Permanent measures introduced into Parliament for corporate on-line meetings, electronic notices and execution of documents
The Corporations Amendment (Meetings and Documents) Bill 2021 (Bill) was introduced into Commonwealth Parliament on 20 October 2021.
The Bill provides for permanent amendments to the Corporations Act 2001 (Cth) in relation to:
The Bill follows the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 passed in August that provided for certain temporary measures until the end of March 2022, and a consultation process for the permanent measures that saw two exposure drafts being released for consultation. The final form of the Bill, in comparison to the exposure drafts, underscores that the consultation process was effective, with the permanent measures providing a clearer and more comprehensive framework.
The Bill will introduce a new Part 1.2AA to provide for “technology neutral” signing of documents that will apply to execution of documents by companies and execution of documents in relation to meetings and can be applied generally under the Corporations Act by regulations. Importantly from a practical perspective, documents to be lodged under the Corporations Act will be able to be signed electronically under the new provisions.
The new provisions will make clear that corporate documents can be signed electronically and that “split execution” – where different officers sign different copies of a document – will be valid execution. They will also overcome a limitation of the temporary measures that does not permit valid execution under section 127 by way of execution of only a signature page.
One significant feature of the Bill is that section 126 is to be amended so that deeds can executed by individuals on behalf of a company without having to be appointed to do so by deed, overcoming a common law rule that a power to execute a deed could only be granted by deed.
Also significant in relation to execution of deeds is an express statement by way of note (in sections 110A and 127(3A)) to the effect that the archaic common law rule that a deed could only be manifested in “paper, parchment or vellum” is now righty consigned to legal history, making clear that corporate deeds can be in purely electronic form.
Another welcome practical reform is fixing execution by sole director companies. The Bill will provide for execution under section 127 (with the attendant assumptions in section 129) where there is a person who is a sole director; currently section 127 only applies where a person is both sole director and sole company secretary.
The Bill will also amend the Corporations Act to also expressly state that corporate deeds need not be witnessed or delivered to be valid, hence ensuring that document execution will not fail due to non-compliance with mere formalities. That said, companies will still be able to ensure that a deed does not come into effect until it is delivered or exchanged, if that is the underlying intent of the parties.
The Bill will also introduce new provisions that will apply to all companies, registered schemes and disclosing entities to facilitate sending notices electronically.
Electronic notices will continue to be the “default” setting (as under the temporary measures) and company and scheme members can elect to receive hard copies, or elect not to receive certain documents at all.
However, an election to be sent documents in physical form will not apply where the election is given within 30 days of the date the company or scheme is required or permitted to send the document. While this provision (section 110E(8)) is intended to assist companies and schemes, it is not entirely clear how this will operate for meetings that are held “voluntarily”, such as extraordinary general meetings to approve transactions. It is at least arguable that there is actually no specific date by which the company is “required” or “permitted” to the send the document – unless one makes an assumption by reference to the proposed date of the meeting and “works back” from there. It is hoped that when the time comes to apply and construe the relevant provision, the Courts will adopt a purposive and liberal approach to the construction of section 110E(8).
Notably, the offence provisions in relation to compliance with elections are based on a failure to use reasonable steps to comply with the election, so while they are offences of strict liability, the onus on the company or scheme is not exactly strict. Moreover, and importantly, a failure to comply with an election will not invalidate the relevant meeting (see section 110F(5)).
The Bill will also provide members with ad hoc rights to get hard copy documents on request.
Companies and schemes will be required to give notice of members' rights to make elections and request ad hoc documents, but the Government is only requiring such notice to be given once per year, or made readily available on a website, rather than the original proposal of having to notify all members within a set period of the legislation coming into effect.
The temporary measures passed in August currently allow for fully on-line meetings or hybrid meetings (being partly physical and partly on-line), and this is to some degree a reflection of the potential for on-going limitations on gatherings and movement as a result of COVID-19.
However, the Bill will only facilitate fully on-line or “virtual” meetings if that is expressly required or permitted by the constitution of the company or scheme concerned. Given the resistance in certain quarters to fully virtual meetings, some companies might not be prepared to run the gauntlet to amend their constitutions to permit "virtual" meetings, noting that at least one major ASX-listed company has withdrawn such a proposal after having given notice of its AGM.
Of course, the measures passed in August did include one permanent measure, namely an ongoing “emergency” power on the part of ASIC to facilitate fully “virtual” meetings if the circumstances require it. So despite the limitation in the Bill, that power can be called in aid in future should limitations on gatherings and movement require it.
The use of technology, time and venue must be reasonable, and members entitled to attend meeting must be given a reasonable opportunity to participate in the meeting – which broadly reflects the “common law of meetings”.
The Bill continues with the same approach to the exercise of members’ rights at on-line meetings as the temporary measures, that is that such rights may be exercised orally or in writing – which can now be accommodated by the on-line meeting platforms.
In conjunction with the “new” settings for on-line meetings, the Bill will introduce a package of other meeting-related reforms.
First, the default position will be that every substantive resolution for listed companies and managed investment schemes will need to be put to a poll. This is generally regarded as best or at least better practice, but there will be situations where calling a poll will involve needless additional administration. Moreover, the chair of a meeting already has an obligation to call a poll if the poll would result in a different outcome to a show of hands; a duty to ascertain the true decision of the meeting.
Second, there are to be new rights on the part of members with at least 5% of the votes to require an independent person to observe and report on the conduct of a poll or to scrutinise and report on the outcome of a poll, in each case at the cost of the company or scheme. The Bill contemplates that an auditor or registry service provider may be able to fulfil these roles (unless of course the poll relates to them).
Overall, the reforms contained in the Bill are to be welcomed and we are hopeful that the Bill will be passed during calendar 2021, to ensure that the Corporations Act will be fit for purpose in the 21st Century in relation to these practically important provisions dealing with execution, notices and meetings.
Also worth noting is the separate Commonwealth and State reform process for “Modernising Document Execution” that will, we hope, see deed execution by non-companies also brought into the 21st Century.