Permanently allowing virtual AGMs and electronic execution of documents: Draft legislation released for consultation.

7 minute read  20.10.2020 Kate Hilder, Mark Standen

Following what it considers to be a successful test run of changes to meeting and execution requirements introduced in response to the COVID-19 pandemic, the government has released draft legislation for a short consultation period proposing to make them permanent.  Our key takeaways are below.   


Key takeouts


  • The government is consulting on draft legislation which proposes to 'make permanent and expand on' the temporary changes to execution and meeting requirements implemented in response to the COVID-19 pandemic.
  • Broadly, the draft Bill proposes to allow: a) electronic execution of company documents (including deeds) and documents relating to meetings; b) meetings to be held as virtual or hybrid meetings; c) notice of meetings and other documents relating to meetings to be communicated to prospective attendees electronically; and d) minutes to be recorded, kept and stored electronically.
  • The draft Bill proposes to introduce a new requirement for the minutes of electronic meetings of shareholders and members of registered schemes to 'include any questions or comments submitted by a shareholder or member (before or during the meeting)'.
  • It's proposed that new rules relating to electronic execution and electronic meetings (with the exception of changes relating to the time and place of meetings) will apply as mandatory rules rather than replaceable rules.
  • The deadline for submissions is 30 October.

Overview

On 19 October, Treasury released draft legislation – [exposure draft] Corporations Amendment (Virtual Meetings and Electronic Communications) Bill 2020 and draft explanatory materials – for consultation, proposing to both 'make permanent, and expand upon', the temporary changes to execution and meeting requirements in Corporations (Coronavirus Economic Response) Determination (No. 3) 2020.

Consultation on the proposed changes closes on 30 October.

Rationale for the proposed changes

The draft explanatory materials state that,

'The objective of reform is to ensure that companies are able to use the most efficient mix of technologies to deliver on substantive corporate governance outcomes. These reforms will assist companies to more efficiently communicate with their shareholders and facilitate greater transparency between shareholders and directors'.

The draft explanatory materials also comment that temporary changes introduced because of the COVID-19 pandemic, have provided an opportunity to test the changes and the government has had feedback that the impact has been positive.

'Companies have embraced the use of electronic means and alternative technologies to hold meetings and execute company document. The use of these technologies has resulted in regulatory savings for industry and increased productivity. There is now an opportunity to permanently modernise the relevant provisions in the Corporations Act in a way that preserves members’ rights to participate'.

What's being proposed?

Broadly, the Bill proposes to allow:

  1. electronic execution of company documents (including deeds) and documents relating to meetings
  2. meetings (meetings of directors of a company, meetings of shareholders of a company (including Annual General Meetings) and meetings of members of a registered scheme) to be held as virtual or hybrid meetings;
  3. notice of meetings and other documents relating to meetings to be communicated to prospective attendees electronically
  4. minutes to be recorded, kept and stored electronically.

Further detail on the proposed changes

Enabling electronic execution of documents

If legislated, the proposed changes would mean that:

  • company documents (documents executed without a common seal, documents executed with a common seal and deeds) could be executed electronically.
  • where a company executes a document by fixing a common seal, the persons witnessing the fixing of the seal could do so remotely by: a) observing the fixing of the seal via videoconferencing; b) signing the document electronically or physically; and c) 'annotating the document' with a statement confirming that they have observed the fixing of the seal by using electronic means. The draft explanatory materials comment that this is intended to ensure that 'the rules relating to the execution of company documents using a common seal are not more restrictive than the rules relating to the execution of company documents without a common seal'.
  • in circumstances where the signatures of more than one director or secretary is required, the directors/secretary could:
    • sign different copies or counterparts of the document provided it included the entire contents of the original document. The draft explanatory materials comment that this proposed change 'reverses the effect of the court’s decision in Adelaide Bank v Pickard [2019] SASC 13 where it was held that all persons needed to sign the same single, static document'.
    • receive and sign an electronic copy of the document provided that: a) the copy provided to them includes the entire contents of the document; b) they confirm by 'means of an electronic communication' (eg by email) that they have signed the document; and c) that they identify themselves and 'indicate their intention using a method that is as reliable as appropriate for the purposes for which the company is executing the document or proven in fact to have indicated the person’s identity and intention'.
  • documents relating to a meeting (paragraphs 1.32-1.40 of the draft explanatory materials list the types of documents covered) could also be signed electronically by using a method to identify the signatory and indicate the signatory’s intention. Consistent with the proposed approach to the execution of company documents, it would not be necessary that for all signatories to sign the same document.

Enabling virtual and hybrid meetings

If legislated, the proposed changes would mean that directors meetings, meetings of shareholders of a company and meetings of members of a registered scheme could be held electronically, subject to all participants having a reasonable opportunity to participate.

The draft explanatory materials comment that similar amendments are proposed in Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 to enable meetings conducted in the context of external administration, including meetings of creditors and committees of inspection to be held electronically.

Place and time of virtual and hybrid meetings

If legislated, the proposed changes would mean that the place and time at which meetings are taken to have occurred will depend on the meeting format.

  • Virtual meetings: For virtual meetings (ie meetings where 100% of participants attend electronically rather than physically), it's proposed that the place of the meeting would be the address of the registered office of the company or responsible entity of a registered scheme. The time for the meeting would be the time at the address of the registered office.
  • Hybrid meetings: For hybrid meetings (ie meetings where some members attend physically and other attend virtually), it's proposed that the place and time for the meeting would be the place where the members physically attend and the time at that location. Where there is more than one physical location, the place of the meeting would be main location (as specified in the notice for the meeting) and the time would be the time at the main location.

Timing of meetings

In terms of the timing of meetings, it's proposed that meetings will be required to be held at a time that is 'reasonable' at the place where the meeting is being held. The draft explanatory memorandum comments that this 'may not necessarily be a convenient time for all of the shareholders or members who are attending using technology, in the same way that face to face meetings may be held at a time that is not convenient for all shareholders or members'.

Contents of the notice of meetings

If legislated the changes will mean that for hybrid or virtual meetings, the notice of meeting will need to include 'sufficient information' to allow those entitled to attend to participate using the virtual meeting technology. The draft explanatory materials suggest that this could include dial in details or a link to the relevant website.

The notice would also need to specify the main location of the meeting (where there is more than one physical location).

Conduct of meetings

If legislated, the proposed changes will mean that:

  • meeting attendees whether attending physically or electronically will be taken to be 'present' at the meeting and counted for the purposes of determining whether there is a quorum.
  • documents could be tabled at a meeting held in electronic format by providing them to all persons entitled to attend either before or at the meeting.

Voting

If legislated, the proposed changes will mean that:

  • all participants entitled to vote must be given the opportunity to do so 'in real time' or 'if it is practicable for the company in advance of the meeting'. The draft explanatory materials make it clear 'it is not expected that companies would provide a method for voting in advance of the meeting for director’s meetings'.
  • where meetings are held in electronic format, votes will be required to be taken on a poll (not a show of hands).

Enabling electronic communications about meetings

If legislated, the proposed changes would mean that:

  • Certain documents relating to a meeting (whether the meeting is held electronically or physically) could be communicated electronically (eg via email) where it is 'reasonable to expect that the document would be readily accessible so as to be usable for subsequent reference at the time that it is given' and where the sender has a nominated electronic address for the recipient.
  • The types of documents that could be given/signed electronically include:
    • 'documents in which a person makes a request in relation to a meeting' eg giving notice of a resolution under s249N or 252L of the Corporations Act;
    • notices of directors meetings, shareholders' meetings, and meetings of members of a registered scheme
    • notices of a resolution or a record of a resolution
    • notices of 'a statement in relation to a meeting or a matter to be considered at a meeting may be provided and signed electronically' eg a members’ statement distributed under sections 249P or 252N
    • documents relating to a proxy, eg documents to appoint a proxy or a list of persons who are willing to act as a proxy
    • questions for auditors and responses to them
    • minutes eg including under existing subsections 251A(2)-(4) and 253M(2) (signing minutes) and subsections 251B(3)-(4) and 253N(3)-(4) (providing copies of minutes)
  • Resolutions made without a meeting and all documents that relate to the making of those resolutions as per Division 1 of Part 2G.1 (for directors’ resolutions and declaration) or Division 1 of Part 2G.2 (for resolutions of proprietary companies) would also fall into this category.
  • Documents would be required to be sent either to the recipient's nominated electronic address or to 'another electronic address that the sender believes on reasonable grounds to be the person’s electronic address'. In the alternative, senders would be able to provide recipients with sufficient details to enable them to download the document. The draft explanatory memorandum suggests that this could be done by giving them a card or sending them an email with a link to a website.

Time of receipt and dispatch

  • It's proposed that new default rules would apply for determining when an electronic communication has been sent and when it has been received.
  • It's proposed that the time at which a communication has been sent will depend on 'whether the communication leaves the information system that is under the control of the originator (or the party who sent it on behalf of the originator)'.

This will mean that:

  • Where a communication is being sent to external recipients (ie where the communication leaves the sender's information system) the time at which the communication is sent would be the time that the communication left the sender's information system and not the time it enters the recipient's information system. The draft explanatory materials suggests that this would generally cover communications from companies to shareholders for example.
  • For internal communications (ie where a communication does not leave the sender's information system) the electronic communication is sent at the time that it is received by the addressee. The draft explanatory materials suggest that this would cover correspondence sent within a company.
  • It's proposed that the time at which a communication has been received will be when the electronic communication becomes capable of being retrieved by the addressee's nominated email address.

Minutes of meetings

If legislated, the proposed changes would mean that:

  • The minutes for meetings of shareholders and members of registered schemes could be taken, kept and stored electronically.
  • Where minutes are stored electronically, they will need to be open for inspection at the same place where a hard copy would have been required to be retained under sections 251A or 253M of the Corporations Act. The draft explanatory memorandum suggests that this will usually be the 'registered office, principal place of business or another place approved by ASIC'.
  • The proposed changes would also introduce a new requirement for the minutes for electronic meetings of shareholders and members of registered schemes to 'include any questions or comments submitted by a shareholder or member (before or during the meeting)'. Shareholders and members of registered schemes will then be able to access these minutes under s251B and 253N of the Corporations Act.

Mandatory rules

It's proposed that the new rules relating to electronic execution and electronic meetings (with the exception of changes relating to the time and place of meetings) will apply as mandatory rules rather than replaceable rules. The draft explanatory memorandum comments that,

'This ensures that all companies have the power to hold meetings virtually and execute company documents electronically if they elect to do so. As the rules are facilitative in nature, they do not preclude companies from conducting meetings or executing documents using traditional means'.

Mandatory review

The draft Bill includes provision for a review of the effectiveness of the changes 'as practicable after the end of five years after the new rules apply' and that a written report must be prepared.

[Sources: Treasury media release 19/10/2020; Exposure draft Bill: Corporations Amendment (Virtual Meetings and Electronic Communications) Bill 2020 No. , 2020; Draft explanatory materials]

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