Electronic signatures and virtual meetings are here to stay – Corporations Act welcomes the 21st century
The Corporations Amendment (Meeting and Documents) Act 2022 (Cth) (Act) amending the Corporations Act 2001 (Cth) (Corporations Act) was given royal assent on 22 February 2022.
COVID-19 thrust corporations and the legislature into a new world which accelerated the adoption of modern practices surrounding the execution of documents and the holding of shareholder meetings. The Act is entrenching these initial temporary relaxations surrounding the requirement to physically sign documents (to bind a company) (with electronic execution now permitted), electronic communications with shareholders and holding shareholder meetings virtually.
Partner Michael Hansel and Senior Associates Christina Hooper and Grace Mullins consider these changes, which largely reflect current market practice under temporary COVID-19 amendments – and will no doubt be considered by many companies a positive change from the paper-based and “in-person” processes previously prescribed by the Corporations Act.
The Act provides that a person may sign a document (including a deed or document being executed by a company for the purposes of section 127 of the Corporations Act) by signing a physical form of the document by hand or by signing an electronic form of the document using electronic means in a method that satisfies the following:
1. the method identifies the person and indicates the person’s intention in respect of the information recorded in the document; and
2. the method was either:
(a) as reliable as appropriate for the purposes of which the information was recorded in light of all the circumstances including any relevant agreement; or
(b) proven in fact to have fulfilled the functions described in identifying the person and indicating the person’s intention by itself or together with further evidence.
Dedicated digital signing platforms such as Docusign typically fulfil the above requirements.
A person is not required to indicate an intention in relation to:
(a) any material identifying another person signing the document or indicating another person’s intention in respect of the information recorded;
(b) the signature of another person signing the document;
(c) if a common seal is affixed to the document – the seal; or
(d) any immaterial information in the form of the document generated for the purposes of signing and which are either the normal course of communication storage or display.
Interestingly, the Act includes a clause to avoid doubt by not requiring:
(a) a person to sign the:
(1) same form of the document if not as another person; or
(2) same page of the document as another person; or
(b) a person to use the same method to sign the document as the other person; or
(c) all the information recorded in the document to be included in the form of the document signed by a person as mentioned in paragraph (a)(1) or (2).
Practically, this allows for “split execution” by officeholders (rather than having to sign on the same execution panel) and for officeholders to execute by different methods e.g. in physical or electronic form.
The Act seeks to import a new provision whereby persons signing in different capacities:
a) can be treated as a different person in each such capacity they sign the document; and
b) may sign the document in some or all capacities by signing the document once if the document requires or permits a person to do so and says the capacity in which the person signs the document.
For example, if a document requires or permits a person to sign once as a sole director and sole company secretary, the person may sign the document as a sole director and sole company secretary by signing that signature block. Further, if a signature block in a document requires or permits a person to sign once on behalf of two companies as agent for both, the person may sign the document as agent for both of those companies by signing that signature block.
This Act also addresses a deficiency in section 127 of the Corporations Act regarding execution by sole directors. Previously, section 127 only contemplated, and the assumptions in section 129 could only be relied on, in respect of execution by a sole director who was also the sole company secretary. The amendment of section 127(1)(c) and new section 129(5) allows the assumptions in section 129 to be relied on where the signatory is a sole director and the company does not have a company secretary.
The introduction of section 110D provides for the technology neutral sending of notices of meeting, annual financial reports, notices of members’ rights (discussed below) or other documents prescribed by regulation. The section states that a document may be sent to a recipient by sending the document in:
c) a physical form;
d) a physical form to allow the recipient to access the document electronically;
e) an electronic form by means of electronic communication;
f) an electronic form by means of electronic communication to allow the recipient to access the document electronically; or
g) an electronic form by making the document readily available on a form on a website.
With the exception of being sent solely in physical form, the above requires that at the time the document is sent it is reasonable to expect the document be readily accessible as so as to be used for subsequent references.
Members can elect how they wish to receive documents (or elect not to receive them at all). The Act does make clear that elections previously communicated by members under the temporary legislation continue to apply and do not have to be made again.
Under new section 110K, public companies, disclosing entities and registered schemes must also send members a notice (or publish a notice on their website) at least once each financial year, of the right of members to make an election as to how they wish to receive documents.
Failure to comply with a member’s election to be sent a document in a particular form or publish the annual notice can give rise to an offence of strict liability.
The Act amends the Corporations Act to give companies the flexibility to hold “hybrid” meetings (whereby members can attend at a physical location or virtually) or purely virtual general meetings.
Regardless of how the meeting is held, all members must be given a reasonable opportunity to participate. That includes holding the meeting at a reasonable time and place. For meetings using virtual technology, that also includes allowing members to exercise both orally and in writing any rights to ask questions and make comments (section 249S).
Section 250 JA provides that certain resolutions must be decided on a poll for listed entities and these include:
(a) any resolutions set out in the notice of meeting;
(b) resolutions of which the company has given notice of in accordance with section 249O (members’ resolutions); or
(c) resolutions where a poll is demanded.
In addition, members holding 5% of the votes that may be cast at the meeting may request the company appoint an independent person to observe (or scrutinise the outcome of) a poll and prepare a report on the poll (sections 253UB and 253UC). An auditor or share registry representative are considered independent persons unless the resolution relates to them.
The amendments made by the Act relating to electronic execution commence on the day after assent, namely 23 February 2022.
The amendments made by the Act relating to the electronic sending of documents such as notices of meeting and the holding of meetings using virtual technology commence on 1 April 2022 (after the expiry of existing temporary measures).
The Act also requires the relevant Minister to appoint an independent panel to undertake a review of the operation of changes brought about by the Act and table a report in parliament. The report must be tabled by the first sitting day of either house of parliament after 23 August 2024, otherwise the changes allowing for virtual meetings – which will likely be of particular focus in the review having regard to concerns raised by shareholder groups about effective shareholder participation last year – cease to apply.
On 3 March 2022, ASIC released the ASIC Corporations (Virtual-only Meetings) Instrument 2022/129 (Cth) which will commence on 1 April 2022, and further extends temporary relaxations around the holding of virtual meetings in place until 31 March 2022 (Instrument). The Instrument provides additional time for companies and registered schemes to hold virtual meetings, until either 31 May 2022 (for listed companies and all registered schemes) or 30 June 2022 (for unlisted public companies). This is subject to the directors resolving that it would be unreasonable to hold the meeting at a physical venue.
Companies can rely on the Instrument even where their constitutions do not expressly allow for purely virtual meetings (which is a requirement under the permanent amendments commencing on 1 April 2022, as discussed above). This will be of particular relevance to companies with 31 December balance dates yet to hold their annual general meeting.
The Act makes permanent a number of temporary changes to the Corporations Act that have been embraced by companies trying to conduct business in the socially-distanced world of the COVID-19 pandemic. While many of these changes may have become standard practice for your company over the last two years, it is important to review your internal systems and constitution against the new provisions (which include additional obligations), as there can be significant penalties for non-compliance.
If you wish to discuss the amendments or require any assistance in submitting comments on these amendments, please do not hesitate to contact our Corporate Advisory and Governance team.