The execution of electronic corporate documents during COVID-19

The current COVID-19 pandemic has changed the way we approach certain elements of signing practices. Following the lockdown, we had to quickly adapt to remote execution of documents and the challenges this presented. The pandemic has given us food for thought for reform in the future, which is very much being considered by the government.

The Current Position

Section 43 of the Companies Act 2006 (the “Act”) stipulates that, if a company is entering into a simple contract, it can be signed by a company in writing or it can be entered acting under authority, express or implied. In practice, this typically means a director will sign on behalf of the company.

Section 44 of the Act states that if a document (a deed for example) is required to be executed by a company it can be done in three ways. These are (i) two directors signing the document, (ii) one director and the company secretary signing the document or (iii) one director signing in the presence of a witness who attests the signature.

For shareholders and other individuals signing deeds, such as a share purchase agreement (if it is expressed to be signed as a deed) or a power of attorney, the relevant legislation surrounding deeds is contained in the section 1 of the Law of Property (Miscellaneous Provisions) Act 1989 (the “LPMP”). Section 1(3) of LPMP states that the signature by an individual on a deed must be witnessed.

The questions that have arisen as a result of COVID-19

As the way in which documents are executed has changed since March 2020, we have encountered a number of challenges to the process.

Electronic Signatures

Firstly, we have been forced to shift from wet ink signatures to electronic signatures. Typically, wet ink signatures are obtained (and historically preferred by lawyers) on documents by meeting face to face. During the COVID-19 pandemic this has not been possible as offices are shut and people are staying at home. Electronic signatures are being turned to and relied upon but there remains confusion on the law surrounding this area which we hope to clear up below.

The Law Commission published their report on the Electronic Execution of Documents in September 2019 (the “Report”) which was followed up by a statement by the Lord Chancellor and Secretary of State for Justice on 3 March 2020 , weeks before we went into lockdown. The Lord Chancellor agreed with the findings of the Report ‘that formal primary legislation is not necessary to reinforce the legal validity of electronic signatures. The existing framework makes clear that businesses and individuals can feel confident in using e-signatures in commercial transactions’. The Lord Chancellor continued and stated, in relation to electronic signatures that ‘they are permissible and can be used in confidence in commercial and consumer documents’.

This makes clear that electronic signatures are valid and no changes in the law are proposed to clarify this. During the current pandemic, and in the immediate future while it is the safer option, electronic signatures present a viable alternative to the tried and tested wet ink signature. It is important to note, however, that for a valid electronic signature the signatory must intend to authenticate the document.

Witnessing of Documents

Another issue which has presented itself is the correct witnessing of documents. Legislation, noted above, states that deed must be signed ‘in the presence of a witness who attests the signature’. It is the standard and best practice that this witness be independent (i.e. not a family member, not under 18 nor another party to the document).

This independence requirement is being challenged in the time of COVID-19 as individuals may only come into contact with immediate family members in their household. It should be noted that if a family member or person under 18 witnesses a document, it does not automatically mean the document has not been attested correctly and as such family members are valid witnesses, should an independent witness be impossible to locate. However, any person who is a party to the document should not also act as a witness.

The recent case of Yuen v Wong (2020) (First-tier Tribunal 2016/1089) was helpful in determining a number of issues in respect of witness requirements. In this case it was noted by the judge that the witness of a deed must be in the physical presence of the signatory when they actually sign the document. The judge went on to state that the witness does not, however, have to sign the document as witness immediately (although in practice there is unlikely to be a long delay).

Witnessing a document electronically

Yuen v Wong above tells us that a witness must be in the physical presence of the signatory. Therefore, if a document is to be signed electronically the witness of that document must be in the presence of the signatory when they enter their signature on the device in question. In practice, the witness should be sat next to them or looking over their shoulder watching them enter the signature.

Future Reform

The Report made several recommendations to the Government on the future of signing documents electronically. They stated that ‘although the current law already provides for electronic signatures, the Government may wish to consider codifying the law on electronic signatures in order to improve the accessibility of the law’ .

One issue that has presented itself is whether or not documents can be witnessed via video link. This question was specifically addressed in the Yuen v Wong case where the effectiveness of witnessing a signature by Skype video was considered. In this respect the judge was of the view that there was “a realistic prospect of success” in arguing that a transfer deed witnessed via Skype is not validly executed because the attesting witness was not physically present when it was signed”. In view of this, witnessing by video link is not currently acceptable.

The Report and follow up from the Lord Chancellor stated that a full review was required and part of this would be to look at whether video witnessing could be accepted in the future and whether this could be codified in statute.