The split ends of split execution

A volatile history

A company can validly execute a counterpart of a document under s 127(1) of the Corporations Act (Act). But the situation isn’t so clear where a company requires multiple signatories to bind it, and those signatories ‘split’ their signatures over separate documents. The practical effect of this has been to slow down and sometimes significantly delay deals because of the requirement that a party’s signatories physically meet for signing or that the original document travel between them for separate signing.

What’s with this ambiguity around ‘split executions’ and what is the position now?

The legislation

Under sections 127(1) and 129(5) of the Act a person may assume a document has been validly executed by a company where it appears to have been signed by two of its directors or a director and any company secretary. For a proprietary company that has a sole director who is also the sole company secretary, just that director’s signature is sufficient.

Counterparts

Where different parties sign separate but identical copies of a document, the document is said to be signed in ‘counterpart’. This usually happens when the parties to the document are in different places and unable to physically sign the same document. While strictly not necessary, it is usual and prudent to evidence the parties’ agreement to accept execution by exchange of counterparts by including a specific clause in the document.

Split execution

’Split execution’ refers to a situation where multiple individuals for a single party execute separate copies of a contract, for example where two directors of a company each sign separate copies of it. Historically there was doubt as to the enforceability of split executions, with most lawyers insisting on multiple signatories for a single party executing a single, static document.

When Covid-19 hit in early 2020 legislators introduced temporary measures explicitly confirming the enforceability of split executions by providing that a person signing under section 127(1) may sign a copy or counterpart of a document. These temporary measures expired on 21 March. And unfortunately debate on a Bill that would otherwise have had the effect of extending the temporary measures beyond 21 March has been adjourned until 3 August 2021. As such, the law has reverted back to its pre-Covid-19 position, i.e. once again we have doubt as to whether split execution satisfies the requirements of s127(1).

So, for the time being, companies should avoid signing by split execution. This is frustrating given the progress that was made on this front in 2020, we just hope that legislators follow through with the long overdue reforms.

WB

This post is current at the date of publication. It is general in nature, does not constitute legal advice and should not be relied upon as legal advice. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this post.

Take care before hitting ‘record’ during a virtual meeting

As the world has adjusted to working from home, we have seen a global rise in video conferencing for business. Temporary amendments to the Corporations Act 2001 (Cth) permit all company meetings to be held virtually, provided the technology used gives participants a reasonable opportunity to participate. These measures are due to be extended until 16 September 2021 under the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021.

Whilst there are many advantages associated with virtual meetings, there are also risks. It may seem fairly harmless to record a virtual meeting, particularly for participants wanting to maintain a record without scribbling file notes, but participants need to consider the potential legal consequences of doing so.

Governance documents

A Company’s Constitution or other governance documents may expressly or implicitly prevent the recording of company meetings. Company Constitutions will usually provide that the board or chair may run company meetings in any way they see fit. If this is the case, then the board or chair could legitimately reject a request to record a meeting.

Surveillance Devices Act 2007 (NSW) (“SDA”)

In New South Wales it is an offence to record a private conversation through a listening device without the express or implied consent of all participants involved in the conversation (refer to section 7(1) of the SDA).

Is a virtual meeting a private conversation?

Likely yes. But it will depend on the nature of the virtual meeting. For example, a virtual meeting open to the general public would not generally be considered a private conversation.  The guiding principle appears to be that if participants in a conversation, or at least some of them, did not intend for the content of their discussions to be made public, then the conversation will most likely be a private one (refer to Corporation v Glen Carron [2018] SASC 116).

On this basis it is reasonable to assume that most company meetings would be considered private conversations for the purposes of the SDA.

Consequently, recording a virtual company meeting without the consent of all participants would likely be in breach the SDA. For an individual, this carries a maximum penalty of $11,000 or 5 years imprisonment, or both. And for a corporation, the maximum financial penalty increases to $55,000.

There are certain exceptions which are of limited relevance in the corporate sphere, primarily relating to recordings made by individuals out of fear for their safety, a topic outside of the scope of this post.

Video conferencing platforms and consent

Video conferencing platforms such as Zoom and Microsoft Teams offer recording functionalities where the meeting host, or with authority, meeting participants, can select an option to record the video conference. Both platforms notify all meeting participants when recording commences.

Therefore, if you are a participant in a meeting and receive notification that recording has commenced, a failure to object could be taken as implied consent and possibly absolve the recorder of liability under the SDA. So, speak up early if you have any objection.

Laws in other States and Territories differ

Whilst this article has examined the legal position in New South Wales, the laws in Queensland, Northern Territory and Victoria differ. In those three jurisdictions, a person may record a private conversation without the consent of the other participants provided they are a direct participant to the conversation.

While there may be scope to record a virtual meeting in these States and Territories, we remain of the belief that you should always take steps to inform all persons involved prior to recording a virtual meeting.

WB