Coronavirus, virtual completions and the use of electronic signatures
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With the current outbreak of Coronavirus (COVID-19), social distancing and remote working is likely to become our new norm for some time – so how do we ensure that we get the deals done in a legally valid and enforceable way, with less access to scanners/printers or the post room?
Long gone are the pre credit crunch closing meetings, and most of us are now familiar with the legal requirements for 'virtual' signings since the Mercury Tax case in 2008. Whilst this can allow for completion, there is an expectation that wet-ink originals will follow particularly given the need for either originals or certified copies of originals to be presented at Companies House or the Land Registry, for example.
In this note, we take a look at the requirements and the practical work arounds that we expect will become necessary over the next few months, and perhaps more prevalent as the world becomes more tech focused, and less paper based.
An electronic signature, or an 'e-signature' can be attached to a document in several ways. There is software (such as DocuSign, Yoti and Adobe Sign) whereby documents are generally circulated by email through the software, with instructions on how to 'sign'. Other methods of including an electronic signature are, for instance, typing a name at the bottom of an email, electronically pasting an image of the signature, signing on screen with a finger or the mouse, or clicking an 'I accept' box. There is no printing, scanning or delivering required and the Law Commission in 2019 has confirmed that electronic signatures are capable of being legally valid under English law.
The use of electronic signatures does not dispense with the formalities required in respect of certain type of contract, and consequently, to date, the use of e-signature software has not been prevalent on complex transactions. Some of the logistical considerations are set out below.
Yes –
An agreement, subject to a company’s constitutional documents, is capable of being signed by electronic signature.
However, is the document a deed which needs to be signed before a witness, require a wet ink signature for registration, for example, or be signed in front of a solicitor? If yes, see other tabs.
No – you can apply an electronic signature to the document and send it to the relevant party. The usual rules about release of the signature and applying a signature page to a contract will need to be complied with
In practice:
Do you have the ability, via word, pdf or other signing platform to attach the e-signature of the relevant person from your organisation?
Practically, this may require the person to be authorised e.g. via a power of attorney and for their signature to be stored in a format that allows it to be attached electronically.
Yes – the usual execution requirements apply, including where necessary, execution in front of a witness.
The Law Commission’s view is that ‘physical’ presence is crucial – witnessing over a screen is not sufficient and so this does not get around the need to have another human being in the same room. If the witness attestation is not valid, then the deed will be neither legally valid nor enforceable as a deed.
In practice:
Check whether the contract really needs to be signed as a deed. Would a contract with consideration be appropriate in order to avoid the need for the witness?
For companies and LLPs where the deed can be signed by two directors, a director and the company secretary or two members of the LLP, this may be easier to apply electronic signatures to the deed rather than require one signatory in front of a witness. Our view on this is that, as with non electronic signatures, both directors need to sign the same execution block. This does not mean that both directors have to be in the same room, rather that both directors sign the same execution block on the same copy of the deed.
Do you have a witness available? We always recommend that the witness be independent, meaning that they should not be any of the other signatories, a family member of a signatory or under the age of 18. It is important to note that this is best practice rather than a legal requirement. Therefore, if it is not possible to find an independent witness, depending on the type of document this should hopefully not be a stumbling block with regards to completion. If you are struggling to find an independent witness, please do get in touch and we can suggest some services.
Can you give extra individuals in the company signing rights no, pursuant to powers of attorney? Given the possibility of social distancing being part of our lives for some time, it is worth including extra individuals as those with signing rights of a company, as a contingency plan for unwell or unavailable directors.
For individuals, as the law currently stands, there is no alternative other than to sign in front of a witness, albeit, consider who the witness could be if you are self-isolating.
For example, where original documents must be delivered at Land Registry.
Yes – you will need to make arrangements to sign an original and send it to the relevant party.
In practice:
You could get your solicitor to check (rather than witness) the signature via a skype call so that you ensure it has been signed correctly before you send the original to a third party.
Instructions including application of signature pages to hard copies will need to be complied with.
Yes – If you are working on a cross border transaction you will have to consider whether electronic signatures are valid in all of the relevant jurisdictions.
If enforcement or litigation may take place outside of England, the form of the legal contract may be scrutinised and e-signatures may not deemed to be a valid method of execution.
Equally, the place of execution may be important for tax reasons – we would advise against using e-signatures, where the location of signing may be more opaque.
In practice:
Local counsel must be consulted before a decision can be made as to whether electronic signatures will create a valid contract.
Given the restrictions on travel, powers of attorney may be useful and relied on more heavily. We would suggest anticipating who may need to be able to be given a power of attorney – although this in itself could be logistically difficult if the power of attorney needs to be signed before a notary or apostilled.
For example a statutory declaration.
Yes – arrangements will need to be made to do this, subject to best practice on social distancing and self-isolation.
In practice:
Usual and sensible precautions will need to be taken to ensure all transmission risks are minimised.
Yes –
An agreement, subject to a company’s constitutional documents, is capable of being signed by electronic signature.
However, is the document a deed which needs to be signed before a witness, require a wet ink signature for registration, for example, or be signed in front of a solicitor? If yes, see other tabs.
No – you can apply an electronic signature to the document and send it to the relevant party. The usual rules about release of the signature and applying a signature page to a contract will need to be complied with
In practice:
Do you have the ability, via word, pdf or other signing platform to attach the e-signature of the relevant person from your organisation?
Practically, this may require the person to be authorised e.g. via a power of attorney and for their signature to be stored in a format that allows it to be attached electronically.
Yes – the usual execution requirements apply, including where necessary, execution in front of a witness.
The Law Commission’s view is that ‘physical’ presence is crucial – witnessing over a screen is not sufficient and so this does not get around the need to have another human being in the same room. If the witness attestation is not valid, then the deed will be neither legally valid nor enforceable as a deed.
In practice:
Check whether the contract really needs to be signed as a deed. Would a contract with consideration be appropriate in order to avoid the need for the witness?
For companies and LLPs where the deed can be signed by two directors, a director and the company secretary or two members of the LLP, this may be easier to apply electronic signatures to the deed rather than require one signatory in front of a witness. Our view on this is that, as with non electronic signatures, both directors need to sign the same execution block. This does not mean that both directors have to be in the same room, rather that both directors sign the same execution block on the same copy of the deed.
Do you have a witness available? We always recommend that the witness be independent, meaning that they should not be any of the other signatories, a family member of a signatory or under the age of 18. It is important to note that this is best practice rather than a legal requirement. Therefore, if it is not possible to find an independent witness, depending on the type of document this should hopefully not be a stumbling block with regards to completion. If you are struggling to find an independent witness, please do get in touch and we can suggest some services.
Can you give extra individuals in the company signing rights no, pursuant to powers of attorney? Given the possibility of social distancing being part of our lives for some time, it is worth including extra individuals as those with signing rights of a company, as a contingency plan for unwell or unavailable directors.
For individuals, as the law currently stands, there is no alternative other than to sign in front of a witness, albeit, consider who the witness could be if you are self-isolating.
For example, where original documents must be delivered at Land Registry.
Yes – you will need to make arrangements to sign an original and send it to the relevant party.
In practice:
You could get your solicitor to check (rather than witness) the signature via a skype call so that you ensure it has been signed correctly before you send the original to a third party.
Instructions including application of signature pages to hard copies will need to be complied with.
Yes – If you are working on a cross border transaction you will have to consider whether electronic signatures are valid in all of the relevant jurisdictions.
If enforcement or litigation may take place outside of England, the form of the legal contract may be scrutinised and e-signatures may not deemed to be a valid method of execution.
Equally, the place of execution may be important for tax reasons – we would advise against using e-signatures, where the location of signing may be more opaque.
In practice:
Local counsel must be consulted before a decision can be made as to whether electronic signatures will create a valid contract.
Given the restrictions on travel, powers of attorney may be useful and relied on more heavily. We would suggest anticipating who may need to be able to be given a power of attorney – although this in itself could be logistically difficult if the power of attorney needs to be signed before a notary or apostilled.
For example a statutory declaration.
Yes – arrangements will need to be made to do this, subject to best practice on social distancing and self-isolation.
In practice:
Usual and sensible precautions will need to be taken to ensure all transmission risks are minimised.
When considering using an e-signature software platform, there are practical considerations. Does the software provide sufficient cyber-security? Could there be any GDPR concerns? And could there be a greater risk of fraud, if an individual is simply required to 'click' its signature? Is there sufficient time to get the relevant authorised signatories trained?
Whilst e-signatures will undoubtedly look to be an appealing solution in these unprecedented times, whether or not they are appropriate will be specific to the circumstances. Companies need to be forward planning, thinking ahead to a time where the usual signatories and the usual signing methods are not available. This may be agreeing to a licence to use a e-signature platform, and training the signatories for this purpose, or it could be extending the list of authorised signatories and reviewing articles to ensure that telephone board meetings are acceptable. Or it may be as simple as ensuring that the right people have access to the right hardware – our view is that printers and scanners will be the tried and tested method for a while yet.
If you need any legal help with this subject read more about our expert corporate solicitors and get in touch.
