Continuous disclosure reforms, electronic notices, virtual meetings and electronic execution
Royal Assent was given to the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 on 13 August 2021, meaning that the online meetings, electronic notices, electronic executions and continuous disclosure reforms are in force from 14 August 2021.
First, it amends Australia’s continuous disclosure laws to reintroduce a fault element for civil claims and civil penalty actions. The threshold is intention, recklessness or negligence. This reform has been controversial, but the Government managed to assemble enough votes from the cross benches to form a majority.
Second, the Act modernises the document execution provisions of the Corporations Act to facilitate electronic execution. This is a welcome and overdue reform.
Third, it facilitates companies sending notices of meeting to shareholders by electronic means or by sending by post an electronic address at which the notice materials can be downloaded. Shareholders can elect to receive hard copy documents, but the default has been flipped to electronic delivery.
Fourth, the Act facilitates fully virtual company meetings, whether or not this is contemplated by a company’s constitution. This is a vital reform given that much of Australia is currently under lockdown and lockdowns and limits on gatherings could well interfere with the upcoming 2021 AGM season.
The continuous disclosure amendments are permanent, as long as an independent expert undertakes a review after two years. Given the controversy, a sober and evidence-based review should be welcomed by all stakeholders.
The document execution, notices and meeting amendments will expire on 1 April 2022 – this sunset date was extended from 16 September 2021 due to the delay getting the Bill though the Senate, which was originally scheduled for March 2021.
Another important change is that the obligation to inform shareholders of their rights to elect to receive hard copy documents has been removed. This will be welcomed by many companies, especially larger ones, because it would have imposed a material compliance burden and cost.
The amendments also introduced a permanent power for ASIC to facilitate virtual only meetings by instrument (including a class instrument) as well as extend time for holding AGMs and permit documents to be given electronically. This ongoing emergency power will be important, given that the Government has foreshadowed that the permanent reforms will only allow fully virtual meetings if they are required or permitted by the company’s constitution. The Exposure Draft legislation for the permanent reforms would only facilitate partly in person and partly virtual, so called “hybrid” meetings.
To start with, virtual and hybrid meetings and electronic notices have been facilitated for the 2021 AGM season. This is good news given ongoing lockdowns and limits on gatherings and given that the temporary measures under the emergency Covid legislation passed in March 2020 expired in March 2021.
If companies want to continue having virtual only meetings – ASIC’s new emergency powers aside – it would be advisable to propose amendments to their constitution at the 2021 AGM to “hard wire” virtual meetings. This would typically necessitate a review of the company’s constitution to ensure that the meeting provisions will work for virtual only meetings, since many constitutions assume that meetings will only be held in person. One technique that should be considered is including a provision empowering the directors to make regulations or by-laws to deal with the mechanics of virtual meetings, allowing flexibility to update the rules with the benefit of experience. That said, fundamental issues such as determining quorum and taking online votes should probably be dealt with by specific provisions, with regulations or by-laws left to fill in the details.
Companies need to note that the new virtual meeting provisions carry with them an obligation to allow shareholders to exercise their rights to speak and ask questions orally as well as in writing, in contrast to many meetings during the 2020 AGM season where only written questions and statements were permitted by the technology used. Accordingly, virtual meeting platforms will have to offer a two-way audio facility or a separate audio conference facility will need to be made available.
Finally, the permanent measures for notices, meetings and document execution are on the way, and the 1 April 2022 sunset date should give the Government plenty of time to see the measures through, noting that a Federal election is due by May 2022.
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