On 14 August 2021, the Treasury Law Amendments (2021 Measure No. 1) Act 2021 (the Act) received royal assent and is now in force, bringing businesses some long awaited certainty around virtual meetings and electronic execution of documents during the ongoing Covid-19 pandemic and lockdowns.
As discussed in our previous article, Australian businesses were first given the right to execute documents electronically and hold meetings virtually in the early stages of the Covid-19 pandemic in 2020, through the Corporations (Coronavirus Economic Response) Determination (No3) 2020 (Determination). However, this was just a temporary measure, and the Determination was repealed on 21 March 2021. Also in 2020, the continuous disclosure provisions under the Corporations Act were temporarily modified, however the last of these, the Corporations (Coronavirus Economic Response) Determination (No 4) 2020, was repealed on 22 March 2021.
What have businesses been doing in the meantime?
Since the expiry of the relevant Determinations in March 2021, virtual meetings and the electronic dispatch of notices have been able to be utilised thanks to the company regulator ASIC taking a “no action” position until the new Act could be introduced and enacted.
The new changes commence with effect from 14 August 2021, and now enable companies to use technology to meet certain governance requirements under the Corporations Act. Further, this amends the Corporations Act to enable companies to hold virtual company meetings and execute documents electronically.
What are the key changes?
- Virtual company meetings - Despite what a company’s constitution states, under section 253Q of the Act, companies may hold meetings entirely by virtual means providing that, as a whole, members have a reasonable opportunity to participate without being physically present in the same place. It is also a requirement that shareholders are able to exercise their rights to speak and ask questions both orally and in writing.
- Electronic execution of documents - The Act updates and modernises the document execution provisions under section 27 of the Corporations Act to allow documents to be executed electronically by directors and company secretaries. This means that documents executed without a company seal may be signed electronically, and signatories are not required to sign the same copy. Alternatively, documents executed with a company seal may also be electronically executed and alternative technology may be used to observe the fixing of the seal.
- Electronic notices - Under the Act, companies may now send notices of meetings to shareholders electronically and significantly, this is now the default position, as opposed to physical delivery. While shareholders may choose to opt in to receive hard copy documents, this is no longer an obligation for companies to inform shareholders of their rights to do so.
- Minutes - Minutes may be kept electronically.
How long will these changes apply?
Importantly, the key changes above will lapse on 1 April 2022 as they are designed to provide companies with additional flexibility during the pandemic. We anticipate that we will see the introduction of similar permanent measures (although this has not been confirmed) in the near future to align with the increasingly ‘online’ nature of business, boards and remote working arrangements.
Other important changes - continuous disclosure for listed companies:
In addition, the Act now makes the continuous disclosure amendments in previous determinations, permanent. For companies, this reintroduces a fault element for civil claims and penalty actions and means that the state of mind of a disclosing entity is taken into account for both civil and criminal contraventions.
What does this mean for your company?
In times where COVID-19 continues to create uncertainty, the new amendments will undoubtedly provide companies and their shareholders with greater certainty and the relief needed to conduct their corporate governance affairs using modern technologies and to allow for various electronic transactions to keep business connected and moving forward during these challenging times.
As we have all discovered, technology can be used to conduct meetings and effectively facilitate transactions, AGMs and even encourage member participation. The reinstatement of these measures, and the proposed permanent measures on the horizon, is a reflection of the positive feedback from businesses who require the law to move with the times and reflect the changing technologies and methods for doing business.
As a practical step, and to avoid waiting for permanent legislation to be developed and enacted, organisations should also consider whether their Constitution, governance procedures and Board policies need to be updated to reflect virtual meeting protocols developed formally or informally during the pandemic and to accommodate the changes in the roles of Chair and Company Secretary, who are increasingly focused on keeping other directors informed, managing information flows and assisting directors with technology.