Section 127(1) of the Corporations Act 2001 (Cth) states 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. A question that sometimes comes up with clients is whether or not legal documents can be signed by split execution. We’ll explain the term ‘split execution’ a little later on.
When does section 127 apply?
If you have a Pty Ltd company, section 127 applies to you, and you must ensure that when you sign and execute legal documents, you comply with this provision of the Act. For example, if you’re a civil engineering firm and and are offered the contract for the next big construction project, you need to ensure this contract is executed correctly. You need to ensure two directors, or a director and a company secretary sign the document.
Can you sign different copies of the same document?
That’s all well and good, but what happens if you and the other director are geographically separated? The problem arises where your other director keeps nipping off for a ‘break’ in Byron Bay (wait, are they dreadlocks you see growing?) The matter is urgent – you really need to secure this contract and so, as a solution to the problem, you sign different copies of the same document, rather than holding up the transaction. Signing different copies of the same document is called ‘split execution’.
Section 129(5) holds that other entities (people or companies) can assume that a document has been correctly executed if it appears to have been signed according to section 127(1).
Judicial guidance on ‘Split Execution’
The vexed question is whether split execution of documents complies with section 127(1). There’s a lot of confusion amongst clients (and lawyers as well) as to whether it does. Only limited judicial comment is available in Re CCI Holdings  FCA 1283 (the only case on the matter).
Emmet J explained that section 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.’
Emmet J ‘can see no reason’ why section 127(1) should be limited to having just one document signed by two directors (or a director and a company secretary). Why then will some lawyers refuse to accept two documents, each signed by a director? It’s very likely to be a case of lawyers’ conservatism and making a fuss over a storm in a teacup, overcomplicating things as usual!
If you need help, it’s always best to speak to a professional or do the research to make sure you’re comfortable with your position. Best practice is always to ensure that anything you reach agreement on is written down, signed and dated. A document in writing is always better than a verbal agreement where different memories of a conversation can lead to difficulties and dispute. Our contract lawyers can provide more assistance and a fixed-fee quote, so give us a call on 1300 544 755.