In further recognition of the difficulties faced by companies in meeting strict corporate compliance requirements in a COVID-19 environment, the Treasurer released yesterday a ministerial determination permitting company general meetings to be held virtually and modifying the way companies can execute documents.
In the Corporations Act (Coronavirus Economic Response) Determination (No. 1) 2020 (Determination) the Treasurer has modified the Corporations Act, the Corporations Regulations, the Insolvency Practice and the Passport Rules so that:
- a meeting may be held using one or more technologies that give all persons entitled to attend a reasonable opportunity to participate, without being physically present at the meeting
- persons so participating are taken for all purposes (including quorum requirements) to be present at the meeting while participating
- votes taken at the meeting must be taken by poll and not on a show of hands
- any requirement that each participant be given the opportunity to be heard at the meeting will be met by using technology that allows that opportunity
- proxies may be appointed using one or more of the technologies specified in the notice of meeting
- a notice of meeting may be given (with accompanying information), and information at or relating to a meeting may be provided, using one or more technologies to communicate to those entitled to receive notice of the meeting:
- the contents of the notice and the other information; or
- details of an online location where the contents of the notice and other information can be viewed or downloaded.
These modifications are made subject to the following conditions:
- the company or person giving the notice of meeting must include in the notice information about how those entitled to attend can participate in the meeting (including by voting or speaking)
- if notice of the meeting has already been given before 6 May 2020, the company or person giving the notice must, at least seven days before the meeting is held, give a fresh notice of meeting including the information specified in point 7 above
- if a person (the appointer) is entitled to attend or vote at the meeting by proxy, the person conducting the meeting must treat a duly appointed proxy in the same way as the appointer would be entitled or required to be treated if he or she has attended the meeting in person.
The Determination modifies section 127(1) of the Corporations Act so that a company may also execute a document (including a document in electronic form) without using a common seal if each person specified in section 127(1)(a), (b) or (c), as applicable, either:
- signs a copy or counterpart of the document that is in a physical form; or
- complies with point 12 below in relation to electronic communications (as defined in the Electronic Transactions Act 1999).
Where a person executes a copy, counterpart or electronic communication, that document, counterpart or electronic communication must include its entire contents, but need not include the signature of another person signing it or any material included in the document because of point 12 below.
A person may validly execute a document by electronic communication if:
- a method is used to identify the person in the electronic communication and to indicate the person’s intention in respect of the contents of the document; and
- the method:
- is as reliable as appropriate for the purpose for which the company is executing the document, in light of all the circumstances, including any relevant agreement; or
- is proven in fact to have fulfilled the functions described in point 13.(a), by itself or together with further evidence.
The Determination also modifies section 129(5) of the Corporations Act. That section provides that a person may assume that a document has been duly executed by a company if the document appears to have been signed in accordance with section 127(1). In making that assumption, the person may also assume that anyone who signs the document and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices.
The Determination modifies section 129(5) by providing that:
- a reference to a document appearing to have been signed in accordance with section 127(1) of the Corporations Act includes a reference to a document (including a document in electronic form) appearing to have been signed in accordance with section 127(1) of the Corporations Act as modified by the Determination
- in making this assumption a person may also assume that anyone who:
- complies with points 12 and 13 above; and
- is identified in the electronic communication as the sole director and sole company secretary of the company, occupies both offices.
The modifications in the Determination remain in effect for six months from 6 May 2020.
Key takeaways for businesses
The temporary changes to allow for virtual only meetings is welcome news as many companies questioned the feasibility of traditional meetings or hybrid meetings (where there is a physical location and online facilities) during current social distancing requirements. Before the Determination, there was uncertainty as to whether resolutions passed at virtual meetings are valid under the Corporations Act, which meant that Australian companies could not consider a virtual meeting using technology a viable option. These modifications provide certainty and a cost-effective solution to companies in coming months (especially during the pandemic and the upcoming AGM season).
The new document signing laws, albeit temporary in nature are also a welcome change since they make three key changes that previously restricted the use of electronic signature and digital signing platforms for separated parties to sign documents:
|Current law as modified by the Determination||Previous law without benefit of Determination|
|An “electronic signature” may satisfy the requirements of section 127 of the Corporations Act.||Provisions of the Electronic Transactions Act 1999 (Cth) regarding the use of electronic signatures were excluded from the operation of the Corporations Act.|
|The reference to a document in section 127 of the Corporations Act includes an “electronic document”. This means that a person can sign an electronic document by way of a digital signing platform provided that the signing process can reliably prove (as appropriate) the identity of the person and his or her intention to be bound.||A conservative reading of section 127 of the Corporations Act may have required a physical document.|
|Two directors may sign a document pursuant to section 127(1)(a) of the Corporations Act by signing separate counterparts, or sequentially signing the same document.||Before the Determination, the case of Bendigo and Adelaide Bank Limited (ACN 068 049 178) v Kenneth Ross Pickard  SASC 123 indicated that there must be a single, static document and that execution by two electronic signatures are sequentially applied to an electronic document was not sufficient.|
The Determination rightly in our view reflects the commercial realities of getting transactions completed at the time when it is needed the most due to signatories being affected by stay at home orders, overseas travel restrictions, lockdowns and quarantine.
We expect that many businesses and commentators alike will seek to lobby for both the modifications relating to virtual meetings and document signing to remain in place even after the six months period has ended to bring the Corporations Act in line with today’s digital age. We will provide further updates (if any) in this regard.
In the meantime, if you have any questions regarding the validity of your proposed virtual meetings or the due execution and enforceability of documents (especially during these unusual times), please do not hesitate to contact us for advice.
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