In a significant and welcome leap forward, changes made during the COVID pandemic to allow for basic company operations to be done electronically have been made permanent.
It is an understatement to say that the COVID-19 pandemic has shifted the way society operates. Throughout 2020 and 2021, governments and businesses were forced to consider alternative methods of conducting day to day activities to keep society functioning, employing digital technology to communicate and work without being physically present.
Both the Queensland and Commonwealth Governments introduced temporary legislation to allow documentation to be executed and witnessed, and activities to be undertaken electronically and remotely. The results of consultation throughout this period on the effectiveness of those changes was overwhelmingly supportive. Most businesses welcomed the convenience and efficiency, reduction in transaction costs and general alignment with business practices that the measures provided.
This article will discuss which of the legislative changes brought into effect due to the pandemic have now become permanent.
Understanding the Federal vs State Changes
Formal company operations are governed by multiple pieces of legislation – some state-based and some federal.
Here, the federal laws deal with company operations – meetings, directors, shareholders and the like – as well as methods of executing documents.
Queensland laws deal with the methods for executing specific types of documents in the State.
In Queensland, the affected documents include:
- statutory declarations;
- oaths; and
- powers of attorney.
Deeds can now be:
- made in the form of an electronic document (rather than paper, parchment or vellum as required at common law);
- signed using electronic signatures;
- signed in counterparts;
- where made by an individual, signed without a witness (although see below discussion in respect of deeds that contain powers of attorney);
- signed by split execution meaning that each signatory can sign an identical copy of the document without the need for that document to contain the signature of any other person who is to sign the document (e.g., allowing two directors of the one company to sign two separate counterparts of a deed);
- signed without a company’s common seal; and
- signed without saying they are ‘sealed’, although the deed must contain a clear statement that it is executed as a deed (hot tip – you will usually find this phrase just before the signing blocks on a deed, although it can be found in other places).
An Accepted Method?
An ‘accepted method’ must be used to sign a deed electronically. This is a method which:
- identifies the signatory and the signatory’s intention for the purposes of the document;
- is as reliable as appropriate for the purposes for which the document is signed; and
- is consented to by all the signatories to the document.
Strict compliance with the accepted method is essential.
In terms of execution of deeds by corporations, Queensland laws aim for consistency with the execution requirements under the Corporations Act 2001 that we discuss below.
Exceptions for Land and Water
Deeds lodged or deposited in relation to land and water dealings must continue to be physically signed and witnessed by a qualified witness (i.e., an Australian legal practitioner, justice of the peace, commissioner for declarations, notary public or licensed conveyancer from another State) in the physical presence of the witness.
Affidavits, Statutory Declarations and Oaths
Affidavits, statutory declarations and oaths can now be signed physically or electronically (and/or made using counterparts) if witnessed by one of a limited cohort of special witnesses over audio-visual (AV) link.
A special witness is:
- an Australian legal practitioner;
- a government legal officer who is an Australian lawyer;
- a justice of the peace or commissioner for declarations; or
- a notary public.
Special witnesses must take reasonable steps to verify:
- the identity of the signatory; and
- that the name of the signatory matches the name of the signatory written on or in the affidavit or declaration.
Exceptions for Land and Water
Electronic signatures on statutory declarations can only be used for land or water dealings where electronic conveyancing (e.g., PEXA settlement) is used. If a statutory declaration is lodged or deposited in the land registry or register of water allocations, it must be physically signed and witnessed by a qualified witness in the physical presence of the witness.
Powers of Attorney
General powers of attorney (POA) made for businesses (i.e., corporations, partnerships and unincorporated associations – but not sole traders) so that POAs can be signed electronically without a witness provided that:
- the POA is not an enduring power of attorney;
- the document containing the POA is a commercial or other arms-length transaction; and
- the POA is given for the purpose of the commercial or other arms-length transaction.
Exceptions for Land and Water
If the POA is contained in a deed used for a land or water dealing then the requirements discussed above apply in respect of physical signature in the physical presence of an authorised witness.
Requirements for witnessing over AV link
When witnessing signatures via AV link special witnesses (e.g., an Australian legal practitioner) must comply with certain procedural requirements, including but not limited to:
- observing the signatory signing the document in real time over the AV link;
- being satisfied that the person is freely and voluntarily signing the document;
- sufficiently verifying the identity of the signatory; and
- confirming the document witnessed.
It is always recommended that you seek relevant legal advice before implementing the new way of executing documents.
Companies and registered schemes can now use technology to virtually hold meetings (such as annual general meetings), provide meeting-related materials and execute documents.
The permanent measures are:
- Documents (including deeds) to be signed under the Corporations Act in relation to meetings or resolutions, or otherwise, can be signed physically or electronically. There is no need for a company to affix its common seal when signing documents, but where this is done the witnessing of the affixation may be done personally or via AV link.
- A company is taken to have signed a document electronically if:
- the method identifies the person signing and indicates their intention with respect to the information contained in the document; and
- the method used was reliable and appropriate for the purpose for which the information was recorded.
- It is not necessary for:
- a person to sign the same physical document that is required to be signed by another person or persons;
- a person to sign the same page of a document that is required to be signed by another person or persons;
- different persons to use the same method of signing a document;
- the document to contain all the information recorded in the document.
- To be valid deeds are no longer required to be on paper, parchment or vellum, witnessed or delivered.
- Proprietary companies with a sole director and no company secretary can execute a document validly by the sole director signing the document, and third parties can rely on that execution as binding and valid.
- Companies and responsible entities of registered schemes can give meeting-related documents to a person by physical or electronic means, at the person’s election.
- Companies and responsible entities of registered schemes can hold meetings at one or more locations physically, electronically or a hybrid of these means. Wholly-electronic meetings require authorisation under a company’s constitution.
- Votes on resolutions that are set-out in the notice of a meeting of members of a listed company or listed registered scheme must be decided on by a poll, meaning by reference to the number of shares represented by members at the meeting rather than the number of members (known as a ‘show of hands’). A member or group of members of a listed company or registered scheme holding at least 5% of the voting rights may request the company or responsible entity to appoint an independent person to observe and/or scrutinise the outcome of polls at meetings of members.
Risks of Electronic Procedures
These now-permanent electronic procedures are a much welcome change to the law for many businesses.
But they come with some warnings.
With electronic means of communication come opportunities for mischief.
Deciding whether to utilise electronic methods, and if so what kind of method to use, should be a case-by-case assessment of risks versus benefits. This is especially the case given the requirement that electronic execution methods be “appropriate” for the circumstances.
Ideally set up a meeting with your lawyers and talk through what you would like to achieve and how you would like to do it. Then you can agree on some appropriate systems for your normal business and corporate activities with relative comfort.
While the COVID-19 pandemic caused significant business interruption around the world, it can at least be seen to have had a positive legacy in expediting legislative change that modernises the way in which important legal documents are created, executed, and witnessed.
Careful consideration and understanding of whether a particular document can be signed electronically, if witnessing is required, how a company can conduct a meeting and what procedural steps must be followed are all important parts of complying with the new legislation and streamlining business operations.
Please don’t hesitate to contact our experienced team if you would like further clarification of these changes.
Batch Mewing Lawyers would like to acknolwedge the contributions of our solicitor Jimmy Jang to this article.