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Govt eases e-document rules

electronic document execution

Issues around the electronic execution of an SMSF document have been simplified with temporary federal regulations overriding state-based requirements.

State-based rules around the electronic execution of a document have been rendered irrelevant following a federal government decision to allow SMSF trustees to sign and execute deeds even if they are not in the same physical location, according to a financial services legal firm.

Townsends Business & Corporate Lawyers solicitor Elizabeth Wang said the complex interweaving of various statutes and the common law was creating problems for lawyers in relation to the electronic execution of a document, but a recent Treasurer’s Determination had simplified the issue.

Wang said section 127 of the Corporations Act 2001 sets out how a company can execute a document, including a deed, either with or without using a seal, but it did not limit the ways execution can take place.

“Therefore, a company may state in its constitution the method that the company is to use to execute documents. However, section 129 of the act provides a statutory protection for a counterparty and/or third party if that execution complies with a method specified in section 127,” she said.

She highlighted these two sections were covered by the Corporations (Coronavirus Economic Response) Determination (No 1) 2020, which was registered by Treasurer Josh Frydenburg on 5 May under emergency powers to deal with COVID-19 and enacted for six months.

The determination “permits a counterparty and/or third party to access the statutory protection otherwise afforded to them under section 129 of the act where a company has executed a document electronically by the office holders, even if under section 127”, she said.

“Prior to the determination, counterparties and third parties were hesitant to rely on and accept documents as being validly executed by a company, despite being executed in accordance with section 127 of the act, if the document was executed electronically by the office holders,” she said.

“With the determination now in place, counterparties and third parties can now rely on section 129 of the act and be satisfied that a document that has been executed by the company electronically is valid, and they do not have to investigate further or be worried that the execution will be invalidated at a later time by the company officers saying they did not execute the document properly.”

Wang noted this change has application for SMSFs and gave an example of two SMSF members – John and Mary – who are also the directors of a corporate trustee, having recently moved from being individual trustees.

The trustees made the shift at the request of a commercial lender providing finance to the SMSF, which had purchased an off-the-plan property in New South Wales under a limited recourse borrowing arrangement.

Wang said the trustees were concerned they would be unable to execute the holding trust deed prior to settlement in their capacity as the directors of the SMSF and the custodian company as one of them lived in NSW and the other was overseas at the same time.

With the changes allowed under the determination, however, the pair would be able to execute the holding trust deed electronically and still be within the bounds of the Corporations Act, she said.

“It should be noted that in executing the document electronically as directors, John and Mary are not witnessing the execution but are part of the execution by the company. Therefore, the tricky issues that apply in all states regarding how you witness a document electronically are not relevant,” she pointed out.

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