The government has proposed temporary changes to the Corporations Act 2001 (Cth) (Corporations Act) that will affect the ways companies sign documents, hold meetings, communicate with shareholders and store records of meetings. It has also put forward a proposal for a permanent change to the continuous disclosure laws to require a mental element to be proven when proving contravention of a disclosing entity’s continuous disclosure obligations.
The Treasury Laws Amendment (2021 Measures No 1) Bill 2021 proposes amendments to the Corporations Act:
- Temporarily allow companies to hold virtual meetings, communicate with shareholders, store records and sign documents (including deeds) electronically. The changes also expressly permit split execution by companies. These proposed changes are temporary and would sunset on 16 September 2021. The government is intending to make the changes relating to electronic communication permanent and to conduct an opt-in pilot for hybrid annual general meetings (AGM) in which shareholders can attend meetings in person or virtually. These changes will be in place when the temporary extension sunsets.
- Permanently change the continuous disclosure laws for listed and other disclosing entities so that entities and their officers will only be liable for civil penalty proceedings in respect of a breach of their continuous disclosure obligations where they have acted with “knowledge, recklessness or negligence”.
It is important to note that the proposed new rules relating to electronic execution and virtual meetings (apart from the rules relating to time and place, and the method of voting) apply as mandatory rules rather than replaceable rules. In other words, a company’s constitution cannot displace or modify the rules.
This article provides a high-level overview of the amendments proposed by the Bill.
Electronic execution
The Bill amends section 127 to permit electronic execution of documents. The amendments:
- Expressly apply to deeds. Under the terms of the Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 it had been unclear whether deeds could be executed electronically.
- Allow the fixing of a seal to be witnessed electronically.
- Permit split execution of documents by companies, reversing the effects of Adelaide Bank v Pickard [2019] SASC 13, where it was held that persons needed to sign the same single, static document.
- Extend the assumptions in section 129 apply to documents executed in counterpart or electronically.
Virtual meetings and electronic communication and storage of documents relating to meetings
The Bill amends Chapter 2G to allow companies to:
- Hold a virtual meeting.
- Communicate documents and store records of meetings, including minutes of meetings, electronically.
What is the effect of the amendments on company meetings?
The proposed amendments will mean that a company will be able to hold a meeting by:
- Using virtual meeting technology;
- Inviting persons to physically attend at a designated location;
- Inviting persons to physically attend at different locations and using virtual meeting technology to connect the different locations together; or
- Using a combination of the above methods.
The new rules will apply to meetings of:
- Shareholders of companies (including AGMs).
- Company directors.
- Members of registered scheme’s.
How should virtual meetings be held?
Proposed new Part 2G.5 sets out the procedure a company must follow when holding a virtual meeting. The overarching requirement for holding a virtual meeting is that the company or registered scheme must ensure that the meeting is held in a manner that gives the members as a whole a reasonable opportunity to:
- Participate in the meeting.
- Speak and verbally ask questions in situations where they have a right to speak and ask questions.
The new law does not mandate a particular format for a virtual meeting. Rather, it allows each company to select the format for the meeting that is most appropriate for that company. However, regardless of the format, the virtual meeting must give the members as a whole a reasonable opportunity to participate. The phrase “members as a whole” ensures that the meeting cannot be invalidated merely because a member experienced technical issues and is unable to participate virtually.
If the members as a whole are not given a reasonable opportunity to participate, speak or ask questions, the members may apply to the court to have the meeting invalidated. The court will only invalidate the meeting if it is of the opinion that a substantial injustice has been caused and that injustice cannot be remedied in any other way.
What documents can be communicated to shareholders electronically?
Any document relating to a meeting may be given or signed using electronic means regardless of whether the meeting is held using electronic technology or in person. These documents will generally fall into seven categories, as follows:
- A request in relation to a meeting (such as a shareholder requisitioned resolution).
- A notice of meeting.
- A notice of a resolution or record of a resolution.
- A statement in relation to a meeting, or in relation to a matter to be considered at such a meeting, for example, a members’ statement distributed under sections 249P or 252N.
- The appointment of a proxy in relation to such a meeting, or any other document in relation to a proxy.
- A question for, or response to a question by, an auditor of the company.
- Minute books.
There are however two conditions on the giving of documents electronically:
- It must be reasonable to expect that the document would be readily accessible so as to be useable for subsequent reference at the time that the document is given. This replicates the condition in section 9(1)(a) of the ETA 1999, which relates to when electronic communications can be used to give information in writing.
- A document relating to a meeting of the members of a company or registered scheme cannot be provided to a person electronically if they opt in to receiving hard copies, or the entity failed to notify the person of their right to opt in. Note that there is no right to opt in to receiving hard copy documents relating to a directors’ meeting.
Can shareholders elect to receive hard copies of documents?
Yes. The proposed amendments state that member may elect to receive hard copies of documents relating to a meeting or a resolution considered without a meeting. An election is taken to be given three days after it is posted or the business day after it is sent via electronic means. A company must, within two months after the commencement day, give each person who is a member of the company on the commencement day notice in writing setting out the person’s rights to opt to receive documents in hard copy. Failure to provide this notice is a strict liability offence with penalty of 30 penalty units.
Can other documents be signed and stored electronically?
Yes. Under the proposed amendments:
- Documents relating to a meeting or a resolution considered without a meeting may be signed electronically.
- Information may be recorded electronically in a minute book.
Continuous disclosure laws
The Bill amends the continuous disclosure provisions so that entities and their officers will only be liable for civil penalty proceedings in respect of a breach of their continuous disclosure obligations where they have acted with “knowledge, recklessness or negligence”. This is achieved by removing the existing civil penalty provisions in sections 674(2) and 675(2) and creating two new civil penalty provisions that require a mental element to be proven when proving contravention of a disclosing entity’s continuous disclosure obligations.
Additionally, the amendments ensure that entities and officers are not liable for misleading and deceptive conduct in circumstances where the continuous disclosure obligations have been contravened unless the requisite mental element has been proven. This is achieved by amending section 1041H.
However it is important to note that:
- The existing criminal offences for failing to comply with the continuous disclosure obligations set out in sections 674(2) and 675(2) continue to apply.
- ASIC may issue an infringement notice if it has reasonable grounds to believe a disclosing entity has contravened the objective standard in sections 674(2) or 675(2), regardless of the entity’s state of mind.
This is a condensed version of a comprehensive update now available to subscribers of Practical Law.
Practical Law subscribers can access more information on execution of documents by companies, meetings and the responsibilities and obligations of directors of listed companies generally in the following practice notes on the Practical Law Australia:
- Practice note, Execution of deeds and documents by companies incorporated under the Corporations Act 2001 (Cth).
- Practice note, General meetings.
- Practice note, Notices of general meeting.
- Practice note, Board meetings.
- Practice note, Board minutes.
- Practice note, Responsibilities and obligations of directors of listed companies.
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