Risks flagged with electronic execution of trust deeds, BDBNs
While there is now greater certainty surrounding the electronic execution of deeds and binding death benefit nominations, there are still some important risks to consider, says a law firm.
Speaking in a recent webinar, DBA Lawyers director Bryce Figot noted that the Corporations Act 2001 was amended earlier this year to allow companies to execute and sign company documents electronically.
However, Mr Figot outlined that there are important requirements set out in section 110A(2) which must be met to ensure that the electronic execution is valid.
Section 110A(2) provides:
A method of signing satisfies this subsection if:
(a) the method identifies the person and indicates the person’s intention in respect of the information recorded in the document; and
(b) the method was either:
(i) as reliable as appropriate for the purpose for which the information was recorded, in light of all the circumstances, including any relevant agreement; or (ii) proven in fact to have fulfilled the functions described in paragraph (a), by itself or together with further evidence.
Mr Figot said determining exactly what this means in practise can could be difficult.
“There’s some uncertainty and its such new legislation we don’t know what it would look like yet if the veracity of an electronic document was challenged,” he said.
Mr Figot said the conservative approach would therefore be to continue using the traditional method of printing the full document and getting wet signatures with independent witnesses.
“[However], there may be circumstances where you need to be a bit more adventurous. An accountant contacted me the other day who had a client working on an oil rig,” he said.
“In those sorts of cases you can make a deed electronically if its governed by the laws Victoria, NSW and Queensland or the only party is a company,” he said.
If it’s a company, Mr Figot said the method must identify the person and indicate the person’s intention in respect of the information recorded in the document and comply with the rest of section 110A(2).
In terms of binding death nominations, he explained that the High Court decision Hill v Zuda determined that a binding death benefit nomination is governed by the governing rules of the specific fund.
This means that if the SMSF deed provides that a binding death benefit nomination can be made electronically, then the binding death benefit nomination should be able to be made electronically, he stated.
However, he warned that there could be a risk with this where the current governing rules turned out not to apply.
“So if you’re going to make a BDBN electronically, you need to make sure the deed or the governing rules allow for it and you’d want to be confident that the deed is valid,” he cautioned.
