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By John Keeves, Partner Johnson, Winter & Slattery

• This article provides an update on digital execution, electronic communications with shareholders and on-line company meetings.
• With the onset of COVID-19, it became evident that Corporations Act provisions for execution of documents, for convening company meetings and for holding company meetings were no longer fit for purpose in the 21^st
• Following temporary measures permanent reforms came into effect in April 2022.

How did we get here?

Just over two years ago there wasn’t even a platform, let alone a burning platform, for reform, despite some case law casting grave doubts on whether documents could be executed electronically under the Corporations Act 2001 (Corporations Act), and a general view that a ‘meeting’ meant a physical gathering.

Then COVID-19 happened.

Australia realised that the Corporations Act provisions for execution of documents, for convening company meetings and for holding company meetings were, well, not fit for purpose in the 21^st century. Certainly they were not fit for purpose when lockdowns hit, and in some cases stayed. And stayed.

Now that Australia seems to be through the worst of COVID-19, we can look back and see that in this respect at least, the crisis was not wasted.

The arc of reform

To begin with the Treasurer issued temporary emergency orders under the COVID-19 amendments to the Corporations Act to allow electronic execution of documents, sending company meeting notices electronically and permitting virtual meetings to be held, even if not contemplated by a company’s constitution.

This got us through 2020, including the AGM season, but those temporary measures expired in March 2021 because the powers under the enabling legislation were exhausted. In May 2020, no one expected COVID-19 to last that long.

Further temporary measures were enacted by the Treasury Laws Amendment (2021 Measures No 1) Act 2021 (Treasury Laws Amendment Act), but these were not passed until August 2021. The four -month hiatus was caused by the Senate’s initial refusal to pass the legislation because it also contained permanent changes to the continuous disclosure fault rules in Chapter 6CA of the Corporations Act.

The permanent, and in some respects improved, reform measures were enacted by the Corporations Amendment (Meetings and& Documents) Act 2022 which became effective on 1 April 2022, on the lapsing of most of the temporary measures in the Treasury Laws Amendment Act.

The next step, including extending electronic communication as the ‘default setting’ for takeovers under Chapter 6 of the Corporations Act was contained in the Treasury Laws Amendment (Modernising Business Communications) Bill 2022. Although this bill was introduced into the Commonwealth Parliament in February 2022, it lapsed with the calling of the May Federal election.

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So where are we now?

Set out below is a brief summary of some of the key points.

1                  Digital execution

The new Corporations Act provisions clearly facilitate electronic execution of documents by companies, and apply rules consistent with the signature rules in the Commonwealth and state Electronic Transactions Acts.

So-called ‘split execution’ is expressly available, so that company officers can execute separate copies of a document at different places and times and using different execution methods.

Companies can now execute a deed through a single authorised person, and the authority need not be conferred by deed, overcoming an ancient common law rule. The archaic ‘paper, parchment or vellum’ rule for deeds has also been explicitly jettisoned.

Execution by sole director companies has been expanded — previously only a sole director who is also a company secretary could be a sole signatory.

Unlike under the temporary measures, the thing signed does not need to contain the entire contents of the document.

The provisions also seek to facilitate lodgment under the Corporations Act of documents that have been digitally executed (see new section 110B).

2                  Electronic communications with shareholders

Sending notices to shareholders electronically is now the default method.

Shareholders can opt out and require that hard copy notices be sent and can also request paper copies on an ad hoc basis.

Importantly a public company, the responsible entity of a scheme or a disclosing entity must notify members of their rights in relation to requesting documents in a physical form annually and also make a notice about their rights readily available on a website. The original proposal requiring a mail out was not pursued.

3                  Online meetings

The Corporations Act now facilitates hybrid members meetings – meetings with both a physical and online component — but online only or ‘virtual’ meetings must be expressly permitted or required by the constitution.

This is subject to the qualification that ASIC can in exceptional circumstances make a determination by instrument to allow virtual meetings, in a specific case or for a class of entities.

The general principle is that a company must give the members as a whole a reasonable opportunity to participate in a meeting, whether physical, virtual or hybrid.

Shareholders must be able to participate in the online part of a meeting by being able to be heard– participation cannot only be by way of written questions, comments and statements. Fortunately, the facilities to do this are now readily available through a variety of online meeting platforms.

For listed companies all substantive resolutions must now be put to a poll, and there are statutory provisions to enable scrutiny of and reporting on voting at listed company meetings, if required by shareholders with five percent or more of the votes.

Where to next?

We expect the Treasury Laws Amendment (Modernising Business Communications) Bill mentioned above could be reintroduced after the Federal election, and for further amendments to be made to the Treasury portfolio laws over time — although with the change of government, the new Government may have different priorities. Time will tell.

We also expect some progress on the separate ‘Modernising Document Execution’ reform agenda which we hope will lead to more uniform document execution laws among the states and territories as they apply to individuals and incorporated associations. The current situation is frankly a ‘patchwork quilt’ of different state and territory requirements, many of which are archaic.

Some steps have been taken by some states to reform document execution laws, but sadly these have not been uniform. It is hoped that the ‘Modernising Document Execution’ reforms, which have been supported by all states and territories, will leave to greater uniformity, if not harmonisation.

Stay tuned.

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