HomeFWJ TakeawayBanks & financial institutionsClient take-onExecuting asset based lending documents electronically

In a blog posted on 10 September 2019, ‘ E – signatures in commercial contracts: More clarity please’ we explained how simple contracts and deeds could be executed using electronic signatures, but recommended that lenders still ensure the current statutory requirements applying to the execution of documents are complied with until legislation is introduced to clarify how contracts should be executed in an electronic environment.

Remote working and social distancing resulting from the coronavirus pandemic has made the execution of documents more challenging. Additionally, lenders are striving to streamline the take-on process, so in this blog we consider some potential solutions to facilitate the signing of simple contracts and deeds.

Documents executed as simple contracts

Most contracts can be executed as simple contracts and a contract executed using an e-signature and existing only in an electronic form will usually satisfy the statutory requirement of being in writing and signed.

An electronic signature is a “wet ink” signature in an electronic form. For example, pasting a scanned manuscript signature into an electronic contract, typing one’s name at the bottom of an email or in the signature block of a Word document and clicking on a “I accept” or “I agree” website button have for many years been considered capable of satisfying a statutory signature requirement.

In addition, the use of a web based e-signing platform to generate an electronic copy of a person’s signature or a digital encrypted e-signature is becoming more prevalent.

Unless a company’s constitution or its board restricts the use of electronic signatures, a simple contract may be executed by a company by the wet ink signature or e-signature of one director and in the case of an LLP (absent any restrictions) by the wet ink signature or e-signature of one member.

In relation to sole traders and unincorporated partnerships, execution of invoice finance agreements as simple contracts will depend on whether the agreement is structured as a “whole turnover” or “facultative” agreement. Whole turnover agreements must be signed by the wet ink signatures of the sole trader and the partners of unincorporated partnerships in the physical presence of a solicitor who must then attest the signature(s). Facultative agreements do not have to be attested by a solicitor and can be signed by the wet ink signature or e-signature of the sole trader or by one or more authorised partners of the partnership (though best practice is to require all partners to sign).

Asset based lending documents can be executed as simple contracts provided that there is no statutory reason for them to be executed as deeds.

Documents executed as deeds

Certain contracts, including powers of attorney, debentures, mortgages and legal charges over land, must be executed as deeds in order to be valid. In addition, other contracts such as guarantees and indemnities, deeds of priority, inter creditor and subordination deeds, must be executed as deeds under common law because there is no consideration to support the contract or they contain an express release of a debt, liability or obligation.  

At present, invoice finance and asset based lending agreements must be executed as deeds if they contain a power of attorney, but such agreements could be executed as simple contracts if the power of attorney was removed from the agreement. Accordingly, lenders who wish to streamline their take-on process and expedite the execution of their facility agreements should consider whether a power of attorney is essential to their armoury of contractual rights. In our experience, reliance on powers of attorney is very rare and the rationale for their inclusion in asset based lending agreements has largely ceased to be relevant.

Security documents, such as debentures, could be drafted so they are not required to be executed as deeds, but this would result in the exclusion of rights over land and the rights given to mortgagees under the Law of Property Act 1925.

Similarly, a guarantee and indemnity may also be executed as a simple contract if contractual consideration has been given to support the guarantee (though we would not recommend adopting this option as a standard practice without specific legal advice).

If a document must be executed as a deed (as above, assuming that there are no restrictions on the use of electronic signatures), it may be executed by a company either by the wet ink signatures or e-signatures of two authorised directors or one director and the company secretary (and there is no requirement for those signatories to sign at the same time or to sign the same copy of the deed) or by one director in the presence of a witness.

Similarly, in the case of an LLP, a document may be executed as a deed by the wet ink signatures or e-signatures of two authorised members or by one member in the presence of a witness.

If a deed (such as a guarantee and indemnity) is being executed by an individual, it may be executed by the wet ink signature or e-signature of the individual in the presence of a witness.

If executing a document as a deed in the presence of a witness, it is a strict requirement for the witness to be physically present in the same location when the signatory to the deed signs it (whether applying a wet ink or e-signature) and for the witness to attest the signature immediately following execution by the signatory. The witness’ signature may be applied electronically to the attestation clause. Accordingly, at present, viewing a signatory virtually, over a video link, is not considered sufficient to constitute a “physical” presence.

Although another party to the contract cannot be a witness, there is no requirement that a witness must not be connected to the signatory. However, it remains best practice to ensure that the witness is independent in case the witness has to be called to give evidence of the due execution of the document by the signatory.

Documents, such as debentures, that need to be filed at Companies House can be signed using e-signatures and lodged with Companies House electronically using its web-filing service. However, documents such as a Legal Charge over land, that need to be filed with HM Land Registry, must have wet ink signatures unless (and until further notice) the parties sign electronically and follow HMLR’s Practice Guide 8: execution of deeds using the “Mercury” signing process (which will involve lawyers acting for all parties).

FWJ comment

Lenders who wish to streamline the execution of invoice finance and asset based lending agreements may give companies and LLPs the option of signing the agreements electronically by two directors or two members respectively or should consider the deletion of powers of attorney from their template agreements to facilitate the signing of such agreements as simple contracts.

If a lender permits facility and security documents to be executed using e-signatures or an electronic signing platform, we recommend that the written consent of all parties to the relevant electronic execution process and a representation that there are no restrictions on the borrower using such process are recorded in each relevant document being signed electronically. Additionally, the authority of the directors to sign electronically and the method of electronic execution can be recorded in board minutes.

If a document is signed by the signatory in the presence of a witness, the witness should provide a written confirmation that he or she was physically present in the same location when the signatory signed the document.

We can provide template wording for these provisions and help lenders draft in-house policies and procedures for the execution of their suites of deeds and documents.   

In facilitating the execution of documents electronically, lenders should take particular care to verify the integrity of e-signatures due to the ease by which they can be forged by implementing suitable take-on procedures to check the authenticity of the signatures.

This blog summarises the law in England and Wales at the time of its publication. If foreign law or parties (including Scots law or parties) are involved, different considerations will apply. It is not expected that Brexit will have any implications on the validity and admissibility of e-signatures under English law.

For further guidance in relation to electronic signatures, contact our experts at Francis Wilks & Jones.

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