This article was written by Will Heath and Diana Nicholson.
The exceptional challenges posed by COVID-19 have caused governments and regulators to implement various temporary arrangements, including in relation to corporate governance and directors duties.
This note provides a brief update for directors on the key aspects of COVID-19 corporate law reform which impact Board and governance issues. It is not intended to be comprehensive and we would be happy to provide further information on topics mentioned in (or omitted from) this note.
Where are we now?
Governments and regulators have made various changes to key corporate law rules which acknowledge the heightened pressures which Boards and corporate governance systems face in the COVID-19 environment. Some key changes include:
- Virtual AGMs: The Government’s temporary changes to facilitate virtual and hybrid AGMs (together with ASIC guidance). These temporary changes will continue to 21 March 2021 and allow, among other things, companies to provide notice of AGMs by email, to achieve a quorum via shareholders attending online, and to hold AGMs online. These changes have been very effective and positive reports of AGMs held in accordance with these measures from all parties.
- Directors’ duty to prevent insolvent trading: Temporary relief for directors from personal liability for trading while insolvent, for debts incurred in the ordinary course of the company’s business. This temporary relief is set to expire on 31 December 2020, unless extended. The relief does not extend to usual directors duties.
- Temporary changes to continuous disclosure laws: Temporary changes to continuous disclosure rules in the Corporations Act which apply until 23 March 2021.
What needs to be done?
Boards and companies should not lose sight of the opportunities to actively engage with governments and regulators regarding further potential law reform.
For example, in relation to continuous disclosure rules, we continue to advocate for change through a number of channels: in the media, directly to the Government, in collaboration with industry groups, and via KWM's own submission to the Parliamentary Joint Committee on Corporations and Financial Services’ current inquiry into litigation funding (the PJC Inquiry). The PJC Inquiry’s report is due by 7 December 2020.
In the mid-term, there are various governance changes which are subject to ongoing review and which require ongoing scrutiny and feedback from Boards. These include the Financial Accountability Regime (the extension of the BEAR) which we think requires further reworking before it can be enacted. Additionally, the Australian Law Reform Commission continues its work on various initiatives. It recently published its report on corporate criminal responsibility and potential streamlining of the law, as well as announcing a three year Review of the Legislative Framework for Corporations and Financial Services Regulation, which we hope might result in simplification of the increasingly complex and often inconsistent provisions of the Corporations Act.
Finally, as governments focus on rebuilding and growth, corporate law reform and simplification provides an opportunity to drive meaningful change. We are working with a number of clients, directors and stakeholders (including industry groups) to identify how corporate law and governance rules can be improved. Various laws require shifting into the 21st century, including (as set out above) the rules relating to AGMs, electronic execution of documents and electronic provision of shareholder documents. We also think this opportunity for reform should not be wasted and there is a chance to advocate for broader change to corporate laws which have a contestable policy basis and can produce unintended outcomes, including for example the current test in section 254T for dividends, the two strikes rule for executive remuneration, and the scope of the business judgment rule defence in section 180 of the Corporations Act. We have been involved in various discussions with, and have made submissions to, Government on a range of issues, and we would be happy to share our ideas and assist you in advocating for sustainable improvement in corporate governance rules.