Four years after the pandemic, we are still coming to grips with how business and work has changed. In bygone days, a person would accept a transaction simply using their mark, seal or signature. But with changes to how documents can be signed and witnessed during the pandemic, and new challenges with the rise of AI and digital technologies, many are asking in 2024: “Can my customer sign the credit application electronically?”

The short answer is yes BUT there are different types of electronic signatures and some precautions to follow. Make sure you get it right so that your credit application is signed validly.

Electronic signature vs digital signature

An electronic signature uses a symbol or mark to sign a digital document in a way which mimics a physical signature. For example, inserting a scan of the person’s signature into a document, or clicking “I agree” on a website.

This is different to a digital signature, which is a certificate-based digital ID used for signing a document with encryption. This allows recipients of electronically signed documents to verify the sender’s identity and authenticity of the signature.

Can my customer sign electronically?

The good news is that, yes, your customer can sign a credit application electronically. 

Tips to make sure that you create a valid contract with the customer

Even though you can have the credit application signed electronically, you still need to take precautions to ensure that it’s done properly.

• Make sure that any credit application (whether online, digital or electronic) is completed properly. In the name of a sale, you will be pushed to accept something that is incomplete, inaccurate or ineligible. If in doubt, ask the customer to do it again. For example, fuzzy or ineligible signatures should be returned. It is better to get the credit application right from the start because it might be your one and only chance to do so.
• Make sure that the credit application contains a copy of your Terms & Conditions of Trade. Clauses like “our Terms & Conditions of Trade are contained on our website. “You agree that you’ve read them” will probably lead to debate about whether the customer actually read the Terms, who is responsible for ensuring , and whether they ultimately form part of the contract. Remove all doubt and provide them with the credit application every time.
• To ensure the customer is who they say they are, identify the person who signed (usually with a copy of their driver’s licence or other photo identification). Make sure the collection of this personal information is in line with your privacy policy and the Privacy Act.
• Make sure the person signing the credit application has the customer’s authority to do so – this will avoid arguments from CEO’s and directors later (usually when they don’t want to pay a bill) that a secretary or accounts officer did not have the proper authority to enter the contract.
• If the customer’s signature is omitted by mistake, never fear. You can still agree to a contract in other ways, such as verbally or by conduct. For example, if the customer doesn’t sign the credit application but continues to send you purchase orders and paying your invoices. If a problem later arises and the validity of the contract is challenged, it takes time and money to prove a contract by conduct – it’s a far better use of those resources on getting the credit application right the first time.
• Personal Guarantees can be different, usually because they are in the form of a Deed. There are circumstances where PG’s can be signed electronically but there are some legal rules to follow. To ensure they are valid, make sure you get professional help with Personal Guarantees and other documents such as loan documentation, statutory declarations, affidavits and mortgages.
• If in doubt, check with an expert! Reach out to a lawyer if you’re not sure whether your customer’s signature (electronic or not) is valid.

Key takeaway

In a digital world increasingly lived online, any process that makes legal transactions easier should be embraced. The customer experience is paramount – quicker acceptances, a faster sales process and, ideally, faster payments. But with so much legal change after the pandemic and current economic climate, you can’t ignore the legal requirements of electronic signatures.

One question clients often ask us is, “What is my position when my customer is a trust”? Trusts can cause confusion and misunderstanding, often because they are less transparent than other business structures and the concepts can be hard to understand. In this article we will help you gain a basic knowledge of trusts in a practical way and demystify some of the confusion.

Firstly, we think it helps in the understanding of a trust to look at a short history:

We have all heard of Robin (Hood) of Loxley, Little John and Maid Marian (probably seen the movies as well) and their exploits in Sherwood Forest. Allegedly, Robin was a crusader and went off to the Holy Lands to fight for king and country. When the crusaders left their castles and property behind, they would have others look after their land and hold onto it until the crusaders (hopefully) returned. Upon return, the holder of the land (i.e. the trustee) would then account to the returning crusader (i.e. the beneficiary) for the land and any income or profits made during their absence.

The law recognised this relationship where property seemed to be held by one party (the trustee) but it was actually owned by someone else (the beneficiary).

1. Basic Information of Trusts

What does the public think a Trust is? When we talk of trust, the public usually thinks of that state of mind where someone’s word is taken on face value; we accept what is said without lies or deceit involved, and we have faith in the person giving their word.

What does an accountant think a Trust is? We find a trust is often seen by accountants as a means of better structuring tax affairs.

What is a Trust to a lawyer? Legally, the word ‘trust’ refers to another concept altogether. A trust is a collection of rights and obligations; it is a relationship. Most times, a trust is created by a Settlor creating a written document – the Trust Deed. The Trust Deed gives you details of what powers the Trustee has (for example, power to invest, to buy and sell and hold property). It also provides for several obligations that the Trustee has to look after the trust property (for example, a Trustee can’t use the trust property for his/her/its own benefit). The main thing is that a Trust Deed will nominate who the Beneficiaries of the trust are and what trust property they are entitled to receive.

2. The roles within a Trust – Settlor, Trustee and Beneficiaries

This brings us to the important roles within a Trust. We have been speaking about Settlors, Trustees and Beneficiaries. So, who are they and what do they do?

Who is the Settlor? This is the person who creates the Trust by making an initial contribution for the benefit of the Beneficiaries. For example, if we were creating a Trust for a client in a family trust, we would suggest that a grandparent be a settlor. In a business context, the accountant organising the Trust is often the Settlor.  

Who is the Trustee? This is the person or company who holds the property on trust for the beneficiaries. For business purposes, the recommended trustee is a company because a company has perpetuity (i.e. it doesn’t die like a person).

Who are the Beneficiaries? These are the people who are entitled to the trust property. Whilst it looks to the outside world that the Trustee owns the property, the beneficiaries are the ultimate beneficial owners of the trust property. 

3. Trusts and Transparency

Why is it important? We’ve all heard of “piercing the corporate shield”. Think of trust transparency as an analogous concept. Remember, you need to get a ‘direct line of sight’ to the Beneficiaries who are behind the Trustee. This will help to protect your assets and preserve your positioning over other creditors if and when the Trustee becomes insolvent.

What can assist you in getting a “direct line of sight”?

1. Ask in your account application to find out whether your customer is operating as a trust. You should also have your customer warrant the accuracy of any information they provide you.That will give you a remedy if you have been misled.
2. If a company is involved, make sure you carry out both ABN and ACN searches so that you can be sure of the nature of your customer’s business trading vehicle.
3. Ask for a copy of the Trust Deed. Any accountant or lawyer who set up the trust will have copies. Have it checked by a trusted advisor/lawyer/accountant to see who the beneficiaries are and also the type of trust it is (discretionary, unit, trading, charitable etc.) Remember the beneficiaries are the true owners so it is important to know who they are so they can provide such guarantees or security as required.
4. Check for a right of indemnity against trust assets. Often you will find that assets of a company are no more than the value of its shares.
5. Carry out enquiries on any adult beneficiaries.Their credit records may cause issues when determining whether to grant credit or not. Best protection is getting personal guarantees from adult beneficiaries and ensure you have a charging provision in those guarantees as well to give you another layer of security.
6. Make sure you openany account in not only the name of the customer in its own capacity, but also in its capacity as a trustee. The company trustee is really wearing two hats – its acting as a company in its own right but also in its capacity as a trustee of a trust so that you have a right to the trust assets.

These steps should give you the “direct line of sight” and help position you over and above other creditors.

The concept of trusts goes back to medieval times, but with today’s tools there is no need to be blinded by any attempt to protect assets from creditors. Used properly, those tools can make trusts great again and give you that direct line of sight that you need for full recovery.

Disclaimer

This article is designed and intended to provide general information in summary form. The contents of this article do not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as legal advice. Please seek legal advice about your specific circumstances.

A common feature of the onboarding process for many suppliers is a personal guarantee taken from an owner or director of the company customer. These personal guarantees can lie dormant for months and years on end until the customer can’t (or won’t) pay any longer.

At FCW Lawyers, we frequently act for clients looking to enforce their personal guarantees. The time that we get involved is often when the raft of excuses come rolling in, too. “I never signed a personal guarantee”, “That’s not my signature, someone must have forged it.” “You extended my credit limit past what was on the credit application.” “I’ve got no assets.”   

That’s just on any normal given day. But in the current economic climate, you won’t just be facing a raft of excuses – you’ll be facing a torrent.

To help yourself survive the tidal wave of excuses from guarantors and make sure your personal guarantee is worth the paper it’s written on, ask yourself these five questions:

1. Did you notify the guarantor?

When you accepted the guarantee, did you notify both your customer and the guarantor in writing? If not, there’s no better time to start. It might just help you overcome excuse numero uno – “I don’t remember giving a personal guarantee” and “that’s not my signature”.

We recommend that all our clients review their standard procedures for notifying customers and guarantors that the credit application and guarantee has been accepted and the credit account has been opened. Take care to write specifically to the guarantor once the documents have been accepted. This is particularly important where the guarantor is not involved in the day-to-day running of the business. Why not also consider sending separate copies of the guarantees to the guarantors at the same time as you notify the customer they’re onboarded?

2. If you have a multiple company structure, are all the companies included?

Many suppliers will list their parent company and their subsidiaries as the entities that are taking the personal guarantee. But how long has it been since you looked at those? Has your business undergone any restructures or name changes in that time? Are all the entities listed that need to be? If not, your personal guarantees could be out of date.

For example, say you took a personal guarantee from a customer in the name of Machine Sales Pty Ltd in 2016. A few years later, the same customer starts trading with your subsidiary Machine Repair Pty Ltd, but it is not listed in your personal guarantee. The guarantee may not apply to the debts owed to your subsidiary.

We recommend carefully reviewing the entities listed in your personal guarantees and updating them where necessary. We also recommend using language such as “including but not limited to” so that you still have some ammunition if you get hit with excuse #2 – “I didn’t guarantee that specific company’s debt.”

3. Is the guarantee written in plain English and does it display a warning to get legal advice?

One problem with personal guarantees is the psychology behind them – many guarantors believe that they will never have to reach into their own pocket and put money up. It’s too hard to read and it’s just another document to be signed in the application or onboarding process.

We recommend plain English guarantees with clear warning labels about it being an important legal document. This will help to alert guarantors that they need to read and understand the document more carefully. It will also help you later on if guarantors start saying things like “I never had the opportunity to get independent legal advice”.

4. Check the witness

We recommend to all of our clients that personal guarantees be in the form of a Deed. This is because a Deed is a particular type of legal document that has certain benefits over other types of agreements. But to be binding, there are certain technical requirements of Deeds which some guarantors cling onto to get out of payment.

For example, the Conveyancing Act (NSW) requires Deeds to be attested by at least one witness who is not a party to the deed. But what if you have a personal guarantee that hasn’t been witnessed?  Can it still be enforceable as a contract, but just not a Deed?

Ideally, if you receive a Deed that has not been witnessed, you should return the document and ask the guarantor to have his or her signature re-witnessed. Where that is not possible, you will have to argue that you have an enforceable agreement, just not a technical Deed. Every reason to dot your I’s and cross your T’s from the very start.

5. Don’t forget bank account details

Once upon a time, if you had a judgment against a customer you could apply to the Court for a garnishee order for debts on each of the five major banks. You didn’t need to give the Court specific bank account details for the judgment debtor. Chances were you could stumble upon your customer’s bank account to satisfy your judgment.

Now, times have changed and the Court must be satisfied that you have grounds to believe that a particular bank is holding money owed to you. You need to explain the steps you took to identify the debt, which usually involves naming a specific bank account and how you obtained those details.

The best way to do that is to take the bank details for your customer and any guarantor in your application or onboarding process. If that’s not possible now, look back through your records to see if any previous payment remittances give you the same details.

Key Takeaway

There is no point asking your customers to sign personal guarantees if you can’t use them to your advantage when you need it. Make sure you review not just your personal guarantees, but your process for accepting them and onboarding your customer so that you have the best protection possible.

Disclaimer

This article is designed and intended to provide general information in summary form. The contents of this article do not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as legal advice. Please seek legal advice about your specific circumstances.