Whilst technology has enabled large numbers of businesses to continue to operate remotely, with swathes of employees working from home, and interacting with employees from other businesses, around the globe, there are some practical considerations that should be made by businesses which need to execute formal documents, including in the context of corporate transactions, during the COVID-19 Pandemic:
- use of electronic signatures is generally acceptable, subject to certain caveats;
- witnessing of signatures; and
- execution of documents and deeds by companies.
On 3 March 2020, the government issued its response to the Law Commission Report Electronic Execution of Deeds. It agreed with the Report’s conclusion that primary legislation was not necessary to reinforce the validity of electronic signatures and stated that they are permissible and can be used in confidence in commercial and consumer documents (including deeds). However, the Law Society takes a more cautious view about whether electronic signatures should be used for deeds. The government acknowledged that there were questions of security and technology and set up a working group to look into such questions. It also asked the Law Commission to undertake a wider review of the law of deeds.
In the context of remote working, it may not be possible to print off, sign and scan documents so using electronic signatures may be a necessity. This is fine in relation to the signing of a contract. Where a company is entering into a contract, this must be signed by a person duly authorised to do so on behalf the company so the usual checks to make ensure the person is so authorised must be carried out. The company’s constitution should also be checked to ensure it contains no restriction or prohibition on the use of electronic signatures.
The position for deeds is less clear. Section 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989 (“LPMPA”) states that an instrument is validly executed as a deed by an individual if it is signed by him in the presence of a witness, who attests the signature. The Law Commission reviewed the law relating to the electronic execution of documents in a 2019 consultation. The Law Commission’s view was that with regard to deeds, section 1(3) LPMPA required the individual witnessing the deed to be physically present when the signatory signed the deed. Assuming that an individual is able to print off a document and is social distancing by remaining at home with family, he or she can ask a family member to witness the signature. An individual who is at home alone will not be able to do this. So, what are the options? It may be that the document could be executed as a contract rather than a deed by including a nominal consideration. This will assist with some deeds but not all. Could a signature be witnessed remotely, for example, via Skype and then posted to the witness who then attests the signature a few days later? Given the views of the Law Commission, it is likely that a court would hold that a deed was not validly executed in these circumstances.
In the case of a company, a deed must either be signed by two authorised signatories or by a director in the presence of a witness. Please see the paragraph above about witnesses as the same issues will apply to an individual signing in his or her capacity as a director. In the case of a company executing a deed by two authorised signatories signing it, can they sign two separate counterparts of it (which they could then do using an electronic signature if they were unable to print)? There is no specific authority on this and practitioners are divided on the question. A joint working party of the Law Society Company Law Committee and the City of London Law Society endorsed this approach but it is not universally accepted and there is a risk that certain organisations, such as HM Land Registry may not accept for registration documents executed by companies in this way.
This lack of certainty means that documents which purport to be executed as deeds by two authorised signatories (in the case of a company) or in the presence of a “remote” witness could subsequently be challenged as not being validly executed. This is very difficult at a time when there may simply be no other option.
This article is for information only and should not be relied on instead of specific legal advice. If you would like to discuss any of it further or enquire about advice on the execution of documents remotely, please call a member of the Knights' Corporate team.