With most businesses mandating that their employees 'work from home' in the light of the UK Government's COVID-19 restrictions on free movement, the challenge of execution and delivery of documents is emerging.
In this note, we explore the logistical considerations of closing English law deals in the context of the current social distancing restrictions – where the problems can be overcome and where problems remain for the time being.
(1) WHERE THE PROBLEMS CAN BE SOLVED
English law distinguishes between "simple" contracts, that can be signed "under hand" and deeds that have more formal signing requirements. Documents signed as deeds include certain real estate documents, appointments of trustees, powers of attorney, certain releases and variations of other contractual obligations.
The requirements for an e-signature vary by jurisdiction, but broadly it is anything in electronic form that identifies the signatory, e.g., retina scan, fingerprint, name, initials, and that conveys the intention of authenticating a document. It should be unique to the signatory and under their sole control.
For simple contracts, most deeds (except those requiring registration with a relevant authority, and lasting powers of attorney), corporate approvals (provided the company's constitution doesn't restrict this) and commercial agreements, a correctly affixed e-signature may already, and can continue to, be used in place of a traditional wet ink signature. This will be reassuring for those working remotely, perhaps without the full resources of the regular office environment (e.g. printer / scanner).
It is important to note that when using e-signatures, you must inform the other parties to the transaction that the documents are to be executed via e-signature and gain their approval to this, and inform them that any 'originals' distributed will not contain a wet ink signature.
In cross-border transactions, local counsel should also be consulted in good time to verify that any documents signed using an e-signature and / or served electronically will be recognised under all relevant laws.
Even where an e-signature is not available, following the decision by the High Court in R (on the Application of Mercury Tax Group Limited and another) v Revenue and Customs Commissioners  EWHC 2721 (the "Mercury Case") it is accepted practice that the final execution version of a deed together with an electronic copy of the signed signature page of the deed (either a scan of the wet ink signature, or the e-signature) attached to the same email will together constitute an original signed 'single physical' document (although it remains best practice to circulate "real" originals promptly after execution).
Stock Transfer Forms Subject to Stamp Duty
HMRC (UK tax, payments and customs authority) has confirmed that stamp duty on the transfer of shares may now only be paid electronically and payments submitted by cheque will not be processed. However, details of a stampable transaction (i.e. stock transfer forms and relevant transaction documents) may (and should) now be sent to HMRC via email rather than in paper form. These temporary measures are a welcome adjustment from the normal procedures.
(2) WHERE PROBLEMS MAY REMAIN
'Virtual' / 'Remote' Witnesses Not Permitted
Under English law, in certain circumstances (i.e., if the signatory to the deed is an individual), a deed must be executed in the presence of a witness. The witness must be physically present when the authorised signatory affixes their signature (wet ink or e-signature). A person witnessing a signature over video-call does not satisfy this requirement. This physically present witness may then add their witness details later (i.e., the authorised signatory does not have to 'witness the witness' adding their details and signature) and they can add their witness signature and details electronically too if desired. The Law Commission (independent body set up by UK Parliament to keep English law under review and to recommend reforms) have previously looked into 'remote witnessing' – i.e., by video link – but English law as it currently stands does not permit this.
This could create an issue when an authorised signatory is self-isolating or is living in a one-person household. It may, however, still be possible for witnessing of documents to be arranged whilst maintaining safe social distancing.
Requirement for Witnessing of Execution by Non-UK Companies
The precedent signature block for a non-UK company may require a witness as best practice. However, if local counsel confirm that there is no requirement for witnessing under local law, it might be preferable to remove the witness blocks or otherwise amend the signature blocks to mirror local practice.
In the absence of a witnessed signature for a non-UK company, it may be sensible to provide additional comfort as regards proper execution. This can be accomplished by requiring in the signing instructions that the authorised signatory should email their signature to the document from their own business email address (rather than through a secretary / other staff member) to their legal adviser. We understand this to be common practice in certain non-UK jurisdictions in any case.
(3) WHERE PROBLEMS DO REMAIN
If a party or its legal advisers require the exchange of original documents, the reasons should be checked. Is it simply for the party's good company housekeeping, in which case e-signed versions should suffice, or is there a requirement for original documents to be registered with an authority or regulatory body?
When certain security, such as a charge, is taken over the assets of a company registered in England and Wales that charge may need to be filed with Companies House (the UK Registrar of Companies) and, if so, within 21 days of its creation to perfect the security. The person responsible for filing that charge is required to file a certified copy of the charging instrument with Companies House and, in order to do so must have had sight of the original instrument.
Although Companies House has acknowledged that there are restrictions on public access to its offices and the delivery of paper documents, it is exploring alternatives to the filing of paper documents. Companies House has not, to date, publicly confirmed that it has relaxed any of the legal or regulatory requirements for the delivery of original paper documents.
We therefore advise that companies ensure they are aware of and plan in advance for any upcoming filings with Companies House, in order to avoid delay and missed filing deadlines.
Real Estate Documents
The requirement for UK real estate documents to be signed with wet ink signatures continues. This is despite discussion (including before the COVID-19 outbreak) and a Law Commission report on the use of electronic signatures for UK real estate transactions.
In an era where remote working is the new norm, and contact with persons outside your household remains forbidden, a number of practical issues for deal making are raised. Whilst the digital age of e-signatures certainly assists execution of day-to-day contracts, the hurdles for international M&A transactions / secured financings and UK real estate deals are greater.
It remains to be seen whether the UK Government will clarify and / or temporarily amend the remaining requirements for the delivery of witnessed and / or original documents to assist business continuity and stimulate the economy. Notwithstanding this, parties may decide to take a more relaxed, commercial approach to the requirement for original documents in the interests of getting a deal done.
(1) 'VIRTUAL' / 'REMOTE' WITNESSING
The Law Commission is the independent body set up by UK Parliament to keep English law under review and to recommend reforms. As the coronavirus outbreak and related UK lockdown continues, the Law Commission has produced a COVID-19 update on the use of virtual execution and e-signatures.
Under English law, in certain circumstances (e.g., if the signatory to a deed is an individual), a deed must be executed in the presence of a witness. As stated in our April note, the Law Commission had previously confirmed that 'remote witnessing' – i.e., by video link or other live televisual medium – was not permitted by English law. Best practice was for a witness to be physically present when the authorised signatory was executing the relevant document.
In light of continuing public health restrictions however, the Law Commission has acknowledged that it will not always be possible to follow such best practice. If remote witnessing must be used, in order to minimise any evidentiary risk as to whether the witness genuinely witnessed the signing, the Law Commission recommends creating a live recording of the signatures being affixed and witnessed. That recording would then be shared with all parties as soon as possible after execution.
Whilst the Law Commission's statement is helpful, we would recommend using every effort to arrange the physical witnessing of signatures (in a safe socially distanced manner, in line with Government advice) before considering other virtual / remote options.
(2) FINANCE DOCUMENTS
Overall, the rules relating to the submission of charges and other security documents for filing at Companies House (the UK Registrar of Companies) have not changed despite the challenges posed by COVID-19.
However, as a result of the measures introduced by The Companies etc. (Filing Requirements) (Temporary Modifications) Regulations 2020 (the "Regulations"), which came into force on 27 June 2020, the period allowed for companies, limited liability partnerships, Societas Europaeas and European Economic Interest Groupings to file the particulars of a charge with Companies House will be temporarily extended from 21 days to 31 days beginning on the day after the date the charge is created. The 21-day period will be extended automatically to 31 days for charges created on or after 6 June 2020. The 10-day extension will not apply if the person filing the charge with Companies House has already been granted an extension to the initial 21-day period by the Courts. The measures introduced by the Regulations will expire on 5 April 2021 in accordance with section 39(8) of the Corporate Insolvency and Governance Act 2020.
The temporary measures introduced by the Regulations will help to relieve the administrative burden on businesses completing financing transactions and allow them to focus their efforts on continuing to operate in this challenging environment.
(3) REAL ESTATE DOCUMENTS
The Land Registry has agreed to a temporary relaxation of the rules requiring wet ink signatures. Whilst full electronic signatures are still not permissible as a method of executing deeds, the Land Registry will currently accept real estate documents which have been executed and returned using the principles in the Mercury case (see our commentary on this case in the April note) for email exchange of executed deeds.
The Land Registry has also suggested that, whilst social distancing rules remain in place, signatures could be witnessed through glass and the signed document then placed down for the witness to pick up and countersign.
There are clearly still logistical challenges, but the removal of the requirement for original documents to be exchanged will be helpful.
The updated Law Commission advice and temporary measures adopted by Companies House and the Land Registry are all positive steps towards modernising practice to reflect the significant digital changes being embraced by global business.
However, despite the update to the Law Commission's guidance, we would reiterate that the position under English law with regards to 'virtual' / 'remote' witnessing remains unaltered despite the difficulties amidst the COVID-19 pandemic. We anticipate future reform in this area of the law as the world adjusts to the new norm.
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