22 May Virtual meetings and electronic execution now permitted under changes to the Corporations Act and Electronic Transactions Act
In the wake of COVID-19, the difficulties faced by companies in signing paper documents and holding meetings have become all too familiar as most (if not all) signatories are either working from home, self-isolating or in quarantine.
To facilitate continuation of business and mitigate the economic impact of the COVID-19 pandemic, a significant determination was made by the Federal Treasurer, Josh Frydenberg, using his powers under section 1362A of the Corporations Act 2001 (Cth) (Act) to make modifications to the Act and Corporations Regulations 2001 (Cth) (Regulations).
The Corporations (Coronavirus Economic Response) Determination (No 1) 2020 (Determination) allows companies to convene meetings remotely via “virtual meetings” and allows directors and secretaries of companies to sign documents electronically. The temporary modifications to the Act and Regulations will be in effect until 6 November 2020.
The key changes are summarised below which are designed to overcome existing obstacles and to facilitate the holding of meetings (including AGMs) via virtual technology:
- Entities that are required or permitted to hold meetings under the Act can do so remotely as virtual meetings.
- Notices of meetings may be given electronically (for example- by email or by notice with an accessible URL hyperlink). The notice of meeting must include information about how those entitled to attend can participate in the meeting, including how they participate in a vote and speak at the meeting. The information should be clear, concise and effective to comply with sub-section 249L(3) of the Act.
- Virtual meetings should give all persons entitled to attend a reasonable opportunity to participate.
- Persons participating in a virtual meeting are taken for all purposes to be present at the meeting while so participating (for example, for the purposes of establishing a quorum).
- Votes taken at a virtual meeting must be taken on a poll and not by a show of hands.
- A requirement to allow an opportunity for persons attending a virtual meeting to speak (for example, by asking questions) can be complied with by using technologies that allow that opportunity.
- A proxy may be appointed using technologies specified in the Notice of Meeting.
It should be noted that, if a notice of meeting had been given before 6 May 2020, a fresh notice of meeting must be given at least 7 days before the meeting is held together with all of the required information in order to be held virtually.
ASIC has provided guidance for meeting upcoming AGM requirements in light of the Determination and notes the importance that virtual or hybrid meetings be conducted in a way that provides reasonable opportunity for members to participate: https://asic.gov.au/about-asic/news-centre/news-items/asic-guidelines-for-investor-meetings-using-virtual-technology/
ASIC also encourages companies and responsible entities to plan ahead of meetings to prevent technical problems and to also consider backup solutions to overcome technical issues. Assuming compliance with the Determination, ASIC has adopted a two month ‘no action’ position under Regulatory Guide 108 for entities that must hold their AGM by 31 May 2020 and in fact do so not later than 31 July 2020 or a later date that ASIC authorises. It is important to note that if a Company’s constitution does not permit the holding of a meeting of members by the use of hybrid or virtual technology, ASIC has no power to modify the Act to facilitate that. A company would need to modify its constitution by special resolution.
The determination remains in force for six (6) months until 6 November 2020. There is the power to extend the Determination before it expires. Therefore, this raises the question that if a Notice of Meeting issues prior to the expiration of the Determination, but the meeting is not held until after 6 November 2020, can the meeting proceed?
In our view, it arguably can.
On reading the Acts Interpretation Act 1901 (Cth) and the Legislation Act 2003 (Cth), a “right” that has accrued before the Determination is repealed may continue to be of effect. However, that is not to say that a Court may not determine the proceedings and any resolutions carried at a meeting of members to be invalid should substantial injustice arise under sub-section 1322(3A) of the Act.
Electronic Execution by Companies
The Determination also extends the operation of section 127 of the Act to also cover execution of documents in electronic form, until 6 November 2020
The amendments allow a company to execute a document without a common seal if 2 directors, a director and company secretary or the sole director/company secretary of a proprietary company either:
- signs a copy or counterpart of the document in physical form; or
- uses electronic communication which reliably identifies the person and indicates the person’s intention about the contents of the documents.
Importantly, the physical or electronic communication must include the entire contents of the document and not just the execution page, but it does not need to include the signature of another person signing the document physically or electronically
The Electronic Transactions Act 1999 (Cth) defines “electronic communication”. The Explanatory Statement helpfully provides some examples of means by which officers of a company might sign a document electronically, including:
- pasting a copy of a signature into a document
- signing a PDF on a tablet, smart phone or laptop using a stylus or finger or
- cloud-based signature platforms, such as DocuSign.
The Determination also permits the signing of documents by ‘Split execution’ (wet ink signing of different copies) or ‘Modified split execution’ (an officer of the company wet ink signs and then emails the document and the other officer prints it out and wet ink signs it)
The main effect of the modifications is that signatories do not need to sign the same physical document, which clears up uncertainty in recent case law as to whether there can be valid electronic execution under section 127 of the Act where two company officers are signing.
An appropriate counterparts clause should be included in agreements where possible to ensure the validity of execution by a party in multiple counterparts in accordance with the Determination.
The Determination unfortunately does not provide a clear stance on how to approach the execution of deeds, which traditionally require adherence to the paper parchment or vellum rule. However, given the intention of the Determination to facilitate electronic signing and the introduction of regulations which allows electronic signatures of deeds, the spirit and intention of the Determination would seem to satisfy the requirements of section 127 of the Act.
Execution of Deeds and other Documents
The COVID-19 Omnibus (Emergency Measures) (Electronic Signing and Witnessing) Regulation 2020 (Vic) (Regulations) came into effect on 12 May 2020 and are due to expire on 24 October 2020. These temporary measures allow the electronic execution of deeds and mortgages and remote witnessing via audio-visual link.
In broad summary, the Regulations make the following amendments to the Electronic Transactions Act 2000 (Vic) (ETA):
- A deed of mortgagee may now be executed electronically;
- A party can no longer withhold their consent to receive an electronic signature if the document is otherwise compliant with the now amended ETA;
- Split execution is now allowed, meaning that there can be multiples signatures on the multiple copies of the document provided each signatory receives every copy on which a signature appears; and
- Witnessing may occur via audio-visual link provided the witness’s signature is accompanied by a statement that the witnessing occurred via audio-visual link in accordance with the Regulations. What is less than clear is whether the “writing” of the statement has to be by wet ink or it can also be electronic. The Electronic Transactions (Victoria) Act 2000 (Vic) defines ‘write a signature’ to include electronic and therefore it is arguable that the statement forms and comprises a part of the signature.
The Regulations also provide changes in relation to powers of attorney, statutory declarations and wills.
Although all of the above amendments are merely temporary, they provide welcome alternatives to assist ‘business as usual’ in a manner that is consistent with public health requirements.
Please contact Garth Fountain-Smith for a no obligation chat about your corporate governance and regulatory requirements.
The contents of this publication are for general reference only, do not constitute legal advice and should not be relied upon as such. Each circumstance varies upon the nature of the matter and legal advice should be sought.
© marshalls+dent+wilmoth 2020