March 2021 and when the Bill is passed, it may be possible for companies to rely on these legislative instruments to execute certain documents electronically.

However, be cautioned that these forms of execution are not afforded the protection of statutory assumption under the Corporations Act, and as such you cannot electronically execute these documents under s127 of the Corporations Act. If you do so, your counterparties will not be able to rely on the assumptions under s129 of the Corporations Act. Further, these legislative measures are not uniform across the different jurisdictions and some only apply in respect of certain documents.

We are hopeful that this position will be rectified soon, but in the interim ensure that you exercise caution when executing documents or when accepting electronic execution by your contractual counterparts. If you are seeking to execute under s127 of the Corporations Act, we recommend that you revert to wet ink signature of the same document by two directors (or a director and company secretary).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.