Key Points
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The use of electronic methods to transmit and execute documents has become increasingly common in the commercial space given technological advancements and the emergence of electronic signature software.
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In last year’s case of Bendigo and Adelaide Bank Limited (ACN 068 049 178) & Ors v Kenneth Ross Pickard & Anor [2019] SASC 123 (the “Bendigo Case”), the South Australian Supreme Court considered, amongst other issues, the validity of electronic execution of a loan deed within the context of the Corporations Act 2001 (Cth).
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One of the issues considered in the Bendigo Case, “split execution”, has since been addressed in the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 issued by the Federal Treasurer on 5 May 2020. This determination introduced temporary changes to the Corporations Act 2001 (Cth) to permit company directors and secretaries to sign documents electronically.
As part of the response to the COVID crisis, temporary measures have been introduced to facilitate the electronic execution of documents. In this blog we consider whether those measures would have changed the decision in the Bendigo Case and the extent to which they are likely to remain temporary.
The Bendigo Case
The Bendigo Case concerned a loan advanced by Bendigo and Adelaide Bank Ltd (“
Bendigo”) to Kenrop Pty Ltd (“
Kenrop”) under a loan deed. Kenrop’s directors appointed Great Southern Finance Pty Ltd (“
GSF”) as their attorney to execute the loan deed on Kenrop’s behalf. Kenrop later defaulted on the payments under the loan, and Bendigo sought to recover outstanding payments.
Although the loan deed bore the signatures of GSF’s director and secretary, it was in fact “signed” by GSF’s staff through electronic application of the director’s and secretary’s signatures. It was GSF’s standard practice for signatures on such documents to be authorised via GSF board resolutions.
Kenrop’s directors argued that the loan deed was invalidly executed as it did not comply with the requirements under section 127(1) of the
Corporations Act 2001 (Cth) (“
Corporations Act”). Bendigo argued that since the electronic signatures had been authorised by a GSF board resolution, the loan deed was validly signed despite (i) neither GSF’s company secretary or directors having “turned their attention to and approved” the loan deed to which their signatures were required, or (ii) having personally signed the loan deed themselves. Bendigo further submitted that this argument is consistent with the purpose of section 127 of the Corporations Act in simplifying the execution of documents by corporations.
The South Australian Supreme Court ultimately ruled that the loan deed was invalidly executed by GSF and decided, within the context of a deed, that:
(a) A deed must be physically signed by the relevant company officer(s) in accordance with section 127 of the Corporations Act. Alternatively, the relevant company officer must ensure that he or she takes the necessary steps to authenticate personally the mark appearing on the deed as his or her signature. Electronic signatures alone may not be enough to satisfy the requirements under the Corporations Act for the execution of deeds.
(b) Two signatures in different counterparts or copies of a document (often referred to as “split execution”) will not satisfy section 127 of the Corporations Act where two signatures are required to validly execute that document. This is because section 127 of the Corporations Act contemplates that a document is executed by two officers signing it as a “single, static document”.
Although the circumstances of the Bendigo Case were unusual and questionable, the practice of “split execution” itself is not unusual and is commonly used by companies as a more efficient way of executing documents.
Corporations (Coronavirus Economic Response) Determination (No. 1) 2020
On 5 May 2020 the Federal Treasurer issued the
Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (“
Determination”).
The Determination introduced temporary changes to the
Corporations Act 2001 (Cth) to address the impacts of the COVID-19 pandemic on commercial operations, where it may not be possible or efficient for company officers to sign physical documents due to social distancing guidelines and restrictions. Amongst other things, the Determination provides easier document execution methods for companies during these unprecedented times.
The Determination took effect on 6 May 2020 and will apply temporarily until 6 November 2020.
Key changes under the Determination in relation to document execution
Section 6 of the Determination modifies section 127 of the Corporations Act to allow the following options for company officers to execute documents under the section:
- Company officers may physically sign different copies of a document (i.e. “split execution”). This means that a company officer may physically sign a document, and then electronically transmit a copy of that document (e.g., sending a scanned version of the document via email) to another company officer, who may then print and physically sign that document.
- Company officers may apply electronic signatures to an electronic version of a document, provided that the method used is reliable and appropriate to identify the signing parties and their intentions in relation to that document.
The Federal Treasurer’s Explanatory Statement to the Determination provides some examples as to the wide range of options available to company officers to electronically sign documents in practice, including:
- pasting a copy of a signature into a document;
- signing a PDF on a tablet, smartphone or laptop using a stylus or finger; or
- cloud-based signature platforms like DocuSign.
These changes mean that companies can now feasibly carry out the entire execution process of a document via electronic means without producing a physical version of that document.
Effect of the Determination on the Bendigo Case
The Determination, had it existed at the time of the decision, would have addressed the “split execution” issue raised in the Bendigo Case insofar as they relate to the electronic execution of deeds. However, the Determination would most likely not have changed the outcome of the Bendigo Case given that there were other factors that led to the court deciding that the loan deed was invalidly executed.
While the Determination allows the signing of a document through electronically affixing the relevant company officer’s signature, in the Bendigo Case, the court found that the board resolution did not go as far as to authorise the directors to sign the loan deed from the bank. Even if it had, there was no evidence to indicate the signatories’ intention in respect of the contents of the document. It is important to note that the Determination itself does not remove the requirement that there must be evidence of a signatory’s intention to sign and be bound by the relevant document, as discussed in the Bendigo Case (as well as previous case law).
Key points to note
- The Determination only applies to companies under the Corporations Act. It does not address or cover electronic execution of documents by foreign companies, individuals or other parties (such as incorporated associations, statutory corporations and government bodies).
- As referenced above, the Determination is temporary and only applies for 6 months. Although the Determination was made necessary due to social distancing guidelines and restrictions, it is difficult to see why the changes made under the Determination cannot be made permanent so that companies can continue to enjoy the benefits. This is especially the case if the future post COVID-19 commercial world will shift, as many anticipate, towards an even more flexible and virtual working environment where transactions are routinely discussed, negotiated and finalised over calls, emails and videoconferences.
In the meantime, it would be prudent for companies to keep up-to-date on any further developments to ensure that they continue to validly execute documents beyond the temporary period in accordance with all legal requirements.
More information about the current Determination can be accessed via the Federal Treasurer’s
Explanatory Statement to the Determination.
Posted by Partner, John Kell, and Solicitor, Michael Fong