Thinking | 7 July 2021
Electronic meetings and electronic execution of company documents are (hopefully) here to stay
Virtual and hybrid meetings, electronic distribution of meeting materials and the electronic execution of company documents may be permanently enshrined under new legislation that plans to make temporary relief introduced during the COVID-19 pandemic permanent before the 2021 AGM season.
The Federal Government has released an exposure draft of new legislation to amend the Corporations Act 2001 (Cth) to facilitate the use of technology in meetings, to execute company documents and to send meeting-related materials. Consultation is sought on these proposed changes until 16 July 2021. These amendments are necessary, with earlier draft legislation stalling in March 2021 as a result of challenges faced with proposed amendments to the continuous disclosure regime. This time around, the Treasury Laws Amendment (Measures for Consultation) Bill 2021: Use of technology for meetings and related amendments (Bill) has kept its attention on a limited scope of matters, which will hopefully allow for its adoption ahead of the 2021 AGM season.
If the Bill is passed, it will mean:
- under the Corporations Act, companies and registered schemes can hold meetings physically, as a hybrid or virtually, subject to:
- the constitution of the entity; and
- the format of the meeting, providing members with a reasonable opportunity to participate;
- meeting materials can be distributed to members electronically in circumstances where:
- it is reasonable to expect that the document would be readily accessible for subsequent use; and
- the recipient has not opted to receive the documents in hard copy;
- members of listed companies and schemes that hold at least 5% of the votes have additional rights in relation to polls, including to request that an independent person observe the conduct of a poll, and prepare a report on the poll; and
- there will be a statutory mechanism for companies to execute documents electronically included in the Corporations Act. This mechanism will allow:
- persons to sign the document electronically, provided certain conditions are met;
- for split execution of a document by officeholders of a company; and
- the electronic witnessing of the fixing of a company seal.
These changes, if passed, will be permanent, with a review to be undertaken after two years.
Following various COVID-19 restrictions coming into effect at the beginning of the pandemic, the Federal Government introduced temporary relief measures to allow companies to execute documents electronically (with split execution allowed), hold shareholder meetings virtually and provide notices of shareholder meetings electronically. These temporary relief measures were given effect by various determinations that expired on 22 March 2021. These relief measures were widely relied upon by Australian companies. You can read more about these expired relief measures in our previous article, ‘Federal Government gives green light to ‘virtual’ meetings: but you might receive a ‘postcard’!’
Before the determinations expired in March, draft legislation (Treasury Laws Amendment (2021 Measures No. 1) Bill 2021) (Initial Bill) was introduced to Parliament. This legislation would have extended the operation of this relief for a further six months to September 2021. It was hoped this draft legislation would be passed and come into operation before the relief determinations expired on 22 March 2021, but the draft legislation stalled following a difference of views as to the appropriateness of amendments proposed to the continuous disclosure regime (which we discussed in our article, ‘Relaxation of continuous disclosure laws to be made permanent’). As a result, the relief measures ceased to have effect as of 22 March 2021.
ASIC stepped in quickly to provide comfort regarding virtual meetings, issuing a temporary no-action position on 29 March 2021, which supported the holding of meetings using appropriate technology and facilitated electronic notice of meetings for meetings held up to 31 October 2021 (unless legislation addressing these matters was passed in the meantime). ASIC’s no-action position is to be reviewed in September 2021, but it does not currently extend to the 2021 AGM season traditionally held in November each year.
Importantly, ASIC’s no-action position did not extend to the electronic execution of company documents, as ASIC has no power to effectively modify these provisions. As a result, when the relief determinations expired on 22 March 2021, the ability for companies to electronically execute documents was again brought into question and this remains the case.
It has become increasingly clear how important it is for companies and registered schemes to have the option to hold general meetings either virtually or as ‘hybrid meetings’. It has been a necessity amid lockdowns and border closures, and has become the preference of many entities that have an investor base that appreciate the option for online attendance. While temporarily relief provided in 2020 expressly allowed for virtual and hybrid meetings and the distribution of electronic meeting materials, the Bill proposes to permanently enshrine these options for companies and registered schemes.
The Bill does not impose prescriptive requirements for the conduct of meetings, and aims to provide enough flexibility for the meeting provisions to apply usefully to companies and schemes of all sizes (ranging from large listed entities to small not-for-profits). It permits the conduct of general meetings (whether annual or extraordinary general meetings):
- physically: being a ‘traditional’ in-person meeting at one or more locations;
- virtually: completely online, with no option for attendance at a physical location; or
- as a hybrid: allowing members to attend at a physical location, or to join the meeting virtually.
Importantly, while the Bill introduces this flexibility, companies and responsible entities need to be aware that even if these amendments become law:
- meetings, regardless of their format, can only be held in circumstances where members have a reasonable opportunity to participate. The measures that must be taken to afford this opportunity include:
- the main physical venue (for a physical or hybrid meeting) must be reasonable;
- the time of the meeting must be reasonable;
- any technology relied upon must in fact facilitate virtual attendance;
- members who have a right to speak or ask questions must be given that right (either verbally or in writing); and
- any documents tabled at the meeting must be available to members before or during the meeting (which at a virtual meeting can be facilitated through screensharing).
- If a meeting is conducted in a way that means members are not afforded a reasonable opportunity to participate (for example, if the technology did not facilitate the asking of questions or voting by those who should have been able to do so):
- members may be able to bring an action against the entity; and
- the outcomes of the meeting may be vulnerable to challenge (subject to any application of the procedural irregularity provisions);
- it is important to review the constitution of the company or scheme to ensure that the proposed form of meeting is permitted. While the Bill modifies the Corporations Act, any more onerous restrictions in the entity’s constitution will continue to apply. In our experience, modern constitutions ordinarily permit hybrid meetings and, in many instances, do contain the provisions necessary for virtual meetings (however, this should be carefully considered); and
- if there is ambiguity about the permitted conduct of meetings in the constitution of an entity, this should be addressed at the next appropriate opportunity (whether at the next meeting, or at the next time constitutional updates are proposed).
The Bill provides for documents relating to general meetings (including notices of meeting, member’s statements requesting a meeting and proxy forms) to be provided electronically in circumstances where:
- it is reasonable to expect that the document would be readily accessible for subsequent use (as at the time it is given); and
- the individual receiving the document has not opted to receive the documents in hard copy.
Providing such documents electronically means not only sending the documents using electronic means (ie by email) but also provides the alternative to give the recipient sufficient details to allow them to view or download the document electronically (ie by providing a link).
In our experience, both listed and unlisted entities have been seeking to transition their registers to electronic communications for some time now, even in the absence of delayed postage and other printing difficulties caused by the pandemic, and so the passing of the Bill would likely increase efficiency in distributing meeting materials. The Bill is drafted such that it imposes an ‘opt out’ to not receive electronic materials, and so while companies and responsible entities can take the starting position that these materials can be distributed electronically, there would need to be an ‘opt out’ function available to members.
Scrutiny of polls
ASIC’s no-action position on virtual meetings requires that all voting at the relevant meeting occur via a poll. This has catalysed a shift towards the use of polls, rather than the determination of member resolutions on a show of hands. Many listed entities were making this change before the no-action position, in light of the recommended use of polls for all ‘substantive’ resolutions introduced in the Fourth Edition of the ASX Corporate Council Governance Principles and Recommendations in February 2019.
While the Bill does not mandate the use of polls, where a poll is undertaken it does provide members of listed companies and schemes with the right to request a review of the poll where certain conditions are met. A member or group of members holding at least 5% of the voting power of the entity may request in writing that an independent person be appointed to:
- observe a poll (with the request needing to be made at least five business days before the meeting); and/or
- prepare a report on the conduct of polls at a general meeting (with the request needing to be made at least five business days after the meeting).
Upon receiving such a request, the company or responsible entity must take reasonable steps to appoint an independent person (who may, subject to any conflicts of interest, be the auditor). Once a report has been prepared, this must be made available to members within a reasonable time.
The failure of a company or responsible entity to comply with these obligations (and the ancillary requirements, such as providing the independent person with access to certain information) are a strict liability offence under the Bill, as such conduct may cause serious detriment to members.
Historically, there has been a divergence of views as to a company’s ability to execute documents electronically or by split execution, which led to the general practice of wet ink signatures only. With the logistical challenges faced during the pandemic, the temporary relief provided to allow companies to execute documents electronically (with split execution allowed) was welcomed. However, with that temporary relief expiring earlier this year, the uncertainty regarding electronic executions remains.
The Bill, together with the Initial Bill, resolves this uncertainty by permanently making changes to the Corporations Act to provide a statutory mechanism for companies to execute documents electronically. The proposed changes provide that when a company executes a document:
- persons may sign the document electronically – this requires three conditions to be met:
- 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 is taken in the Bill, the use of platforms such as DocuSign would fulfil these last two requirements.
- separate copies of the document may be used by each person required to execute the document – this allows for split execution by officeholders of the same company;
- the document may be executed by the sole director of a proprietary company that does not have a company secretary – this resolves an historical issue with the drafting of the due execution assumptions in sections 127 and 129 of the Corporations Act which do not currently apply to a company with a sole director who is not also the sole company secretary; and
- the fixing of the seal can be witnessed electronically – this must follow a specified process of using technology to observe the fixing of the seal, signing the document or a copy or counterpart and annotating the document with a statement that they have observed the fixing of the seal electronically.
The above process is consistent with the requirements of section 10 of the Electronic Transactions Act 1999 relating to electronic signatures, with the exception that there is no requirement for the recipient to consent.
Importantly, these proposed changes do not have a sunset date (unlike the Initial Bill) and will apply permanently if the Bill is passed.
While these changes are proposed to be permanent, the Bill does include a requirement that the provisions relating to meetings and electronic communication must be reviewed after two years.
Hall & Wilcox has extensive experience advising listed and unlisted companies. If you require any assistance with the holding of meetings electronically or the electronic execution of company documents, please contact us.
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