So...imagine you have spent weeks, maybe even months,  negotiating a ridiculously complicated agreement with a  company.  You want to make sure the company keeps its  promises (and that you didn’t sacrifice your social life for  nothing).  The company’s directors want to sign using their  electronic signatures. What does this mean for you?

When a company signs a document in accordance with section 127 of the Corporations  Act 2001, each other party has a right to assume that the document has been duly  executed by, and is therefore binding on and enforceable against, the company.  This  right applies despite any fraud or forgery by the company’s officers, unless the other  party knew or suspected that something was fishy at the time.

So, what does section 127 say again? Basically, a company may sign a document by  having:

  • any 2 directors;
  • a director and a company secretary; or
  • a sole director who is also the sole company secretary,

sign the document, or witness the fixing of the company’s common seal to it. “May” is  the operative word here, so this isn’t the only way a company can sign stuff and be  bound by it.

Section 127 doesn’t specify whether a signature must be handwritten or if an electronic  signature will do. An electronic signature could, for example, be created using a digital  pen or by scanning a handwritten signature into a document. For over a decade,  Australia has recognised the validity of such signatures under the Electronic Transactions Act 1999 (and similar state and territory legislation) provided certain  requirements are met. But guess what? These provisions don’t apply to the Corporations  Act.

What does this mean for you?  Where a company you’re dealing with signs a document  using an electronic signature of a director or secretary, you might want to reconsider  getting too presumptuous about the company being bound by that document. It might  be a good idea to dig a little deeper to confirm the signatories have consented to their  electronic signatures being applied (and also that the signatures are not just some Mr  Squiggle images copied and pasted from Google).

But we live in the age of technology you say? We hear you. For now, the handwritten signature remains the usual method for companies to sign formal legal documents. But that has to go the way of the dinosaurs soon.