Reforms to virtual meetings, electronic execution of documents, electronic notices and continuous disclosure came into full effect on 14 August 2021 following the passing of the Treasury Laws Amendment (2021 Measures No.1) Bill 2021 (Cth) (the Bill). This article summarises the legislative changes and implications for Australian companies.
The government introduced temporary measures to facilitate the conduct of business during the COVID-19 pandemic. These measures included continuous disclosure protections for directors and a ‘no-action’ position by ASIC. The ‘no-action’ position provided tacit permission for the use of electronic signatures on documents, provision of electronic notices to shareholders and the holding of meetings virtually. These temporary provisions expired in March 2021.
The Bill amends the Corporations Act 2001 (the Act) so that:
- companies will be able to execute company documents electronically.
- company meetings (including AGMs) will be able to be held virtually by electronic means.
- companies may send notices of meetings to shareholders through electronic communications or by providing sufficient information to allow the recipient to access the notice electronically.
These changes will only remain in effect until 31 March 2022.
The Bill also modifies the operation of Australia’s continuous disclosure laws. These changes are permanent; however, are subject to “independent review” in 2023.
Electronic execution reforms under section 127 of the Act facilitate documents including deeds to be executed electronically and in counterpart. From 14 August 2021 an officer will be taken to have signed a copy or counterpart of a document that is either in physical or electronic form, if that copy or counterpart includes the entire contents of the document.
Copies and counterparts do not need to include the signature or common seal of another person signing the document, or any material included in the document identifying other signatories or their intention.
However, a “method” must be used to identify the Director or Secretary signing the document and indicate their intention to sign the copy or counterpart. The “method” must be:
- as reliable as appropriate for the purposes for which the document was generated or communicated, in light of all the circumstances, including any relevant agreement; or
- proven to have fulfilled those functions above by itself or together with further evidence
Additionally, a Company’s seal can now be attached electronically as long as the document includes a statement indicating the electronic process has occurred.
Virtual meeting technology may be used in holding a members, shareholders or directors meeting, provided the technology gives the persons entitled to attend, as a whole, a reasonable opportunity to participate without being physically present in the same place.
The Act has made it clear that:
- a reasonable opportunity to participate includes a reasonable opportunity to exercise a right to speak; and
- a person may elect to exercise a right to speak (including a right to ask questions) orally rather than in writing.
In addition, the Act allows all persons so participating in the meeting to be counted as part of the quorum as they are taken for all purposes to be present in person. Companies should also consider how documents tabled at the meeting will be made available to all participants in real time as required by the Act.
The Act now confirms that meeting documents (notice, papers, proxy forms, minute books, resolutions etc) may be given to recipients by electronic communication. The Act further clarifies that recipients can be sent electronic or a physical notice containing a link or other such information that would allow the recipient to access the document electronically. However, a member of a company may elect to receive documents in hard copy only if written notice is provided to the company.
Exceptional circumstances – AGMs and Virtual Meetings
The Act gives ASIC the power to permit an entity or a class of entities to hold a virtual only meeting (even if this is not permitted by the entity’s constitution) where physical meetings cannot be held. The determination can be subject to conditions and unless revoked earlier, will expire 12 months after it commences.
All civil proceedings commenced under the continuous disclosure and misleading and deceptive conduct provisions now require proof that a listed entity or officer acted with ‘knowledge, recklessness or negligence’. Previously the provisions of the Act did not require ASIC or private litigants to prove an entity’s knowledge, recklessness or negligence, rather evidence that the company or officers failed to disclose material information.
Where there is no ‘knowledge, recklessness or negligence’ in regard to material information, the changes are intended to enable listed companies to provide earnings guidance, and other forward-looking statements, to the market operator or ASIC, without being exposed to the threat of class actions if the guidance or other statements are later found to be inaccurate. It is also expected that the D&O policies which have seen a sharp increase in prices will now adjust down reflecting the new risk profile for insurers.