One of the questions we get asked most by our clients, apart from “was that Drizzy playing on your call waiting?”, is whether it’s OK to accept a document signed by split execution.

Section 127(1) of the Corporations Act says that a company can execute a document without using a common seal if it is signed by two directors, or a director and a company secretary.

The problem is, quite often, only one director is around because the other is busy lounging on a private island off the coast of Belize or taking part in an alpine polo tournament in St. Moritz (totally the kind of thing they do right?)

When directors are physically separated however, rather than holding up a transaction, they’ll sign different copies of the same document. This is known as “split execution”.

Under s 129(5) of the Act, a person (or company) may assume that a document has been duly executed by the company if the document appears to have been signed in accordance with s 127(1).

There seems to be confusion between not just clients, but lawyers themselves, as to whether a split execution document (two copies of the one document) satisfies s 127(1).

In the only reported case to deal with the question, Re CCI Holdings Ltd [2007] FCA 1283, Emmet J stated:

... s 127(1) may be construed as requiring a single document to be signed by the two directors or the director and secretary. In principle, however, I can see no reason why that should be, so long as the two counterparts are treated as a single instrument and that instrument is delivered.

Some lawyers take a conservative approach by refusing to accept a document signed by split execution and insisting on “best practice” requiring a single document, which slows down the transaction.

But where's the controversy?  The Federal Court has considered this question and said that there's no problem it can see with split execution, as long as the two counterparts are treated as a single instrument.

In light of that very sensible judicial statement, we say it's completely fine to rely on a document signed by split execution. Isn’t taking the alternative (conservative) approach really just a case of lawyers overcomplicating things? We think so.