This article was written by Tim Bednall and Miriam Kleiner.
On 17 February 2021, the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 ("Bill") was introduced into the House of Representatives. The passage of the Bill remains subject to the Senate and is therefore unclear when the proposed new laws will take effect.
The Bill, in its current form, proposes:
- to extend, until 16 September 2021, certain determinations made by the Treasurer during 2020 using his emergency powers, relating to virtual AGMs;
- changes to the continuous disclosure regime and the electronic execution of documents; and
- new laws, including measures regarding the electronic execution of minutes of meetings and other documents relating to meetings, the keeping of electronic minute books and a new civil penalty offence for breaches of continuous disclosure laws.
This alert summarises the proposed changes relating to:
- virtual meetings – see section 1.1;
- minutes and minute books – see section 1.2;
- electronic execution – see section 1.3; and
- continuous disclosure obligations – see section 1.4.
The new rules relating to electronic execution and virtual meetings (apart from the rules relating to time and place, and the method of voting) apply as mandatory rules rather than replaceable rules. In other words, a company's constitution cannot displace or modify the rules. However, the explanatory memorandum for the Bill ("Explanatory Memorandum") states that these rules are supposed to be facilitative in nature, and are not intended to preclude companies from conducting meetings or executing documents using traditional means.
Whilst we welcome the move towards facilitating virtual meetings and electronic signing via legislation, as well as the assistance for ASX-listed entities to comply with continuous disclosure obligations in the current COVID-19 circumstances, we are disappointed that the Bill has a sunset date of 16 September 2021. We understand that the government is considering making the electronic execution provisions and potentially the continuous disclosure provisions permanent but not virtual AGMs. .We encourage the government to consider making permanent the changes relating to the holding of virtual meetings.
1.1 Virtual Meetings
Schedule 1 of the Bill makes temporary amendments to the rules relating to meetings of directors, shareholders of companies and members of registered schemes to facilitate the use of technology at these meetings. If passed, these amendments will expire on 16 September 2021.
Notably, the amended rules allow:
- meetings to be held virtually, provided that the members as a whole have a reasonable opportunity to participate; and
- documents relating to the meetings to be provided and signed electronically and minutes to be kept electronically.
The key features of the amendments are set out below.
Question |
Response |
Which meetings will the new rules apply to? |
The new rules will apply to meetings of:
|
How can meetings be held? |
Meetings would be able to be held by:
|
Where will the place of the meeting be and at what time will it be taken to be held? |
Fully virtual meetings For meetings where all participants use electronic technology:
'Hybrid' meetings For 'hybrid' meetings where members have a choice to physically attend or to use virtual meeting technology to participate:
If there are two or more such locations, the place of the meeting is the main location (as set out in the notice for the meeting) and the time of the meeting is the time at the main location. |
What are the requirements as to the time of the meeting? |
The meeting must be held at a time that is reasonable at the place where the meeting is taken to be held. It may not necessarily be a convenient time for all of the shareholders or members who are attending using technology, in the same way that face to face meetings may be held at a time that is not convenient for all shareholders or members. |
What must be included in the notice of meeting? |
General rule When a meeting is to be held using technology, the notice of the meeting must include sufficient information:
Further information required for 'hybrid' meetings For a meeting where members may attend in person or via technology, the notice must also designate the location of the meeting. If there are two or more physical locations, the notice must state all of the locations and the main location. For instance, where the company directors are meeting in Sydney and venues in Melbourne and Perth are also made available to shareholders to join the AGM virtually, the notice must state that Sydney is the main location. |
How should a virtual meeting be conducted? |
A company or registered scheme must ensure that the meeting is held in a manner that gives the members as a whole a reasonable opportunity to participate in the meeting. The Explanatory Memorandum makes clear that the phrase 'members as a whole' is meant to ensure that the meeting cannot be invalidated merely because a member experienced technical issues and is unable to participate virtually. The intention is that the meeting should not be individualised so long as the vast majority of members can contribute and no member is intentionally excluded. Members also need to be given a reasonable opportunity to speak and verbally ask questions in situations where they have a right to speak and ask questions. If the members as a whole are not given a reasonable opportunity to participate, speak or ask questions, the members may apply to the Court to have the meeting invalidated. The Court will only invalidate the meeting if it is of the opinion that a substantial injustice has been caused and that injustice cannot be remedied in any other way. This mirrors the circumstances where an irregularity invalidates a physical meeting under the existing law. |
What format should my virtual meeting take? |
The new law does not mandate a particular format for a virtual meeting. It recognises that the meeting rules apply to a broad range of companies, from small not-for-profit companies to large listed companies, and allows each company to select the format for the meeting that is most appropriate for that company. However, regardless of the format, the virtual meeting must give the members as a whole a reasonable opportunity to participate. |
How do I know if a quorum is present at my virtual meeting? |
If a meeting is held using technology, all persons participating in the meeting (whether by being physically present or using electronic means) are taken to be 'present'. This means that all of those persons should be counted for the purposes of determining whether there is a quorum. |
Should I allow a vote on a show of hands or on a poll? |
At a virtual meeting of shareholders, votes will be taken on a poll rather than a show of hands unless the company or registered scheme determines otherwise in its constitution. In the context of companies, voting on a poll is effectively a replaceable rule, that is, companies are free to elect another default method of voting. The new law does not prescribe the method that should be used to conduct the poll and more than one method may be used. For instance, in the context of hybrid meetings, the Chair may elect to use a different method for conducting the poll for persons attending virtually and for persons physically present. All participants who are entitled to vote must be given the opportunity to vote at the meeting. The company may also give the participant the opportunity to record a vote in advance of the meeting, in which case, the participant will be able to elect to either vote in advance or at the meeting. It is not expected that companies would provide a method for voting in advance of the meeting for directors' meetings. |
How do I table documents at a virtual meeting? |
Documents may be tabled at a meeting by providing the documents to the person in advance of the meeting or making the documents accessible to persons attending the meeting in any way. For instance, the documents might be shared using a 'screen sharing' facility with virtual attendees or handed out in hard copy to physical attendees. Documents relating to meetings may be given or signed using electronic means. This applies regardless of whether the meeting is held using electronic technology or in person. Any document that relates to a meeting may be given electronically and signed electronically including:
|
How do I provide documents to securityholders? |
A document may be provided electronically either by:
This can only occur if:
|
What are the obligations of companies and responsible entities and the rights of members, in relation to receiving hard copies of documents? |
Obligations of companies and responsible entities A company or responsible entity must notify members of their right to opt in to receiving hard copies relating to a meeting or a resolution considered without a meeting. This notice may be provided in hard copy or electronically and must be given within two months of the person becoming a member. In particular, companies and responsible entities of registered schemes are required to notify members of their right to opt in to receiving documents in hard copy within 2 months of the day of commencement of the Bill. Rights of members A member may elect to receive hard copies of documents relating to a meeting or a resolution considered without a meeting. If the document is a notice of a meeting or accompanies the notice of the meeting, the election does not apply to any documents that are required to be provided to the member within the next 10 business days. This avoids a situation where the company or registered scheme is placed in a position where it cannot comply with its obligation to notify members of a meeting within a stipulated timeframe because there is insufficient time for printing and postage. A member who had opted into receiving documents in hard copy may revoke their election in writing. Such a revocation applies from the day on which it is given to the company. This means that the company may send documents to the member electronically or in hard copy from that date. |
What about circular resolutions? |
A document relating to a meeting or a resolution considered without a meeting may be signed electronically by using a method to identify the signatory and indicate the signatory's intention. The method used to sign the document must be:
|
What if I am required to lodge my document with ASIC? |
Documents lodged with ASIC may also be signed electronically. |
1.2 Minutes and minute books
Information may be recorded electronically in a minute book if at the time of recording the information it is reasonable to expect that the information would be readily accessible so as to be usable for subsequent reference.
The minute book may also be kept electronically if the method used to keep the minute book provides a reliable means of maintaining the integrity of the information and it was, at the time of generating the electronic minute book, reasonable to expect that the information would be readily accessible so as to be usable for subsequent reference.
If the minute book is stored electronically, it must be open for inspection at the same place where a hard copy would have been required to be retained under sections 251A or 253M of the Corporations Act (generally the registered office, principal place of business or another place approved by ASIC).
We understand that the government is considering making these changes permanent.
1.3 Electronic Execution
Schedule 1 of the Bill also makes amendments to the Corporations Act to allow the electronic execution of company documents. Documents executed without a company seal may be signed electronically and the signatories do not need to sign the same copy. Documents executed with a seal may also be executed electronically and the witness may use alternative technology to observe the fixing of the seal.
The new rules relating to the electronic execution of company documents are facilitative in nature. A company may continue to execute documents in the traditional manner by applying wet signatures to the physical paper document. The new law also permits a combination of different methods to be used to execute a company document. For example, one director may physically sign a paper version of the document while the second director could sign the document using electronic means.
These changes apply to all documents executed by a company under section 127 of the existing law. The Bill specifically provides that section 127 of the existing law, including the amendments inserted by Schedule 1, also apply to documents executed as a deed. This means that companies may execute company deeds by following the process outlined in section 127 and companies do not need to follow the established process for signing, sealing and delivering a deed under the common law. The Bill will specifically insert a note in the Corporations Act stating "This reverses the effect of the court's decision in Adelaide Bank v Pickard [2019] SASC 13 where it was held that all persons needed to sign the same single, static document."
The copy or counterpart executed must include the entire contents of the document. This does not mean that the person needs to physically print or sign every page. Rather it ensures that a document cannot be validly executed by signing a document that does not have the same content as the original document.
The copy or counterpart does not need to include the signature of any other person (in the case of a document executed by two directors or a director and a secretary). Similarly, the witness does not need to sign the same document as the one to which the seal was affixed and therefore there can be a delay between the witnessing occurring and the document being signed.
If the company executes the document by fixing a common seal, the person witnessing the fixing of the seal may do so electronically. They may do this by:
- using electronic means such as videoconferencing to observe the person fixing the seal to the document (as opposed to watching a pre-recorded video);
- signing the document or a copy of the document (either physically or electronically); and
- annotating the document with a statement stating that they have observed the fixing of the seal by using electronic means.
These changes expand upon the relief provided previously and seek to ensure that the rules relating to the execution of company documents using a common seal are not more restrictive than the rules relating to the execution of company documents without a common seal.
Further, the director or secretary may sign an electronic copy of the document if three conditions are satisfied.
- The copy must include the entire contents of the document.
- A method must be used to identify the person and indicate their intention to sign the document.
- 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.
We understand that the government is considering making these changes permanent.
1.4 Continuous disclosure obligations
(a) Introducing a fault element to the continuous disclosure provisions
The Bill proposes to amend the continuous disclosure obligations of disclosing entities. The Bill reflects the Treasurer's determination that, in summary, listed entities' decisions on continuous disclosure should not attract liability under section 674(2) of the Corporations Act unless they knew or were reckless or negligent with respect to whether information would, if it were generally available, have a material effect on the price or value of their securities.
The Bill provides for a number of other changes including:
- all civil penalty proceedings commenced under the continuous disclosure and misleading and deceptive conduct provisions must prove that an entity acted with 'knowledge, recklessness or negligence' in respect of an alleged contravention. Similarly, entities and officers are not liable for misleading and deceptive conduct in circumstances where the continuous disclosure obligations have been contravened unless the requisite fault element has been proven.
- sections 674(2) and 675(2) of the Corporations Act are no longer civil penalty provisions (and will be omitted from the list of civil penalty provisions in section 1317E of the Corporations Act). These existing civil penalty provisions are replaced with new civil penalty provisions for listed disclosing entities bound by a continuous disclosure requirement in market listing rules.
The new civil penalty provision is identical to the criminal offence in section 674, except that the new civil penalty provision contains a test of the entity's knowledge, recklessness, or negligence with respect to the effect of that information on the price.
- the new civil penalty provision is a financial services civil penalty provision under section 1317E. The existing rules regarding financial services civil penalty provisions in Part 9.4B of the Corporations Act apply.
- the introduction of an accessorial liability provision, contravened if a person is involved in a listed disclosing entity's contravention of the new civil penalty provision. The accessorial liability provision is a financial services civil penalty provision.
- a defence to the accessorial liability provision is available where a person takes all steps (if any) that were reasonable in the circumstances to ensure that the listed disclosing entity complied with its obligations under the new civil penalty provision, and after doing so, believed on reasonable grounds that the listed disclosing entity was complying with its obligations.
Analogous rules for the responsible entities of registered schemes and operators of notified foreign passport funds to those in existing sections 674(3) and (3A) also apply in relation to the new civil penalty provision.
For the purposes of the new civil penalty provisions, an entity knows that (or is reckless or negligent with respect to whether) the information would have a material effect on the price or value of its enhanced disclosure securities if it knows that (or is reckless or negligent with respect to whether) the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the enhanced disclosure securities.
(b) Modifying the circumstances where contraventions of continuous disclosure obligations constitute misleading and deceptive conduct
Schedule 2 to the Bill also amends section 1041H of the Corporations Act to limit the circumstances in which a contravention of a continuous disclosure obligation will constitute misleading and deceptive conduct.
The effect of the change is that entities and officers are not liable for misleading and deceptive conduct in circumstances where the continuous disclosure obligations have been contravened unless the requisite fault element in the continuous disclosure obligation has been proven.
Conduct of a disclosing entity that does not contravene one of the new civil penalty provisions, but would contravene that obligation if it contained the relevant objective test in section 674 or 675 instead of the test of knowledge, recklessness or negligence, does not contravene the prohibition on misleading and deceptive conduct in section 1041H(1).
This means that conduct that triggers the continuous disclosure provisions will not automatically also constitute misleading and deceptive conduct for the purposes of section 1041H(1). In particular, conduct that contravenes the continuous disclosure obligations that contain the objective test will not contravene section 1041H(1).
While this is a welcome clarification to the Corporations Act, the liability regime in relation to periodic and continuous disclosure (and directors' and officers' duties) remains inconsistent, and we think further work can be done to provide a streamlined and consistent set of rules for listed companies, Boards and officers.
(c) Modifying the infringement notices regime
Schedule 2 also amends the infringement notices regime in Part 9.4AA of the Corporations Act, which applies in relation to the continuous disclosure provisions in Chapter 6CA. ASIC may issue an infringement notice if it has reasonable grounds to believe a disclosing entity has contravened sections 674(2) or 675(2). For the purposes of issuing an infringement notice under Part 9.4AA of the Corporations Act, the offences created by sections 674(2) and 675(2) are to be treated as offences of strict liability. This means that even though the requisite fault element must be proven to establish that a contravention of the continuous obligation has occurred, ASIC will be able to issue infringement notices regardless of the entity's state of mind.
We understand that the government is considering making these changes permanent.
