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Are e-signatures legally recognised on company statutory documents in Malaysia?

As a result of Covid-19, many countries are enforcing movement restriction order where in-person meetings are not possible. This has led to increased usage of electronic signatures (such as DocuSign, HelloSign) on agreements and contracts. 

Many of our clients have asked us whether e-signatures are allowed in Malaysia and the legality on the acceptance of e-signatures on agreements and contracts. We have compiled a summary of documents which are acceptable to be signed via e-signatures below:

1. What is an electronic signature or e-signature?

Malaysia have laws in place governing e-signature under the Electronic Commerce Act 2006 (“ECA“), where it defines electronice signature as “any letter, character, number, sound or any other symbol or any combination thereof created in an electronic form adopted by a person as a signature.”

2. What are the differences between e-signature and digital signature?

Digital signature is governed under The Digital Signatures Act 1997 (“DSA”) and is defined as “a transformation of a message using an asymmetric cryptosystem (an algorithm or series of algorithms which provide a secure key pair) such that a person having the initial message and the signer’s public key can accurately determine (a) whether the transformation was created using the private key that corresponds to the signer’s public key and (b) whether the message has been altered since the transformation was made.”

In layman language, Digital Signature is more like a process rather than being a mere symbol affixed to an electronic document. For this article, e-signature will be our focus.

3. What are the requirements for an e-signature to be valid?

According to the ECA, an electronic signature is legally enforceable if:

•  it satisfies the definition of an electronic signature as mentioned above;
•  it is attached to (i.e. forms a part of) or can be logically associated with the electronic document;
•  it adequately identifies the owner of the signature and indicates their approval of the information in the document to which they attach their electronic signature;
•  the means of its creation is uniquely linked to and under the sole control of its owner; and
•  any changes made to the signature or the associated document after the time of signing is detectable.

4. What documents can be executed via e-signature?

We provide some example of documents that can be executed via e-signature in the table below

5. What documents cannot be executed via e-signature?

Below are some of the type of documents that cannot be executed via e-signatures

6. What are the practical implications of e-signature for commercial transactions?

Stamping
Notwithstanding that both electronically and digitally signed documents are legally enforceable under the ECA and DSA respectively, there may be issues in respect of the stamping of such documents. Documents have to be stamped for them to be admissible as evidence in court.

In practice, prior consent of the Malaysian Inland Revenue Board (“IRB“) is required before an agreement (whether electronically/digitally signed by all parties or by one party) may be submitted for stamping. However, there are no formal directives or orders issued by the IRB in this regard as at publication time. As such, apart from the risk that such consent may not be given, the current practice may change in the foreseeable future.

This is especially pertinent for share transfer as it normally require the share transfer form (Section 105) involved to be stamped. Although electronic stamping (which reduces the need to submit physical documents to the stamp office for adjudication) is available as an alternative, all documents submitted online for stamping are still subject to an online assessment of stamp duty. The adjudication process under the electronic Stamp Duty Assessment and Payment System (“STAMPS“) is not an automatic process as the relevant stamp officer will review the documents submitted and then approve or reject the adjudication application or request for further information. As such, there is no guarantee that agreements that are executed via e-signature will be able to be stamped electronically.

Authentication of the E-signature
In the event of any dispute, even if the electronically signed documents were stamped and admitted as evidence, the authenticity of the e-signatures may still be questioned in court. As the e-signature is merely a symbol affixed to an electronic document, there is no way to track any changes made to the document after the time of signing. There is also no verification process for electronic signatures that can confirm that the person who electronically signed the document is the owner of the signature, or whether circumstances of duress exist at the time the person signed the documents or even in the case where the witnessing of the execution of the documents was done via video conferencing, the right documents were executed. All these practical issues should be dealt with to mitigate the risk of authentication being raised.

7. What are the recommended courses of action?

For prudence, all documents that are agreements are recommended to be executed via physical wet-ink signatures, given that IRB’s prior consent is required for the stamping of electronic documents (as of the time of writing) and it may be difficult to obtain such consent during the MCO period. On the other hand, documents that are not agreements (i.e. board resolutions) may be executed via e-signatures.

In the long run, Companies should ensure that there is standing operating procedure for the utilisation of electronic signatures. The signature should therefore be authentic, created in confidentiality and with consent and intent.

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