COUNSEL by MARCUS VAN GEYZEL
Complex corporate and commercial transactions present headaches to the parties and their legal advisers in terms of the logistics of arranging the execution of the myriad documents involved. This is even more pronounced in transactions involving a large number of parties, or multinational signatories executing documents across different time zones.
To alleviate this, businessmen and lawyers have contributed to the evolution of “virtual closings”. Physical completion meetings have become non-essential and instead, signatories or their lawyers exchange scanned copies of signed execution pages via email. In some cases, execution pages of contracts are pre-signed by the parties, and attached to the contracts once terms have been agreed.
Virtual closings came under scrutiny in the UK in 2009 after a prominent case where doubts surfaced as to whether documents which were pre-signed and assembled at a later date constituted valid contracts. The UK business and legal community were concerned that the courts were regressing to a traditional approach to contract law which would stifle business transactions.
The debate resulted in a guidance note issued by the joint working party of The Law Society Company Law Committee and The City of London Law Society Company Law and Financial Committee. The practical tips in the guidance note eased concerns in relation to the validity of agreements concluded by virtual closings. While not binding law, adhering to the guidance would help avoid future disputes. The following is a brief list of some practical considerations for Malaysian businesses based on the guidance note and market practice.
Preliminary issues
The key to a successful virtual closing is proper planning. The parties should agree at a fairly early stage that a virtual closing will be used, and agree on a completion checklist setting out completion items and a timeline. The checklist will make clear how the signing, document exchange and completion will take place, including details of requirements for document delivery method and timing. The availability of signatories should be confirmed well in advance, particularly where different time zones are involved.
All signatories should ensure that they are able to sign at a particular time, and have access to scanning, faxing or emailing facilities. Necessary authorisations, board resolutions or powers of attorney should be put in place. It is also important to confirm the manner of execution required for different documents, such as by hand, affixation of common seal or other specific jurisdictional requirements. If required, the contract should also include a “counterparts” clause, enabling the creation of counterpart original documents which need not be combined into one complete signed version — though this is not possible for all documents, as some are required to be “physically whole” when executed.
Executing the documents
Ideally, final agreed versions of the documents should be emailed to all parties in pdf format. Each party would then print out the execution page, sign it and email a pdf of the signed signature page to their respective lawyers. The lawyers would then coordinate the exchange of signed execution pages among themselves based on the closing checklist. However, this may not always be possible.
For example, a party may not be available to sign documents at the agreed closing date or time, for whatever reason. In such cases, the execution pages should be agreed beforehand and circulated by email in pdf format. The unavailable party would then sign the execution page, and email or courier it to his lawyer. At this time, the contents of the document are still under negotiation. The lawyer would be authorised to hold the signed execution page and release it accordingly — whether by email circulation to the other parties, or by attaching it to the final document.
Where execution pages are being signed in advance of the final version of the document being agreed, the final document with signatures attached should be circulated to the parties as the agreed version to avoid any dispute arising in future. Ordinarily, one lawyer will be in charge of entering the date and arranging for the stamping of the document, and this dated and stamped version will be circulated as the final, conclusive document between the parties.
In particular circumstances, common seal or “wet ink” execution is required. For example, the execution of land office documents such as memoranda of transfer. Depending on the agreed closing procedure between the parties, actual closing may only occur once the originals are received by courier.
Finalising the closing
Every virtual closing should conclude with the circulation — by a party agreed beforehand as in charge of coordinating the conclusion of the closing process — of complete signed, dated and stamped documents which will be deemed to be the conclusive agreement between the parties, irrespective of earlier versions which were floated around. This final step is crucial as, despite the best pre-agreed closing checklist, virtual closings are often chaotic and rushed, and parties may lose track of the various last-minute amendments made.
If possible, the arrangement whereby pre-signed execution pages are held in escrow pending the finalisation of negotiations should be avoided. Where amendments are required to a document which has already been executed, a new draft should be circulated and executed rather than transplanting signature pages. In conclusion, parties to virtual closings should take great care in ensuring that the process is well coordinated. The method, timing and validity of documents signed by virtual closings are very much dependent on the particular facts of each transaction, and the particular requirements of relevant authorities and laws of each jurisdiction should also be carefully considered.
Marcus van Geyzel is a senior associate in the corporate and commercial division at Mah-Kamariyah & Philip Koh, Advocates & Solicitors
This article appeared in Forum page of The Edge Malaysia, Issue 798, Mar 22-28, 2010 [Link]
Posted on March 22, 2010
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