In a submission to the Senate Select Committee on the use of technology by business during the COVID 19 crisis, the Governance Institute has called for temporary reforms to the Corporations Act 2001 (Cth) (Act) in Corporations (Coronavirus Economic Response) Determination (No 1) 2020 to be made permanent.
[Note: Corporations (Coronavirus Economic Response) Determination (No 1) 2020 temporarily removes any legal uncertainty concerning the validity of virtual (online only meetings) by ensuring companies are able to give notice of, convene and conduct meetings by electronic means and temporarily allows company officers to sign a document electronically (ie the changes enable the entire process of executing a document to be carried out electronically). The measures were put in place because of the COVID-19 restrictions and will cease to operate on 6 November 2020. For a summary see: Governance News 06/05/2020]
The submission recommends that the government permanently amend the Act to:
- Provide companies with the option to use technology to hold meetings by electronic means (as either virtual meetings or hybrid meetings): The submission says that feedback received from members to date who have conducted AGMs by electronic means has been positive, and that a recent poll conducted by the Australasian Investor Relations Association indicates increased appetite (among listed companies) for companies to make use of technology in this way. The submission states, 'We consider that amending the Corporations Act to "hard wire" the option of companies to be able to hold virtual or hybrid meetings is a timely and long-overdue reform. It will clarify the law and provide certainty for companies wanting to use technology to hold a meeting'. The submission makes clear however, that the Governance Institute is not recommending that companies be required to hold meetings by electronic means, only that they have the option to do so.
- Allow companies to communicate digitally with their shareholders: The submission recommends that sections 249J (3) and (3A) of the Act be amended to:
- enable a company to distribute meeting notices and materials to its members by electronic means, with an option for shareholders to opt in to receive them in hardcopy. Companies would be required to ensure meeting materials are available in the public domain and accessible 'using a universal or near-universal channel of communication'. It's suggested that making the materials available on the company's website would meet this requirement.
- deem that those shareholders who fail to provide a preferred method of communication (eg email address) or to opt-in to receive hardcopy materials to have received them, provided that the materials are readily accessible (eg on the company's website) and for listed companies, that an ASX announcement has been made.
- Allow documents to be executed electronically: The submission recommends that the Act be amended to enable companies to execute documents electronically. The submission states that 'If Australia’s corporate markets are to be fit for purpose in the 21st century, the legislation governing corporations and the management of corporations needs to embrace a non-paper world. Government should aim to enable transactions and business to be carried out digitally end-to-end: regulation should not make it more difficult and expensive to conduct business through purely digital channels'.
The changes are overdue
The Governance Institute argues that the changes are necessary to bring the 'bring the Corporations Act into the 21st century'.
The submission states:
'COVID-19 has exposed many of the shortcomings of the current legislative environment, particularly the out-dated, paper-based state of the Corporations Act. If Australia’s corporate markets are to be fit for purpose in the 21st century, the legislation governing corporations and the management of corporations needs to embrace technology. Governance Institute has consistently advocated the need to bring the Corporations Act into the 21st century and to ensure it is technology neutral'…
…'The pandemic has acted as a "step change" and we consider Government should make the most of this valuable reform opportunity to ensure Australia’s corporate regulatory infrastructure is certain, coherent and fit-for-purpose'.
Separately, the Australian Institute of Company Directors (AICD) has also expressed support for the permanent 'modernisation' of the Corporations Act (as part of its broader policy reform agenda). AICD General Manager Advocacy Louise Petschler writes, 'Modernising our corporate law is an obvious focus. Just as COVID-19 disruption has accelerated digital and virtual strategies across all organisations, our laws also require a permanent revamp'.
The AFR reports that the Treasurer's office has indicated that the government is considering making the changes permanent.
[Sources: Governance Institute Submission: Technological solutions enabling Australian businesses to survive and operate during the COVID 19 crisis period and beyond 01/06/2020; Governance Institute media release Governance Institute media release 04/06/2020; AICD blog 01/06/2020; [registration required] The AFR 05/06/2020]