Thinking | 2 March 2022
Finally – permanent green light for electronic meetings and execution of company documents
Separately to the legislative amendments summarised in the article below, on 3 March 2022, the Australian Securities and Investments Commission (ASIC) announced that it was granting temporary relief to allow certain companies and registered schemes additional time to hold virtual-only meetings, subject to certain conditions. The relief is granted through the ASIC Corporations (Virtual-only Meetings) Instrument 2022/129 (Instrument), and takes effect under section 253TA of the Corporations Act – this provision affords ASIC the power to determine that an entity or class of entities is permitted to hold virtual meetings where it would be unreasonable for the meeting to be held physically or through hybrid means.
In the present context, the Instrument permits listed companies, unlisted companies and registered schemes (both listed and unlisted) to hold meetings virtually. This relief applies even in circumstances where the relevant entity is not expressly permitted to hold a virtual meeting under its constitution. However, prior to relying on the determination, the board of the relevant company or responsible entity for a registered scheme is required to pass a directors’ resolution to the effect that it would be unreasonable to hold the meeting in a physical or hybrid manner due to the impact of the COVID-19 pandemic.
The Instrument commences on 1 April 2022, and expires on 31 May 2022 for listed companies and registered schemes, and 30 June 2022 in respect of unlisted companies. After expiry of the Instrument, the new meeting regime recently introduced under the Corporations Act will apply, and the ability to hold a virtual meeting will turn on whether the constitution makes specific provision for this to occur.
After almost two years of consideration, including the circulation of an exposure draft in mid-2021, the Corporations Amendment (Meetings and Documents) Bill 2021 (Bill) was passed by Commonwealth Parliament on 10 February 2022.
The Bill amends the Corporations Act 2001 (Cth) (Corporations Act), to permanently enshrine the ability to hold virtual and hybrid meetings, electronic distribution of meeting materials and electronic execution of company documents. The Bill also provides much-needed clarity on the issue of sole directors in circumstances where there is no company secretary.
- Under the Bill, companies and registered schemes will be permitted to hold meetings physically and/or through the use of technology, subject to the entity ensuring that the members have a reasonable opportunity to participate.
- Despite these changes, a virtual meeting (as opposed to a hybrid meeting) may only be held by a company or registered scheme if virtual meetings are expressly permitted by their constitution. While many entities have taken the opportunity in recent times to provide for hybrid and virtual meetings in their constitution, it will be necessary for entities to ensure virtual meetings are expressly permitted by their constitution and if not, consider making changes to their constitution to permit virtual meetings at the earliest opportunity.
- Companies and registered schemes will be able to circulate meeting materials to members through electronic means. However, members will retain the ability to elect to receive documents relating to a meeting in a physical form, and entities will need to take appropriate steps to allow for, identify, and act in accordance with, such elections.
- Companies will now be permitted to execute documents (including deeds) electronically. It will be necessary for companies to update their processes in this space to ensure that appropriate measures are taken to meet the new legislative requirements relating to identity and intention.
- The confusion around proprietary companies with a sole director (where there is no company secretary) has been rectified, with these entities now canvassed by amended sections 127 and 129 in respect of document execution.
The Bill will create permanency after two years of various temporary legislative changes aimed at combating the challenges presented by the COVID-19 pandemic. Initially, the Corporations (Coronavirus Economic Response) Determination (No 3) 2020 was introduced in order to provide guidance and comfort to companies while lockdowns and border closures began to take hold throughout the country.
Prior to the expiry of the determination in March 2021, draft legislation was introduced to Parliament with the hope of making permanent changes to the laws surrounding electronic meetings and execution of documents. However, this initial bill stalled as opinions diverged on a number of issues around amendments to the continuous disclosure regime. To fill the void created by the expiry of the relief measures, ASIC issued a temporary ‘no-action’ position in respect of meetings hosted through the use of technology and the provision of electronic notices of meeting. Given the restrictions on ASIC’s regulatory ambit, it was not able to extend the no-action position to electronic execution of documents.
Subsequently, the Commonwealth introduced the Treasury Laws Amendment (2021 Measures No.1) Act 2021 (Cth) which again made temporary amendments to the Corporations Act to facilitate electronic execution of documents, and ‘hybrid’ meetings held both physically and virtually. With this latest round of regulatory relief set to expire on 31 March 2022, Parliament has moved to cement many of these temporary changes, thereby enshrining a COVID-19 legacy that will modernise the operation of the Corporations Act.
In making the temporary changes surrounding electronic meetings of companies and registered schemes permanent, the Bill introduces a number of amendments to enable meetings of members to be held:
- at one physical location;
- in a hybrid format, allowing members to attend at a physical location or to join the meeting virtually; or
- entirely virtually (subject to the constitution providing for this option).
The overriding proviso to these methods of holding meetings is the requirement that the company or registered scheme must give the members entitled to attend the meeting, as a whole, a reasonable opportunity to participate. An assessment of reasonableness will involve a range of factors, including:
- the time that the meeting is held;
- any physical location at which the meeting is held (if applicable); and
- the technology to be used (which should allow those members who are entitled to attend the meeting to ask questions and make comments).
There has been one important change to the ability to hold virtual meetings which is different to the position currently provided for in the temporary relief under the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 which expires on 31 March 2022. Under the temporary relief, a meeting could be held virtually (as opposed to in hybrid form) regardless of whether the constitution contemplated virtual only meetings. However, under the Bill, an entity’s constitution must expressly require or permit virtual meetings before they can be utilised. For this reason, it is critical that any entity proposing to hold a virtual meeting carefully consider whether virtual meetings are expressly permitted by their constitution. If not, the meeting will either need to be held at a physical location or in hybrid form, and consideration should be given to amending the constitution at the earliest opportunity to allow for virtual meetings.
Additionally, the Bill introduces a new Part 2G.7 to the Corporations Act, which provides for (among other things) a mechanism for members who hold at least 5% of the votes that may be cast at a meeting to appoint an independent person to observe and prepare a report on the conduct of any poll undertaken at a meeting.
These changes take effect on 1 April 2022.
Circulation of meeting materials
To further modernise the meeting provisions of the Corporations Act, the Bill also amends the process through which meeting materials for companies and registered schemes may be circulated to members. These changes take effect on 1 April 2022.
The documents that will be covered by the new ‘technology neutral’ framework include:
- those relating to a meeting of members of the company or registered scheme;
- those relating to a resolution to be considered by members;
- an annual financial report; and
- a notice of members’ rights.
Companies and registered schemes will, from the commencement of the amendments, be permitted to send these documents to members:
- in a physical form;
- through physical notice or an electronic notice that allows for electronic access to the document;
- by sending the document itself electronically; or
- in respect of annual financial reports only, making it available on a website.
However, members are entitled under the new regime to make an election as to their preferred means of receipt, either on a standing basis or through ad hoc requests relating to particular documents. Companies and registered schemes will need to be particularly mindful of these elections, and make provision for members to indicate their preferences, as a failure to comply with a member’s election will result in the commission of a strict liability offence.
Execution of documents
In what is likely to be one of its most notable impacts due to the previous ambiguity, the Bill permanently reforms the provisions of the Corporations Act governing execution of documents (including deeds). From the commencement of the amendments:
- persons signing on behalf of a company will be permitted to do so electronically, provided certain identification measures are undertaken; and
- third parties will be entitled to rely on the assumptions under sections 127-129 of the Corporations Act where a document has been executed by a company electronically.
Our colleagues James Deady and James Pavlidis have prepared a summary of the changes relating to electronic signing in ‘Update: Electronic signing finally here to stay’, and set out in greater detail the relevant steps that must be taken to ensure valid execution.
Companies with a sole director, but no company secretary, have proved to be a significant source of confusion and ambiguity in the context of document execution. Prior to the Corporations Act amendments introduced under the Bill, a proprietary company with this structure was not provided for in respect of document execution under section 127, nor were the third parties they dealt with able to rely on the assumptions set out in section 129.
The Bill amends both sections 127 and 129 to enable sole directors of proprietary companies without a company secretary to execute documents (including deeds), and provide comfort to third parties who will be entitled to rely on the relevant statutory assumptions.
Hall & Wilcox has extensive experience advising both listed and unlisted companies, and can provide guidance on the holding of meetings electronically and the electronic execution of company documents. For more information, please contact our Capital Markets team.
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