Further to our alerts dated 19 February 2021 and 30 March 2021, on 25 June 2021 the Federal Government released exposure draft legislation designed to support companies and their officers using technology to satisfy certain Corporations Act 2001 requirements.
Specifically, if passed in its current form, the exposure draft legislation will facilitate the use of technology in meetings, to execute company documents and send meeting-related materials. The exposure draft also:
- clarifies that companies can hold hybrid meetings;
- clarifies that members, as a whole, must be given a reasonable opportunity to participate in meetings whether the meeting is a physical meeting, a hybrid meeting or a virtual meeting;
- creates show-of-hands as the default method for voting at both physical and hybrid meetings; and
- allows members who hold at least 5 per cent of voting capital to have polls independently scrutinised.
There are a number of issues which arise in relation to the exposure draft legislation:
- The draft legislation only permits fully virtual meetings if the company's constitution permits them. Many companies will need to amend their constitutions to allow virtual meetings which requires a special resolution of shareholders. We also understand that certain proxy advisers may be unwilling to support this constitutional change. This leaves the status of fully virtual meetings in flux.
- It is unclear if and when the draft legislation will be passed by Parliament. Companies with a 30 June financial year end should carefully monitor the passage of the draft legislation and consider how they intend to hold their AGMs and (if the legislation is passed) whether they will pursue amendments to their constitution.
- Companies will only be able to take advantage of the new legislation if their notice of meeting is dispatched after the new legislation commences.
Consultations on the draft legislation will close on 16 July 2021.
The exposure draft legislation does not include the continuous disclosure relief contemplated in an earlier draft which is, while disappointing, unsurprising given the recent report of the Senate Economics References Committee on that earlier draft.
The Treasury Laws Amendment (Measures for Consultation) Bill 2021: Use of technology for meetings and related amendments ("Bill") provides a statutory mechanism for companies to execute documents electronically.
In summary, when a company executes a document:
- Persons may sign a document electronically;
- The fixing of a seal can be witnessed electronically;
- Separate copies of a document may be used by each person required to execute the document; and
- A document may be executed by the sole director of a proprietary company that does not have a company secretary.
The new law takes a technology neutral approach and does not mandate the use of any particular type of technology. Rather, a range of technologies may be used including digital platforms and new technologies that may emerge in the future.
Where a company executes a document by fixing a common seal, the person witnessing the fixing of the seal may do so electronically. They may do this by:
- using technology such as videoconferencing to observe the fixing of the seal;
- signing the document or a copy or counterpart of the document; and
- annotating the document with a statement stating that they have observed the fixing of the seal electronically.
Further, a director, secretary or witness may electronically sign the document (or a copy or counterpart 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; and
- 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.
The Bill also allows individuals to sign a copy or counterpart of a document (rather than the original). The document does not need to include the signature of any other person. This means that the directors of the same company may sign different documents, that is, split execution is permitted.
People dealing with companies are entitled to assume that a document is validly executed if the new rules are followed. This replicates the assumptions people dealing with companies are entitled to make in relation to the traditional methods of executing a company document under the Corporations Act.
Hybrid and virtual meetings
The Bill includes provisions which allow all companies and registered schemes to hold physical and hybrid meetings. Wholly virtual meetings may also be used if they are expressly required or permitted by the constitution (regardless of whether the constitution was amended before or after the commencement of these reforms).
The new law is not prescriptive about how a meeting should be conducted. It does not mandate a particular format for a meeting or a particular way in which a show of hands or a vote on a poll is to be conducted.
The Bill provides that companies may hold a meeting at:
- one or more physical locations (a physical meeting);
- one or more physical locations and using technology to allow persons to attend virtually (a hybrid meeting); or
- using technology to allow members to attend virtually if this is expressly permitted or required by the constitution (a wholly virtual meeting).
These changes apply to meetings if notice of the meeting is given on or after commencement of the Bill. If notice of the meeting is sent before the commencement of the Bill, and the meeting is scheduled for a date after the commencement of the Bill, the position is far from clear: the applicable law will depend on a number of variables including the date of the meeting, the status of the previous Bill, and the provisions of the company's constitution.
All persons participating in the meeting (whether by being physically present or using electronic means) are taken to be 'present'. This means that all persons attending virtually at the time that the quorum is called must be counted for the purposes of determining whether there is a quorum.
Regardless of how a meeting is conducted, the members as a whole must be given a reasonable opportunity to participate. This requirement has several components.
- For a physical meeting or a hybrid meeting, the physical venue for the meeting must be reasonable. If there is more than one physical venue, only the main physical venue (as set out in the meeting notice) needs to be reasonable. The reasonableness of a physical venue could be determined by considering where the company or registered scheme is registered, where the members reside or where the directors are located.
- The meeting must be held at a reasonable time. The reasonableness of the time for a physical or hybrid meeting is determined by having regard to the place at which the meeting is held. A wholly virtual meeting is held at a reasonable time if that time would have been reasonable at any physical venue where it would have been reasonable to hold the meeting.
- Reasonable technology must be used to connect more than one physical venue or facilitate virtual attendance.
- Where members have a right to speak, comment or ask questions, the member must be given the right to do so either orally or in writing.
- If a document is tabled at a meeting, a copy of the document must be made reasonably accessible to the members as a whole, either before or during the meeting. At a virtual meeting, this could be done by screencasting the document.
The Bill allows any document that relates to a meeting to be given electronically and signed electronically. A document may be provided electronically either by:
- giving the document to the person by using electronic means (e.g., sending an email); or
- using electronic or traditional means to provide the person with details sufficient to allow them to view or download the document electronically (e.g., by giving them a card or sending them an email with a link to a website).
However, a document can only be given electronically if:
- it is reasonable to expect that the document would be readily accessible so as to be useable for subsequent reference at the time that the document is given; and
- the individual receiving the document has not opted to receive the documents in hard copy.
Minutes may also be recorded and kept electronically if it is reasonable to expect that the information would be readily accessible so as to be usable for subsequent reference. If the company or registered scheme elects to keep minute books electronically, it must also ensure that the method provides a reliable means of maintaining the integrity of the information and that the minutes are open for inspection at the same place where a hard copy would have been retained.
A new section has been included in the Bill which provides that certain members of listed companies and registered schemes may request that the company or responsible entity appoint an independent person to observe and/or prepare a report on the conduct of the polls at the meeting of the members. A failure to comply with the new section will constitute a strict liability offence.
- A member or group of members whose voting power in the company is at least 5 per cent may request that an independent person be appointed.
- The company or responsible entity of a registered scheme must take reasonable steps to appoint an independent person after receiving the request.
- The independent person may be the auditor of the company or registered scheme, unless the auditor would have a conflict of interest, such as a vote to remove the auditor. The company or responsible entity of the registered scheme is responsible for paying any fees associated with appointing the independent person.
- The independent person may request information from the company or responsible entity if they reasonably believe that the information is necessary for the preparation of the report. .
- After the report has been completed the company or responsible entity must make the report available to the members within a reasonable time.