Certainty (temporarily) provided on electronic execution and virtual meetings with the passing of the TLA1 Bill
Both Houses of Parliament have now passed the much-anticipated Treasury Laws Amendment (2021 Measures No. 1) Bill 2021, allowing for the electronic execution of documents and the holding of virtual company meetings. The Bill, which was amended in the Senate from its original draft form, now awaits Royal Assent – which is expected to occur in the coming days.
The Bill implements a number of welcome changes, including:
- temporarily extending and expanding on the measures in the Corporations (Coronavirus Economic Response Determination (No. 3) 2020 that had since lapsed (see our previous commentary, ‘Newsflash: electronic signing relief lapses’); and
- introducing a fault element that must be satisfied for a disclosing entity to be liable under the continuous disclosure provisions for civil penalties.
We have summarised the key changes below.
In late June, the Government released for consultation an exposure draft of new legislation (Treasury Laws Amendment (Measures for Consultation) Bill 2021: Use of technology for meetings and related amendments) to permanently amend the Corporations Act to facilitate the use of technology in meetings, to execute company documents and to send meeting-related materials. You can read our previous commentary on that consultation in our article, ‘Electronic meetings and electronic execution of company documents are (hopefully) here to stay’. Those measures remain in draft form but the Bill has been designed to bridge the gap in the interim (in particular, by providing ASIC with permanent power to grant certain relief in exceptional circumstances).
The Bill permits the execution of documents by a company under s 127 of the Corporations Act by electronic means (if certain criteria are met) and by way of split execution, and permits the electronic witnessing of the fixing of a company seal. This means that where a document is signed electronically under s 127, other persons and counterparties can assume that it has been properly executed by the company.
The following criteria must be met for electronic execution of document by company under s 127:
- the copy must include the entire contents of the document (it is not possible to circulate and sign the execution page only);
- a method must be used to identify the person and indicate their intention to sign the document; and
- the method must be as reliable as appropriate for the purposes for which the document was generated or proven in fact to have indicated the person’s identity and intention.
While a technology-neutral approach has been taken by Parliament on this Bill, the use of platforms such as DocuSign would fulfil these last two requirements. This change has effect until 31 March 2022.
The Bill allows meetings (including AGMs) to be held using technology (as virtual or hybrid meetings), provided that 'the members as a whole' have a reasonable opportunity to participate. Importantly, these changes allow virtual meetings to be held whether or not such meetings are contemplated in a company’s constitution. If electronic means are used to hold the meeting, the notice of the meeting must include sufficient information to allow all attendees to participate and all persons participating virtually are counted in determining the quorum.
Importantly, the new virtual meeting provisions mandate that members must be allowed to exercise their rights to speak and ask questions at a virtual meeting orally as well as in writing. As such, it will be necessary to ensure that the virtual meeting platform used has a two-way audio facility or that two-way audio is otherwise enabled to ensure both oral and written questions can be asked during the meeting.
The changes permit notices of meeting to be given electronically, including by giving the recipient sufficient information to allow the recipient to access the document electronically (for example, by sending an electronic communication that contains a web link).
Differing from the original draft Bill, there is now no obligation to notify members of their rights to elect to receive documents in hard copy, though members may still elect to receive documents in hard copy only.
The minutes for meetings of members of companies and registered schemes may also be taken electronically and the minute book may be kept and provided to members electronically.
These changes have effect until 31 March 2022.
The Bill permanently introduces a 'fault' element to our continuous disclosure laws, so that disclosing entities and their officers will only be liable for civil penalties where they have acted with 'knowledge, recklessness or negligence' in failing to update the market with price sensitive information.
Differing from the original draft proposed, the Bill now requires the Minister to commission an independent review of the operation of the disclosure amendments after two years from their commencement. The report must be tabled for review by each House, and if the report includes recommendations, a statement setting out the Government’s response to each of the recommendations must be published.
Subject to that review taking place, the continuous disclosure changes are permanent, with no expiry date.
ASIC ‘exceptional circumstances’ emergency relief powers
While the changes to permit electronic execution, virtual meetings and electronic notices are temporary only (having effect until 31 March 2022), it is expected that the permanent changes proposed by the draft bill released in June will be passed prior to the temporary measures elapsing.
However, even if they are not, the Bill introduces new emergency relief powers for ASIC that will enable the regulator to grant temporary relief from certain Corporations Act requirements in exceptional circumstances (eg COVID-19). These will include the power to, where exceptional circumstances apply:
- make a determination extending the timeframe for companies to hold an AGM;
- allow companies to hold wholly virtual meetings even where their constitution does not expressly require or allow this; and
- grant relief from requirements to give documents required under the Corporations Act in hard copy and extend the timeframe for providing such documents.
This change is permanent, with no expiry date.
What to do from here?
The Bill is expected to receive Royal Assent in the coming days.
Companies can then comfortably plan to hold their upcoming AGMs as virtual meetings and given the ongoing restrictions arising from the COVID-19 pandemic, this would be a sensible approach. If planning to hold a virtual meeting, companies will need to factor in the new obligation to allow shareholders to exercise their rights to speak and ask questions orally as well as in writing and ensure the platform they are intending to use for their AGM will facilitate this.
So, do we have a permanent position on electronic execution of documents companies? Well, not yet. The government has however proposed making permanent reforms in the draft bill released in June, to continue to allow companies to electronically sign documents and intends that these be in place when the temporary extension made by this Bill ends. In the event that permanent changes are not made by 31 March 2022, the uncertain position regarding electronic execution that has existed since March this year will return.
Hall & Wilcox has extensive experience assisting companies with electronic execution of documents in the current climate, as well as advising listed and unlisted companies and registered schemes on virtual meetings. If you require any assistance with these matters, please contact us.
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