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Virtually no change? The next iteration of virtual meeting laws

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Written by Miriam Kleiner.

Further to our recent Client Alert, the Federal Government has released yet another draft bill for consultation which relates to virtual meetings and electronic execution. 

The Treasury Laws Amendment (Measures For A Later Sitting) Bill 2021: Use Of Technology For Meetings And Related Amendments ("Bill") creates permanent statutory mechanisms:

  • for the electronic execution of company documents;
  • to allow companies and registered schemes to sign and provide meetings-related documents electronically regardless of whether the meeting is a virtual, physical or hybrid meeting; and
  • to allow companies and registered schemes to hold physical and hybrid meetings. Wholly virtual meetings may also be used but only if they are expressly required or permitted by the constitution.

The main differences between the current law and the Bill are that it:

  • allows a member or group of members with at least 5 per cent of the voting power to require a listed company or registered scheme to appoint an independent person to observe or report on a poll; and
  • only allows fully virtual meetings to be held if the constitution of the relevant entity permits that.

Unfortunately, there are also additional ancillary requirements which may create even more red tape for companies, such as the requirement to alert members of their right to elect to receive documents in either hard copy or virtually every time a document is sent to members.

Comparison of key features of new law and current law

New law

Current law

Certain corporate documents, including documents which relate to meetings of members, can be signed in technology neutral and flexible manners.

Documents relating to a meeting may be signed electronically by using a method to identify the signatory and indicate the signatory's intention until 31 March 2022.

Agents can make, vary, ratify or discharge contracts and execute documents (including deeds) on behalf of companies. 

Agents can make, vary, ratify or discharge contracts on behalf of companies.

Companies can execute documents in flexible and technology neutral manners.

Company documents executed both with and without a seal may be executed using electronic means. If the document is executed by fixing a company seal, electronic means may be used to witness the fixing of the seal.

 

These changes remain in force until 31 March 2022.

Proprietary companies with a sole director and no company secretary can use the statutory document execution mechanisms.

Proprietary companies with a sole director and no company secretary cannot use the statutory document execution mechanisms.

Members of companies and registered schemes can elect to receive meetings related documents electronically or in hard copy.

The Corporations Act only provides for members of companies and registered schemes to elect to receive meetings related documents until 31 March 2022.

Companies and registered schemes can hold meetings of members at one or more physical locations (a physical meeting), at one or more physical locations and using technology (a hybrid meeting), or if permitted by a company's constitution, a wholly virtual meeting.

Companies and registered schemes can hold wholly virtual meetings of members, regardless of requirements in the constitution until 31 March 2022.

A member or group of members of a company or registered scheme with at least 5% of the voting power can request to have an independent person appointed to observe and/or prepare a report on a poll conducted at a members meeting.

No equivalent.

Votes on resolutions which are set-out in the notice of a meeting of members of a listed company or listed registered scheme must be decided on by poll. A listed company's constitution is not capable of providing otherwise.

Votes on all resolutions at a meeting of a company or registered scheme's members are decided on by show of hands unless a company's constitution provides otherwise.

Electronic execution

The main changes regarding electronic execution relate to execution of a document by an agent of an entity – in particular the agent need not be appointed by deed to execute a deed.  This abrogates the common law rule which requires an agent acting on behalf of a company to be appointed by deed in order for them to execute a deed on behalf of the company. 

If a company executes a document through an agent, people will be able to rely on the assumptions in subsection 129(3) for dealings in relation to the company.  A person may assume that anyone who is held out by the company to be an agent of the company:

  • has been duly appointed;
  • has authority to exercise the company's powers; and
  • has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of agent of a similar company.

Giving meeting related documents electronically

The Bill permanently allows a company or the responsible entity of a registered scheme to give meetings-related documents to a member electronically or in physical form by establishing a general regime that covers the electronic communication of documents.  This new regime applies to any meetings-related document that a company or responsible entity is required or permitted to give, send or otherwise provide to a member.

The intention is to expand the regime in the future to cover other types of documents as part of the 'Modernising Business Communications' reforms.  Those proposed reforms will also allow electronic communications to be used to send documents from members to entities.

Elections by members

The Bill provides members with the opportunity to elect to receive documents in physical form or electronically.  Such an election may be made in respect of:

  • all documents (a standing election)
  • just specified classes or types of documents (a standing election); or
  • a single specified document (a one-off request).

One-off request

A member may make a one-off request to receive a particular document electronically or in physical form.  This request may be made within a reasonable time after receiving the document.  If a member makes a request, the company or responsible entity must send the document in the requested form within 3 business days after receiving the request except:

  • where a request is made before the document is required or permitted to be sent. In this case, a company or registered scheme does not need to send the document sooner than required under the specific section in the Corporations Act that gives rise to the obligation; and
  • If ASIC relieves an individual or class of entities from providing a document in electronic form. The power is designed to be used only in exceptional circumstances, such as where an IT failure makes it unreasonable to expect a sender, or a class of senders, to provide an electronic document.  Unless revoked earlier, an ASIC determination is repealed at the end of 12 months after the day on which it commences.

Notification requirements

Members must be notified of their right to elect to receive a document in a specified form (physical form or electronic form), or request that a particular document be provided in a specified form.  The company must take reasonable steps to provide this notice every time a document is sent to the member.  It could take the form of a separate notice or text that is included in the document itself.

A failure to notify a member of their right to make an election is a strict liability offence carrying a penalty of 30 penalty units.  This is the same as the penalty that applies if a company does not notify its members of their right to receive an electronic or hard copy of the annual report.

Importantly, the Bill clarifies that if a member has notified a company or responsible entity that they wish to receive documents in physical or electronic form prior to the commencement of the Bill then that member will be taken to have made an election for the purposes of the new law and will not need to re-make the election.  This effectively converts any elections made under a contract in a statutory election under the Corporations Act.

Meetings

Hybrid meetings of shareholders of a company or registered scheme

The Bill makes permanent changes to clarify that companies and registered schemes can use technology to hold meetings.  The provisions relating to meetings and electronic communication must be reviewed no later than the earliest practicable day after the end of two years after the Bill commences.

Virtual meetings

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 only if this is expressly permitted or required by the constitution (a wholly virtual meeting).

Requests for independent reports on polls

The Bill 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 and validity of the polls at the meeting of the members.

A member or group of members with at least 5 per cent of the voting power may request that an independent person be appointed.  The request must be made in writing and specify the meeting to which it relates.  If the request relates to the observation of a poll then the request must be made no later than five business days before the meeting.  If the request relates to a report on a poll then the request can be made up to five business days after the meeting.

The company or responsible entity of a registered scheme must take reasonable steps to appoint an independent person after receiving the request.  If the request is in relation to the observance of a poll then the company or responsible entity should take reasonable steps to ensure that the independent person observes the poll.

There is a presumption that the auditor or registry service provider of the company or registered scheme is an independent person.  However, this presumption would be rebutted if the poll was in respect of an issue that related to the auditor or registry service provider, such as a vote to remove the person.

The company or responsible entity of the registered scheme is responsible for paying any fees associated with appointing the independent person.

It is expected that where a company or registered scheme has an independent person observe and/or prepare a report on polls as part of their standard meeting practices this will satisfy these requirements and there will be no additional burden on these entities.  Similarly, if a scrutineer is appointed under Chapter 14 of the ASX Listing Rules and a request is made by a member or group of members it is expected that the scrutineer and the independent person would be the same person and only one report would need to be prepared.

An 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.  The company or registered scheme must provide the independent person with the information that the independent person requests.  As the Bill does not alter any fundamental common law rights, a company or responsible entity will not be required to provide the independent person with the information if the document is privileged or would incriminate its directors.

After the report has been completed the company or responsible entity must make the report available to the members within a reasonable time.  In line with the requirements for keeping a record of meeting minutes, the company or responsible entity must keep a record of the report.

A company or responsible entity commits a strict liability offence if it breaches its obligations in relation to taking reasonable steps to appoint an independent person, provide access to information, publish the report or keep a record of the report.  The maximum penalty for these offences is 40 penalty units.

Voting

The Bill also provides that votes on resolutions which are set out in a meeting notice paper for a meeting of a listed entity's members must be conducted by way of a poll, regardless of the entity's constitutional requirements.  A resolution will not be on a meeting notice paper if it is procedural in nature.  This requirement is not a replaceable rule and will need to be complied with even if there is a contrary clause in the company's constitution.

For entities which rely on replaceable rules, those rules now provide that a resolution may only be decided on a show of hands if a poll has not been demanded. 

Consequential amendments, application and transitional provisions

Consequential amendments have also been made to:

  • extend the obligation on companies to record the details of members and proxies voting on polls to all polls which are required, whether demanded or on a meeting notice paper;
  • ensure that proxies with 2 or more appointments who have received conflicting instructions on how to vote from appointees do not vote by show of hands; and
  • preserve the rules for when a chair is deemed to have been appointed as a proxy for a resolution.

The changes in the Bill will not apply to meetings if:

  • the notice of the meeting is given before commencement of the Bill; and
  • the meeting is held before the expiration of the temporary relief in Treasury Laws Amendment (2021 Measures No. 1) Act 2021 on 1 April 2022.

The amendments to electronic execution laws apply in relation to the signing of a document (including a deed) on or after the commencement of Schedule 1 to the Bill.

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