Corporate insolvency reforms to come under review
Parliament’s Joint Committee on Corporations and Financial Services announced on 28 September 2022 it would review Australia’s Corporate Insolvency laws as the end of pandemic-era support prompts the collapse of financially stretched businesses, most notably in the construction industry.
The terms of reference for the inquiry include current industry trends, operation of existing legislation such as unlawful phoenixing reforms, the operation of the PPSR and the simplified liquidation reforms. The inquiry will look at other areas of reform, such as unfair preference claims and insolvent trading safe harbours.
Other potential areas for reform include small business restructuring laws, which allow firms with up to $1 million in liabilities to seek advice from an insolvency practitioner on developing a restructuring plan, will also be reviewed, as will new laws penalising directors who avoid paying workers’ entitlements during insolvency.
The full details can be found here.
First test of anti-phoenixing laws exposes difficulties in recovering assets
The Supreme Court of Victoria was the first Australian court to test the new creditor defeating disposition laws that came into effect in early 2020 (read our summary of the laws here). The decision of Re Intellicomms Pty Ltd (in liq) [2022] VSC 228 has shown that proving a transaction was intended to defeat creditors may be easier, but recovering assets outside of the transaction will remain a challenge.
Factual background
On 8 September 2021, Intellicomms Pty Ltd (Intellicomms) entered into a sale share agreement with Technologie Fluenti Pty Ltd (TF) and sold a number of assets, including their intellectual property. The court expressed the opinion that this sale agreement had “all the hallmarks of a classic phoenix transaction”. This was based on the following factors:
- TF was controlled by the sister of IntelliComms' sole director and shareholder;
- TF was incorporated two weeks prior to the sale agreement;
- The assets were sold for significantly less than what they were valued at by a different potential purchaser;
- Intellicomms was placed into creditors’ voluntary liquidation immediately after the share sale;
- one of Intellicomms’ major creditors, who was also a shareholder, was not notified of the shareholders’ meeting proposing to appoint the liquidators; and
- there was no evidence that Intellicomms had taken steps to sell the business to any third party.
The Court found that the sale agreement was a creditor-defeating disposition under section 588FD(1) and 588FE(6B) of the Corporations Act 2001 (Cth), as the consideration payable under the sale was less than market value and best price reasonably obtainable having regard to the circumstances existing at the time of the sale agreement. As a result, it was void at and after the time it was made.
The liquidators applied to the court to have an order that TF deliver up all property of IntelliComms under section 588FF(1)(b), which was uncontroversial. However, what was unique was the request under either section 588FF(1)(c) or section 588FF(1)(d) was to have all property which was “derived by” TF as a result of the sale agreement.
Can a liquidator recover property that was “derived” from a voidable sale?
Under section 588FF(1)(c), the court may make an order requiring a person to pay to the company an amount that, in the court’s opinion, fairly represents some or all of the benefits that the person has received because of the transaction.
The Court can also make an order under section 588(1)(d) requiring a person to transfer to the company property that, in the court’s opinion, fairly represents the application of either or both money that the company has paid under the transaction and proceeds of property that the company has transferred under the transaction.
The liquidators claimed that any new software licences that had entered into was as a result of the intellectual property, know-how and confidential information of IntelliComms. The court declined to make orders because:
- there was no evidence to calculate ‘an amount’ of benefit which TF received; and
- could not determine what ‘fairly represents’ the proceeds of the property transferred to TF and there was no evidentiary basis to make such a determination.
Gardiner AsJ confirmed that the clawback powers in section 588FF(1) are limited to property transferred in the impeached transaction. This is due to the nature of the relief under this provision being restitution rather than compensation for loss or damage.
This decision was the first to test out the parameters of the anti-phoenixing legislation and provides a useful example of the considerations the court will take into account when determining what is a “creditor defeating disposition”. However, this decision also demonstrates how difficult it may be to claim relief under section 588FF for assets that are not specifically part of the relevant transaction and whether relief sought is restitution or compensatory.
ATO obtains $220 million dollar freezing order for potential capital gains tax liability
An important decision was handed down in the Federal Court recently in Deputy Commissioner of Taxation v State Grid International Australia Development Company Limited [2022] FCA 139 (Perry J). It was held that a taxpayer’s assets may be frozen despite no notice of assessment being issued by the ATO at the time freezing orders were applied for.
Background
On 28 January 2022, AusNet shareholders voted in favour of a scheme for a consortium led by Brookfield, a global asset manager, to purchase all the shares in AusNet from existing shareholders. The date of implementation was set as 16 February 2022. State Grid was incorporated in Hong Kong and a majority shareholder who owned 19.9 per cent of the company.
State Grid stood to make $736.5 million from the takeover and, according to the Australian Taxation Office (ATO), would subsequently owe $220 million in capital gains tax (CGT) from the deal. However, the ATO could not action an assessment until the date of implementation.
The ATO was aware of the transaction and had a phone conversation with State Grid’s lawyers where they requested that State Grid hold an amount on account of the anticipated CGT liability. This request was refused as State Grid had disputed that any CGT liability would arise.
Due to concerns that State Grid would remove the proceeds of sale from Australia and deprive the ATO of the opportunity to recover the CGT from State Grid, the Deputy Commissioner applied to the Federal Court for a freezing order on 15 February 2022, one day before the date of the takeover.
Should a freezing order be granted?
A freezing order is an order restraining a respondent from removing any assets located in or outside Australia. Under Rule 7.32 of the Federal Court Rules, the Federal Court has power to make a freezing order to prevent its processes from being frustrated by a prospective judgment being unsatisfied. An important note in this case was that there was no judgment, just a prospective judgment – in that the transaction had not yet occurred so there was no tax assessment.
The Court will grant an order when the following three elements are satisfied:
(a) A good arguable case
The Court held that the Deputy Commissioner had a good arguable case on the basis that the Commissioner would be issuing the Special Assessment as soon as the transaction completed on 16 February 2022.
(b) Danger that a prospective judgment will be wholly or partially unsatisfied
There were ten different reasons why the Court held that there was a danger that the proceeds of sale would be removed from Australia. The most significant ones were that it was a substantial sum of money, State Grid had no assets in Australia and State Grid has never lodged an income tax return or Business Activity statement with the ATO.
(c) Balance of convenience
The Court then undertook a weighing of factors to determine whether the balance of convenience favoured the making of the order. State Grid submitted that there was no evidence that they had proposed to do anything unlawful, the fact that no special assessment had been made and the effect that the order could have on the takeover.
The Deputy Commissioner submitted that fact that this was a substantial sum, that after the takeover by Brookfield, State Grid would not have any residual business in Australia and that there would be difficulties in enforcing a prospective judgment obtained against State Grid in respect of assets held in China or in Hong Kong.
The Court held that the balance of convenience favoured the order being made.
Conclusion
The Court made the freezing orders against both State Grid and AusNet on the basis that:
• State Grid could not diminish the value of two specific bank accounts below approximately AUD$220 million; and
• AusNet must continue to hold $220 million of the amount payable to State Grid.
Applications for freezing orders are common but rarely granted where a debt is yet to be owing. This case has tested the Court’s willingness to issue a freezing order, despite no judgment and no notice of assessment.
Sign of the times: electronic execution now embedded in the Corporations Act
On 22 February 2022, the Corporations Amendment (Meetings and Documents) Act 2022 came into force to modernise the Corporations Act 2001 (the Act). The amendment permanently embeds the temporary amendments for electronic signing that were due to expire on 31 March 2022 (see our earlier insight here).
Changes to the Corporations Act
The Bill amends the Corporations Act to allow:
- Electronic Execution of Documents;
- Companies to hold hybrid or virtual meetings; and
- Sign and provide meetings-related documents electronically
Electronic Execution
The changes introduced by the Bill will give companies the option of executing certain documents electronically and remove ambiguity around this process.
The Documents that can be signed electronically include:
- Deeds
- Agreements
- Any document for purposes of section 9 of the Corporations Act
These documents may now be signed in accordance with ss 126 and 127 of the Act by signing either a physical or electronic form of the document. Documents can be signed by way of split execution and different execution methods can be used.
Virtual meetings
Companies can now hold meetings of members either in person, hybrid or wholly virtual (but only if this is expressly required or permitted by the company constitution). If a member is attending a meeting virtually, they must be given reasonable opportunity to participate including by hosting it at an appropriate time and ensuring reasonable technology is used that allows a member to ask questions or make comments.
Sending meeting documents
The Bill permanently enables any documents relating to meetings to be signed and given electronically (regardless of the format in which the meeting will be held). The Bill also introduces a requirement for members to be notified of their right to elect to receive a document electronically or in physical form 'at least once' each financial year.
Implementation
The Bill will apply to documents executed on or the day after Royal Assent. For documents sent and meetings held the provisions will apply from 1 April 2022. If your company’s constitution does not currently permit virtual meetings, you will need to update it to allow the option to hold a virtual meeting after 1 April 2022.
A change of heart? Company debts no longer forgiven for love and affection
Three half years after first flagging the changes, the ATO has confirmed new rules regarding a company’s emotional abilities to forgive debt. This will have implications, particularly for family law and business breakdowns.
Background to changes
The commercial debt forgiveness rules were introduced in 1996 to resolve a perceived ‘gain’ that a person makes when a commercial debt that they owe is forgiven. The rules cancel out this gain by reducing tax losses, net capital losses, certain other deductions and the cost bases of CGT assets up to the ‘net forgiven amount’. There were exceptions to the commercial debt forgiveness rules, including where the forgiveness of the debt is for reasons of ‘natural love and affection’, i.e., a gift.
In mid-2003, the ATO published their non-binding comments, noting they believed that a debt from a company could be forgiven for reasons of natural love and affection, and this exemption could therefore apply. This interpretation was widely used in family breakdowns, in mitigating the tax implications of separation. Then on 6 February 2019, the ATO withdrew these non-binding comments.
On 2 October 2019, the ATO set out a question as to whether the exclusion for debts forgiven for reasons of natural love and affection require that the creditor be a natural person. What followed was a two and a half year wait for confirmation to this question.
Implication of changes
On 9 February 2022, it was confirmed by the ATO that the exclusion for debts forgiven for reasons of natural love and affection requires that the creditor is a natural person. This means advisors need to be cautious about relying on this particular exemption.
However, the ATO did clarify that the debtor need not be a natural person, meaning there could be situations where an individual forgives debt to a company or trust. However, more care will be need to be taken when advising on forgiveness of debt and the tax implications.
Liquidator fails to convince court to extend timeline to bring proceedings
A recent decision of the Queensland Supreme Court in Baskerville v Baskerville & Ors [2021] QSC 292 has clarified the exercise of judicial discretion to extend the limitation period for voidable transaction proceedings and examined the limitations of ‘without prejudice’ privilege.
Background
A liquidator was seeking an extension of time to commence proceedings pursuant to section 588FF(3)(b) of the Corporations Act 2001 (the Act). The relevant company went into liquidation on 11 July 2018 and two liquidators were appointed. By 23 April 2020, both these liquidators had resigned and were replaced with a new liquidator (the Applicant). The time limit for commencing voidable transaction proceeding was to expire on 11 July 2021. The application to extend was filed two days before that limitation period expired.
There are no criteria within the Act for considering an extension, and thus the court had to decide whether it was just and fair to extend the limitation period. The onus was on the Applicant to show why the time limitation should not apply.
‘Without privilege’ correspondence
An important preliminary issue in this decision was whether to admit email correspondence that occurred on 31 May 2021 between the solicitor for the applicant and the second respondent that had been marked ‘without prejudice’. The exchange concerned a section 530B notice that the second respondent failed to comply with. The solicitor for the applicant ended an email by stating that if he provides the necessary information then they can look at avoiding litigation but that otherwise they have a barrister briefed and a claim should be ready to file against them well before 30 June 2021.
The classic rule of without prejudice comes from Field v Commissioner for Railways (NSW).[1] The rule states that negotiations to settle litigation should be excluded from evidence to allow parties to freely communicate without the pressure of the liabilities the correspondence could impose on them. However, there are exceptions to this rule.
The relevant exception for this case was a rule from Pitts v Adney,[2] which stated that the without privilege rule cannot be permitted to put a party into the position of being able to cause a court to be deceived as to the facts, by shutting out evidence which would rebut inferences upon which that party seeks to rely.
A critical part of the applicant’s case was that the applicant was not in a position to proceed. However, the email clearly stated that they were ready to file a claim before 30 June 2021. Therefore, the emails were held to be admissible.
Was it just and fair to extend the limitation period?
For the court to exercise its discretion to extend the limitation period, the Applicant had to show valid reasons for the delay and that the actual prejudice caused does not outweigh the case for granting an extension.
The Court looked at affidavits relied upon by the Applicant to identify relevant matters regarding the Respondents. The Applicant pointed to the fact that the liquidation was unfunded and that he had not been able to identify a reason for a nearly six-million-dollar transaction, meaning there could be an unreasonable director transaction claim.
The Respondent submitted that there had already been correspondence from the Second Respondent and that he had no further documents to provide. It was also argued that the Applicant’s case was vague in its details for what would be done in the intervening period.
The Court accepted the respondents’ submissions and specifically pointed to the periods between February 2019 - April 2020 and April 2020 – March 2021 where little work was done and there was no satisfactory explanation as to why that was so. The Court also held that the fact that the liquidation was unfunded was of little importance as section 588FF(3)(b) does not distinguish between funded and unfunded liquidations. Finally, the Applicant’s submission that they had sufficient material to commence proceedings prior to 30 June 2021 was a contradiction in the applicant’s position of not being ready to bring proceedings.
Therefore, the Court found that that the Applicant had not provided a satisfactory explanation for the delay and it was not fair and just in all the circumstances for the limitation period to be extended.
Lesson to be learned
Liquidators looking to pursue claims under Part 5.7B of the Corporations Act ought to heed the case law that makes it very difficult to convince a Court to extend the limitation period (often 3 years), even if the liquidation is unfunded.
[1] (1959) 99 CLR 285.
[2] [1961] NSWR 535.
Court dismisses application to terminate the winding up of a company
In the decision of Re Gulf Aboriginal Development Company Ltd [2021] QSC 310, the Queensland Supreme Court (Freeburn J) dismissed an application to terminate a winding up order after concerns were raised about the viability of the company. This case helps to understand the Court’s limits when exercising the discretion to revive a company.
Background
In February 1997, Century Mining Ltd (Century) entered an agreement with the State of Queensland and four different Native Title groups. Under this agreement, Century was required to make payments for the benefit of the Native Title groups in certain proportions.
The agreement contemplated that Gulf Aboriginal Development Company Limited (Gulf) would receive and distribute these payments on behalf of the Native Title groups. Gulf received administration fees from Century and also played a lobbying role, representing any cultural or environmental concerns of the Native Title groups.
The evidence before the Court was that in the years prior to liquidation, Gulf had poor management practices and failed to represent the Native Title groups in a meaningful way. They began to incur considerable losses from 2013 and their income almost exclusively came from Century.
The Court raised significant concerns with how Gulf operated. Gulf’s status as a charity was revoked in 2016 (backdated to 2013) following a review of their governance practices by the Australian Charities and Not-for-Profits Commission. The Court also outlined how Gulf’s directors spent large sums of money on things like flights and accommodation, but without a clear benefit to members. They also did not keep records of all transactions, as required to do so.
As a result of this mismanagement, the Native Title groups who were parties to the agreement resolved that they do not wish to be represented by Gulf and that Gulf should no longer be receiving payments on their behalf.
By the time a liquidation order was made on 28 November 2019, Gulf had amassed debts of over $600,000, as well as a debt owed to the Australian Taxation Office of $44,590.
Gulf in liquidation
Once Gulf was placed in liquidation, there was only $40,133 in assets, which was entirely consumed by the liquidator’s remuneration and expenses as well as legal fees and the petitioning of the creditor’s costs.
The creditors resolved to enter a deed of company arrangement (DOCA). This DOCA split the creditors into two classes. The first class of creditors were the ordinary creditors who were entitled to receive a dividend in the ordinary way and in accordance with priorities, as would be the case in a winding up, and their debts would be discharged once a dividend was received. On the Court’s calculation, the payment to ordinary creditors totalled $93,000 and represented a payment to each ordinary creditor of approximately 28.62 cents in the dollar.
The second group were the subordinated creditors who were entitled to subsequently recover their deferred debts and remained entitled to 100 cents in the dollar under the DOCA. The subordinated creditors subsequently executed a deed poll agreeing to reduce their debts to 20% of their admitted amounts, to operate in the event that the Court made an order terminating the winding up. This would equal $60,000.
Should the winding up order be terminated?
The liquidator brought an application asking the Court to terminate the winding up order under section 482(1) of the Corporations Act 2001 (Cth).
In such an application, the onus is on the applicant to make out a positive case that favours the terminating of the wind-up order. The application was made in circumstances where:
- the Native Title groups were against the application and had made other arrangements to receive payment from Century directly;
- allegations of fund mismanagement by directors had not been properly investigated; and
- there was no independent report about the solvency of the business.
The evidence also was that:
- Gulf would have little income other than an uncertain entitlement to the Century administration payments as Century was proposing to continue paying these to the Native Title groups directly; and
- the company would also be indebted to creditors for $60,000 with assets of only $35,000, meaning Gulf would automatically be insolvent if winding up was terminated.
The liquidator had provided evidence that the former management of Gulf had been removed and that they would start again under new management. The Court held that this was a neutral factor but that the absence of an independent business plan meant that Gulf’s revival would lead to considerable uncertainty.
On weighing up the factors, the Court held that the winding up should not be terminated.
This case illustrates some of the factors that will be taken into consideration when deciding whether to terminate a winding up order and that courts will be hesitant to revive companies that will be insolvent after revival.
Administrators allowed to sell company assets despite unusual sale process
In Goyal, in the matter of Cape Technologies Pty Ltd (administrators appointed) [2021] FCA 1654, the Federal Court used its discretion to permit the sale of a business in somewhat unique circumstances. The justification was that the sale maximised the chances of the business continuing in existence and resulted in a better return to creditors than an immediate winding up of the company. Whilst that justification is consistent with the object of voluntary administrations as set out in section 435A of the Corporations Act 2001, the sale process remains unusual.
Background
Cape Technology Pty Ltd (the Company) was established to develop a new financial operating system for businesses. The Company’s assets included tangible assets (comprising of cash) and intangible assets (comprising of work-in-progress associated with the development of the financial operating system).
The directors appointed administrators on 18 October 2021 and these administrators subsequently conducted a valuation of the Company. The evidence was that in the absence of any sources of revenue or funding, the administrators had insufficient funds to meet the ongoing operational costs of the Company. The administrators concluded that unless the business assets were sold, there would be no funds available for distribution to creditors, including employees, on a liquidation of the Company.
Sale of Business
Faced with these difficult circumstances, the administrators began conducting a sale process on a truncated timeline due to the Company’s poor financial situation. They began entering negotiations with two groups of directors and shareholders of the Company. One of these groups, BidCo made an offer that had to be signed before 12 noon on 1 November 2021. The other director had expressed interest, but facing time pressures, the administrators signed a head of agreement with BidCo to meet the deadline.
The first meeting of creditors was held on 4 November 2021 and At this meeting, the administrators informed the creditors inter alia:
- given financial constraints, the administrators were not able to conduct a traditional sale process;
- the directors and shareholders were given the opportunity to purchase the business of the Company;
- a bid had been accepted;
- they were being financially supported by the successful bidder while the sale process was underway;
- a court application would be necessary because of the unique circumstances of the sale.
The administrators gave creditors, shareholders and directors notice of the application and the orders being sought. There was no opposition.
Court’s Consideration
The decision notes that Section 90-15(3)(a) of the Insolvency Practice Schedule confers a broad power on the Court to make “an order determining any question arising in the external administration of the company”. The Court noted that the power in S90-15(3)(a) was “not appropriately exercised where the Court is being asked to do no more than sanction the making and implementation of a business or commercial decision in respect of which no particular legal issue is raised or in respect of which there is no potential to bring into question the propriety or reasonableness of the decision”.
The Court also noted that “courts have been prepared to sanction, by direction (such as now sought), an administrator’s exercise of that power where there is the potential for issues of “propriety or reasonableness” to be raised with respect to the making of the decision”.
The administrators application to the court was made because the administrators were concerned about the sale occurring in circumstances where:
- they had not publicly advertised the assets for sale;
- The period in which the assets had been offered for sale was limited;
- BidCo was a company owned and controlled by two directors of the company;
- The company’s creditors had not had the opportunity to vote on the sale; and
- The sale was not proposed as part of a deed of company arrangement.
The administrators were concerned that the circumstances could raise issues about the reasonableness and proprietary of that sale, particularly when there were some matters in dispute with the other director who also bid for the assets.
In addressing the circumstances of the sale, the administrators submitted that:
- due to the limited financial resources of the Company, there was financial ability for the Company to fund a traditional marketing campaign.
- while they would have preferred to negotiate with arms-length purchasers, they decided it was better to sell to someone who would appreciate and understand the business;
- they relied on section 435A of the Corporations Act which stated that an insolvent company’s affairs should be administered in a way that maximises the chances of the company continuing in existence.
The court agreed that, in the difficult circumstances, the administrators had taken justifiable and reasonable action to maximise the return to creditors and employees. The Court made orders approving the sale of business assets to BidCo; albeit being a related party.
Take outs
This case highlights a number of points, particulars for external administrators and their advisers:
- the Court will not usually provide judicial advice or direction where an administrator is making or implementing a commercial decision;
- the Court may exercise its discretion in appropriate circumstances, particularly where there is the potential for issues of “propriety or reasonableness” to be raised with respect to the making of the decision;
- the onus will be on the administrator to prove that they have taken all reasonable and justified steps in conducting a sale or process in the circumstances.
The Court also made an order restricting access to certain of the material files as commercially confidential until completion of the sale to prevent prejudice.
Employer v Employee - Super Guarantee Charge
The recent decision of the Trustee For Virdis Family Trust t/a Rickard Heating Pty Ltd [2022] AATA 3 showcases the never-ending debate of who is an employee versus a contractor. A business was forced to pay a superannuation guarantee charge after a worker was found to be an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (Cth) (the Act).
Factual Context
A cornerstone of the Superannuation Guarantee Scheme created under the Act, is that employers, who do not make superannuation contributions for the benefit of an employee (as defined by the Act) are liable to pay a Superannuation Guarantee Charge. The charge is equal to super contributions that should have been paid.
On 5 November 2019, the employer lodged an objection to the Superannuation Guarantee Charge assessments made by the Commissioner of Taxation for each of the quarters from 1 October 2013 to 31 March 2018. The charge concerned a sub-contractor named Mr Pirie, who was engaged to do jobs for employer but had not been paid super.
The decision required a determination about whether Mr Pirie was an ‘employee’. This required a holistic analysis of Mr Pirie’s working relationship with the employer.
Section 12 of the Act defines the terms ‘employer’ and ‘employee’ in wider language than their ‘ordinary meaning’. The apparent objective is to widen the class of people who are to be treated as employees for the purpose of the Act and for the purpose of making superannuation contributions to these people.
Was Mr Pirie an employee for the purposes of the Act?
Mr Pirie began his employment with the employer on 19 September 2011 and had a letter of engagement that identified him as a sub-contractor/casual plumber. The terms of his employment were the same as those set out in the Plumbing and Fire Sprinklers Award 2010 and applicable legislation. The AAT Member pointed out that this was odd as awards generally only apply to employees.
There were a number of factors that pointed to Mr Pirie’s relationship being characterised as more of an employee than a contractor in that his letter of engagement clearly outlined obligations to his employer and how he must endeavour to promote and protect the interests of the employer.
In practice, Mr Pirie was told where he was required to work, how many hours he was required to work and if he was unable to work, he would notify the employer and another employee would do the work, he was unable to delegate jobs. The employer also paid for any materials required for a job and Mr Pirie would often wear a T Shirt containing the name of the employer and for a while his van did have signs advertising the name of the employer.
The employer submitted that Mr Pirie advertised his services as being available to others who may seek his services. While Mr Pirie acknowledged that he was free to, he rarely did as he was working full time hours for the employer.
When the AAT Member came to decide whether Mr Pirie worked under a contract that is wholly or principally for the labour of the employer, he held that Mr Pirie was an employee for purposes of the Act and therefore, the employer had to pay the superannuation charge.
This case is an important reminder about how tribunals and courts will always look to the conduct of parties rather than necessarily be constrained by the terms of a contract to characterise or determine the real working relationship.
Measures for electronic execution of documents extended into 2022
Due to continual work from home arrangements and difficulties posed by travel restrictions, both federal and state governments are extending temporary laws to allow documents to be signed electronically. However, the permanent implementation of these changes are still up in the air.
Federal Amendments
In August, the Federal Parliament passed the Treasury Laws Amendment (2021 Measures No.1) Bill 2021, which has extended the temporary measures for electronic signing until next year.
It amends section 127 of the Corporations Act to allow for signing of a copy or counterpart of a document, meaning that signatories do not need to sign the same document, as long as each copy or counterpart of the document includes the entire contents of the document.
It also means a document does not require a “wet ink” signature, as long as an accepted method is used to identify the person signing electronically and it indicates that person's intention in relation to the contents of the document. If a document is executed by the affixing of a common seal, the witnessing may take place via audio-visual link (e.g. Zoom).
The method used to electronically sign the document must be reliable, taking into account the circumstances and the nature of the document (programs like DocuSign or AdobeSign would likely satisfy this requirement).
These amendments are due to expire on 31 March 2022. There is not permanent legislation to allow electronic signing, however government consultations are ongoing.
Queensland Amendments
Queensland temporary measures for COVID-19 have been further extended to 30 April 2022 with the assent to the Public Health and Other Legislation (Further Extension of Expiring Provisions) Amendment Act 2021.
The State Government is now looking to make certain measures permanent with the Justice Legislation (COVID-19 Emergency Response—Permanency) Amendment Bill 2021. If this bill passes, the changes we have seen over Covid will remain in place permanently.
This amendment extends the temporary Covid measures to allow for more flexibility when signing legal documents. These arrangements allow for electronic signing and audio-visual witnessing for documents such as affidavits, statutory declarations, general powers of attorney for businesses and deeds. As with the Federal laws, the signing will have to be done with an accepted method.
Documents that will not qualify for electronic signing include enduring powers of attorney, wills, general powers of attorney by individuals and sole traders and some Titles Office documents.
The passing of this bill will hopefully provide more clarity on which particular documents can be electronically signed and how they can be authenticated by witnesses.
While it may have taken a global pandemic to see electronic signing laws streamlined, it is a positive to see the law adapting to the times and simplifying the execution processes for businesses around the country.
