13 August 2021

Modernisation of document execution and meetings and continuous disclosure reform

This article was written by Diana Nicholson, Tim Bednall, Joseph Muraca and Jack Hill

Further to our alerts on 19 February 2021 and 30 March 2021, on 10 August 2021, the Treasury Laws Amendment (2021 Measures No.1) Bill 2021 (Bill) was passed by Parliament.

The Bill amends the Corporations Act 2001 (Cth) (Corporations Act) to:

  • facilitate electronic execution of documents;
  • allow for virtual meetings and increased electronic communication;
  • grant ASIC emergency powers in relation to wholly virtual meetings, extending the period in which to hold an AGM and the manner and timeframe in which documents are provided; and
  • change continuous disclosure laws.

The Bill received Royal Assent on 13 August 2021 and will take effect on 14 August 2021. 

The amendments made to the Corporations Act in Part 1, Schedule 1 of the Bill (relating to electronic execution and virtual meetings) are due to expire on 31 March 2022, although, Treasury are proposing to make these amendments permanent (see here for KWM’s insights on the proposed permanent changes).

The amendments to the continuous disclosure regime are permanent and will undergo an independent review after two years.

These legislative changes, and their implications, are summarised below.

1  Modernising execution of documents, virtual meetings and electronic communication – temporary reforms

As noted above, the reforms detailed in this section 1 are temporary and will lapse on 31 March 2022. However, Treasury has indicated its intention to make these changes permanent later in the year. 

1.1  Execution of documents

As noted above and explained further in our recent alert here, the Bill facilitates electronic execution of documents under section 127 of the Corporations Act. Once the Bill commences, a person will be taken to have signed a copy or counterpart of a document that is either in physical or electronic form, if that copy or counterpart includes the entire contents of the document (sections 127(3A) and (3B) respectively). However, copies and counterparts do not need to include the signature or common seal of another person signing the document, or any material included in the document identifying other signatories or their intentions (section 127(3C)).

Additional requirements have been introduced by the Bill where electronic execution is used (s 127(3B)). This includes a requirement that a method be used to identify the person signing the document and to indicate their intention to sign. That method must be either as reliable as appropriate for the purpose for which the document was generated or communicated, in light of all the circumstances, or proven to have fulfilled those functions by itself.

Helpfully, witnesses can now observe the fixing of a company’s seal electronically, as long as the document includes a statement that this has occurred (section 127(2A)).

1.2  Facilitating virtual meetings and electronic communication

The Bill permits the use of virtual meeting technology for directors’ and members meetings. This includes allowing:

  • meetings to be held in a fully virtual format, provided that members have a reasonable opportunity to participate;
  • documents relating to meetings to be provided and signed electronically; and
  • electronic minute-keeping.

Thankfully, there is no longer a requirement for the constitution of the relevant entity to expressly permit virtual meetings. The Bill also no longer requires an entity to notify members of their right to elect to receive documents in hard copy within two months of the person becoming a member (for new members) or within two months of the Bill commencing (for existing members) – although members still have a right to elect to receive hard copy documents – and no longer allows members who hold at least 5 per cent of voting capital to have polls independently scrutinised.

The key features of the Bill were set out in our earlier alert here but we summarise below the main sections of the Bill, including the recent Senate amendments to the Bill.

Question

Response

Which meetings do the new rules apply to?

The new rules apply to meetings of:

  • shareholders of companies;
  • directors of companies; and
  • members of registered schemes.

How can meetings be held?

Meetings can be held:

  • virtually, using virtual meeting technology (section 253Q);
  • by inviting persons to physically attend a physical location;
  • by inviting persons to physically attend at different physical locations and using virtual meeting technology to connect the different locations; or
  • using a combination of the above methods.

Where and when is the meeting taken to be held?

Fully virtual meetings

For meetings where all participants use virtual meeting technology:

  • the place of the meeting is taken to be the address of the registered office of the company or responsible entity of the registered scheme; and
  • the time of the meeting is taken to be the time at that place (section 253QA(3)).

Hybrid meetings

For hybrid meetings, where members have a choice of attending physically or by using virtual meeting technology:

  • the place for the meeting is taken to be the place where the members may physically attend and if there are two or more locations, then the main location as set out in the notice of meeting; and
  • the time for the meeting is the time at that place (section 253QA(2)).

At what time can a meeting be held?

A members’ meeting must be held at a time that is reasonable at the place where it will be held (section 249R).

What must be included in the notice of meeting?

General rule

When a meeting is to be held using virtual meeting technology, the notice of meeting must include sufficient information:

  • to allow the persons entitled to attend the meeting to participate using the virtual meeting technology (section 249L(1)(a)(iii)), which could include dial in details, a relevant website link or the date and time of the meeting; and
  • to allow members to provide proxy documents by electronic means (section 250BA(1)).

Further information required for a hybrid meeting

For a meeting where members may attend in person or via virtual meeting technology, the notice must also designate the physical location of the meeting (section 249L(1)(a)(i)).

If there are two or more physical locations, the notice must state all of the locations and the main location (section 249L(1)(a)(ii)). For example, where the company directors are meeting in Melbourne and venues in Sydney and Queensland are also made available to members to join the meeting virtually, the notice must state that Melbourne is the main location. 

How should a virtual meeting be conducted?

Reasonable opportunity to participate

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 without being physically present (section 253Q(1)). This includes giving members a reasonable opportunity to exercise a right to ‘speak’ (orally and not just in writing) (section 253Q(2)) and an opportunity to vote in real time, even if an opportunity to record a vote before the meeting is given (section 253Q(4)).

Invalidation of the meeting where substantial injustice has occurred

Members can apply to the Court to have the meeting invalidated on the basis that they were not given a reasonable opportunity to participate in the meeting. However, 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 (section 1322(3A)). This mirrors the circumstances where an irregularity invalidates a physical meeting under the existing law.

How is a quorum determined at virtual meetings?

If a meeting is held using virtual meeting technology, all persons participating in the meeting are taken to be ‘present’, whether they are physically present or attending virtually (section 253Q(3)). This means that both people attending the meeting in person and virtually should be counted for the purposes of determining whether there is a quorum.

Should shareholders vote on a show of hands or on a poll in virtual meetings?

In relation to a company, at a virtual meeting, votes will be taken on a poll rather than a show of hands (section 250J(1)). In relation to a registered scheme, at a virtual meeting, votes will be taken on a poll rather than a show of hands unless the registered scheme determines otherwise in its constitution (section 253J(2)).

All participants entitled to vote must be given the opportunity to participate in the vote in real time and may also be given the opportunity to record a vote in advance of the meeting (section 253Q(4)). 

How can documents be tabled at virtual meetings?

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 (section 253Q(5)). For instance, documents could be shared using a screen sharing facility with virtual attendees, or handed out in hard copy to physical attendees.

Which documents can be provided and signed electronically?

Documents relating to meetings, or a resolution considered without a meeting, may be given or signed using electronic means (section 253R). This applies regardless of whether the meeting is held using virtual meeting technology or in person. Any document relating to a meeting may be given electronically and signed electronically including:

  • notices of meetings and documents that must accompany the notice, such as explanatory statements;
  • a member’s resolution or a member’s statement for consideration at the meeting;
  • documents relating to a proxy;
  • notices of a resolution or a record of a resolution;
  • notices of a statement in relation to a meeting or a matter to be considered at a meeting;
  • questions for auditors and responses to those questions; and
  • minute books.

How can documents be provided electronically to members?

A document may be provided electronically either by:

  • giving the document to a person by using electronic means; or
  • using electronic or traditional means to provide the person with details sufficient to allow them to view or download the document electronically (section 253RA).
This can only occur 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 person has not opted in to receive hard copies only.

How can documents be signed electronically?

A person is taken to have signed the relevant document if:

  • a method is used to identify the person signing the document and to indicate their intention to sign;
  • the copy or counterpart includes the entire contents of the document; and
  • the method used was either as reliable as appropriate for the purpose for which the document was generated or communicated, in light of all the circumstances, or proven to have fulfilled those functions by itself.

A copy or counterpart of a document does not need to include the signature of another person signing the document, or any material included in the document identifying other signatories or their intention.

What rights do members have in relation to receiving hard copy documents?

A member may elect to receive hard copies only of documents relating to a meeting or a resolution considered without a meeting.

If the document is a notice of meeting or accompanies the notice, the election does not apply to any documents that are required to be provided to the member within the next 10 business days (sections 253RB(3) and 253RC(3)) or both of the following are satisfied:

  • the document relates to a resolution to be considered without a meeting; and
  • notice in writing of the election is given to the company on or after the day the document is given to the member.

A member who opted into receiving documents in hard copy only can revoke that election in writing. Such a revocation applies from the day on which it is given to the company, meaning the company can send documents to the member electronically or in hard copy from that date (sections 253RB(2) and 253RC(2)).

Can minutes be recorded and stored electronically?

Information can 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 (section 253S).

The minute book can 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 other place approved by ASIC).


2  Exceptional circumstances for virtual meetings and electronic communication of documents – permanent reforms

In addition to the temporary reforms, the Bill also introduces permanent reforms granting ASIC new powers to:

  • allow companies to hold wholly virtual meetings even after expiration of the temporary relief described in section 1;
  • extend the time frame for companies to hold an AGM on a class basis; and
  • modify the manner or timeframe in which documents must be given to other entities under the Act.

These new powers are summarised below.

ASIC power

Exceptional circumstance

Wholly virtual meetings  

A company or a registered scheme can hold a member’s meeting using virtual meeting technology only, even if this is not required or permitted by its constitution expressly, if ASIC makes a determination allowing that to occur (section 253TA).

ASIC can make such a determination specifying a particular entity, or a class of entities, if it considers that it may be unreasonable to expect that entity or those entities to hold meetings wholly or partially at one or more physical venues because of a situation that is beyond their control.

The determination can be subject to conditions and unless revoked earlier, will expire 12 months after it commences.

Extension of time for AGMs

ASIC may provide a public company with an extension of time to hold its AGM where exceptional circumstances arise, so that it will still be taken to have complied with subsections 250N(1) and (2) of the Corporations Act (section 253T). ASIC can do this by making a determination specifying a class of public companies if it considers that it may be unreasonable to expect those companies to hold AGMs within the time required under section 250N because of a situation that is beyond their control.

The determination must specify a period of extension of that time and the company must hold their AGM within that period. The determination may be subject to specified conditions. Unless revoked earlier, a determination will expire 12 months after it commences.

Manner or timeframe that documents are given under the Corporations Act

If the Corporations Act requires or permits a document be given by an entity to another entity (recipient), then an entity may give the document to the recipient via electronic communication or have an extension of time to provide that document (where it is required to be given within a particular time) if ASIC makes a determination to that effect (section 1345).

ASIC can make such determinations where:

  • in relation to electronic communication of the document, it considers it may be unreasonable to expect the entity to give the document in a physical form because of a situation beyond that entity’s control; and/or
  • in relation to extensions of time, it considers it may be unreasonable to expect the entity to give the document within the original time because of a situation beyond that entity’s control.

Such determinations may be subject to conditions and will expire 12 months after they commence, unless repealed earlier.


3  Changes to continuous disclosure laws 

3.1  Summary of the changes

Temporary COVID-19 measures amended continuous disclosure laws under the Corporations Act from May 2020 to March 2021. These measures have now been made permanent by the Bill.

The Bill introduces a new civil penalty provision under which a listed entity will only incur civil liability for breaching continuous disclosure obligations if the entity knows, or is reckless or negligent with respect to whether the information would, if it were generally available, have a material effect on the price or value of the entity’s securities (section 674A). This also applies to any person involved in the contravention.

This replaces the existing “reasonable person” expectation of materiality under section 674 of the Corporations Act in relation to civil liability (i.e. currently, a civil breach arises where, amongst other requirements, a reasonable person would expect the information to have a material effect on the price or value of the entity’s securities).

The amendments also provide 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 mental element has been proven.

The new continuous disclosure laws will apply to conduct engaged in on or after those amendments commence. You can find further details on these reforms in our earlier alert, here.

3.2  Review of the reforms

The Bill was amended after it was tabled in the Senate to introduce a process by which the effects of the continuous disclosure reforms could be assessed in the future.

This amendment means within six months of the two-year anniversary of the commencement of the Bill, the Treasurer must cause an independent review of these amendments (to be tabled in each House of Parliament within 15 sitting days of the report being given to the Treasurer).

The Government is required to respond to the review, and publish its response on the Department’s website as soon as practicable, and in any event, within three months after the report is first tabled.

If the Treasurer does not comply with this process, the continuous disclosure amendments cease to have effect.

3.3  Implications

The Bill heightens the bar to make out a civil contravention of continuous disclosure obligations under the Corporations Act. The rationale behind the changes is to “strike the right balance” between keeping the market informed and giving certainty to entities and directors (in light of increasing regulatory, class action and insurance costs).

Potential improvements in directors’ and officers’ insurance costs may arise as a result of these reforms. However, the true practical effect of these changes will remain to be seen, including their effect on class action risk.

In any event, care and caution by listed entities and their directors and officers must still be exercised. It is important to keep in the mind that the amendments do not affect the ability of the Commonwealth to prosecute criminal continuous disclosure breaches or ASIC’s ability to issue infringement notices and undertake non-penalty proceedings without fault. The Bill does not affect the application of ASX Listing Rules 3.1 and 3.1A, which continue to apply.

 

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