Legal Insights

The ‘un-electronic’ nature of the Corporations Act 2001(Cth)

• 11 April 2017 • 3 min read
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Electronic signatures are vital in electronic transactions

The interconnected and technological nature of modern commerce means that commercial transactions are, more often than not, conducted and executed electronically. In this regard, electronic signatures are almost always an integral part of such electronic transactions.

The Commonwealth legislative framework that governs electronic transactions (including electronic signatures), under Commonwealth law, is the Electronic Transactions Act 1999 (Cth) (Commonwealth ETA) – the States and Territories also have their corresponding electronic transactions acts, which all generally mirror the Commonwealth Act.

Effect of the Commonwealth ETA

Broadly speaking, the Commonwealth ETA provides that, subject to certain specific criteria and assumptions, by and large, documents executed electronically will not be deemed to be invalid simply by virtue of the fact that the execution takes place electronically (either wholly or in part), eg if a document is signed with an electronic signature, instead of a manual signature, pursuant to section 10 of the Commonwealth ETA – section 10 of the Commonwealth ETA is intended to allow a person to satisfy a legal requirement for a manual signature by using an electronic signature.

The Corporations Act 2001 (Cth) is exempt from the Commonwealth ETA

It should be noted that the Corporations Act 2001 (Cth) (CA) is exempt from the Commonwealth ETA, meaning, that provisions of the Commonwealth ETA, including section 10, will not apply to the CA.

Section 127(1) of the CA provides that a corporation may execute documents by having:

  • two directors; or
  • a director and secretary; or
  • the sole director/secretary (as in the case of sole proprietary companies),

sign on the documents. Section 129 of the CA provides that a person can assume that documents have been duly and validly executed, if the same appear to have been executed in accordance with section 127(1) of the CA.

However, if documents are executed by a corporation with electronic signatures, the other party cannot rely on the Commonwealth ETA as providing legislative validation of the method of signing the document. This poses some risk as to whether such execution by the corporation is valid under section 127(1) of the CA. Given the lack of case law which provides specific guidance on the status of electronic signatures in relation to section 127(1) of the CA at present, a person may not therefore be able to rely on the provisions of section 129 of the CA in all cases where electronic signatures are used by corporations.

Notwithstanding the interconnected and technological nature of modern commerce (and the availability of technological solutions), the more practical course of action for businesses at this point in time, would be to execute documents, for the purposes of section 127(1) of the CA, the ‘old-fashioned’ way – by putting pen to paper, and signing the documents manually. It should be noted however, that corporations can still validly execute documents in ways that do not rely on section 127(1) of the CA, given that section 127(4) of the CA provides that 127(1) of the CA is not intended to limit the ways in which a corporation may execute documents.

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