On 21 March 2021, the temporary rules that were put in place to allow for the electronic execution of documents, as well as the split execution of documents, under section 127 of the Corporation Act 2001 (Cth) (Corporations Act), expire. As at the date of this article, no extension of these rules (or legislative amendments to make them permanent) have been put in place.
It was expected that the current temporary rules would be extended, however the Bill which proposed to do so (the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021) did not pass on the last Parliament sitting day prior to 21 March 2021. The Senate has adjourned debate on the Bill until 3 August 2021.
If no changes are implemented prior to 21 March 2021, then from 21 March 2021 section 127 of the Act is to be read without the benefit of these temporary rules.
What is section 127 Corporations Act?
Section 127 of the Corporations Act allows companies to execute documents without common seal if it is signed by:
- two directors;
- a director and a company secretary; or
- for proprietary companies with a sole director who is also the sole company secretary, by that director.
On 25 March 2020, emergency legislation (in the form of the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (Omnibus Act)) came into effect which, amongst other things, empowered the Treasurer to make Determinations modifying the operation of the Corporations Act.
Pursuant to these powers, on 5 May 2020, the Treasurer made the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 which provided that documents could be executed under section 127 by electronic means and also that "split execution" was permitted. Prior to this Determination there was considerable uncertainty as to whether electronic or split execution was permitted under section 127.
The Determination was effectively extended on 21 September 2020 by the Corporations (Coronavirus Economic Response) Determination (No.3) 2020 (Cth). The extended Determination is due to expire on 21 March 2021 (see our previous article - Electronic & split executions to continue under s 127 Corporations Act).
It was expected that Parliament would extend these changes to the Corporations Act (to 16 September 2021), however the Bill (the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021) did not pass before the last sitting day before 21 March 2021.
The Treasurer's power to make Determinations under the Omnibus Act expired on 25 September 2020, and accordingly no further Determinations can be made.
Documents executed in accordance with the Determination prior to 21 March 2021
The expiry of the Determinations is unlikely to affect the effectiveness of any execution that occurred in accordance with the Determinations (while those Determinations were in force). In other words, it is unlikely that a document that was validly executed in accordance with the Determinations automatically become invalid on the expiry of the Determinations.
Executing documents on and from 21 March 2021
With the repeal of the Determinations, section 127 of the Act is to be read in the same way that it was before 5 May 2020 (that is, before Determination (No. 1) was made).
Before the Determinations, there was a divergence of opinion as to whether electronic execution or split execution could be effective under section 127. Although Commonwealth legislation exists that permits transactions to occur electronically (see the Electronic Transactions Act 1999 (Cth)), this legislation does not apply to the Corporations Act.
Comments by Stanley J in obiter in Bendigo and Adelaide Bank Limited v Pickard  SASC questioned the validity of split executions and electronic execution generally (that is, section 127 requires officers of a company to execute a single, static physical document).
This uncertainty meant that in practice when companies executed under section 127 many did so by wet ink signature only.
Alternative methods of execution by corporations
Section 127 does not limit the ways in which a company may execute a document (including a deed), and section 126 provides that a company may execute a document pursuant to its constitution or by an agent or attorney given authority to do so. Accordingly depending on a company’s constitution, a company may be able to validly execute documents electronically by other means – that is in accordance with laws other than section 127 (for example, see our articles on temporary execution and witnessing rules in New South Wales and Victoria).
The Determination also introduced rules to allow for company meetings to be held electronically. The expiry of these temporary measures will also result in the rules around company meetings returning to pre-Determination practices. We discuss these changes - The expiry of COVID-19 relief measures permitting virtual meetings under the Corporations Act and ASIC’s “no action” position.
Authors: Andrew Hii, Jen Bradley and Sophie Bogard