Temporary changes for electronic execution of documents, and further updates for virtual and hybrid meetings
The high level
What has changed? Documents can temporarily be signed under the Corporations Act electronically.
Who does it apply to? Companies only.
When does it apply? Now, until 5 November 2020.
On Tuesday, 5 May 2020, the Federal Treasurer issued an important determination which changes the way companies can hold meetings and execute documents during the COVID-19 pandemic. The Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (Determination) modifies requirements for physical attendance at meetings and amends section 127 of the Corporations Act 2001 (Cth) (Corporations Act) by allowing companies to execute documents electronically (that is, by applying the relevant officeholders' electronic signatures to the document) in particular circumstances.
These are welcome changes as the social distancing requirements brought about by COVID-19 have made it challenging to hold meetings that require physical attendance or to obtain wet-ink signatures on physical documents.
Changes to executing documents
Electronic execution under s.127(1)
The Determination modifies section 127 of the Corporations Act to make it clear that companies may execute documents electronically. The Electronic Transactions Act 1999 (Cth) (ETA) does not apply to the Corporations Act and therefore there has been serious doubt whether electronic execution of a document satisfies the requirements of section 127(1) of the Corporations Act.
In order to rely on execution in accordance with the Determination, you will need to be satisfied from the electronic communication method that:
- the person signing can be reliably identified;
- it indicates that person's intention about the contents of the document (i.e. the intention to be bound by the document); and
- it is as reliable as appropriate for the purpose for which the company is signing.
Unfortunately, what constitutes 'as reliable as appropriate' has not been specified, although this is a concept drawn from the ETA, which facilitates the use of electronic transactions and communications in business dealings. The concept has not been tested extensively in the Courts so some care needs to be taken to ensure the first two limbs have clearly been met.
Provided a party is satisfied with the above, they can rely on the statutory assumption that the document has been validly executed (under section 129 of the Corporations Act).
The Determination also provides for company officeholders to execute different counterparts of the same document. This change means two directors signing on behalf of one company do not need to sign the same physical document. Instead, a document could be signed and scanned by the first signatory and then printed and signed by the second signatory, or separate electronic signatures could be applied to fully electronic versions of the document.
Prior to the Determination, the prevailing view had been that such method of execution would not satisfy the requirements of section 127(1). Importantly, the counterparts must contain the entire contents of the document in question, not just the execution pages.
Do these changes apply to deeds?
There remains some uncertainty as to whether the Determination modifies the common law position for deeds (requiring a deed to be on paper), so that they may also be signed electronically. While the Determination makes no explicit reference to deeds, the Explanatory Statement states that section 127 of the Corporations Act is modified (for companies, directors, company secretaries and other persons that have dealings with companies) 'to allow use of an electronic signature to meet requirements for a signature' with no express limitation as to the type of document to which this modified rule applies.
In any case, the modified rules in the Determination have not been tested in practice. Therefore, the electronic execution of deeds should be approached with great caution. Where possible, it is recommended that the current course of practice for dealing with deeds (i.e. wet-ink signatures) should remain. If the pressures presented by the COVID-19 pandemic make it necessary for a deed to be electronically executed, extra care should be taken to ensure that all the formalities of the Determination are satisfied. A typed or pasted image of a signature to a document and subsequently printing the whole document may also be sufficient to satisfy the paper rule. We note that the Electronic Transactions Act 2000 (NSW) already allows for the electronic execution of deeds governed by New South Wales law, but that other states are yet to follow NSW's lead, so the Corporations Act and common law position remains relevant for all other states and territories.
The importance and context of the deed being executed should also be taken into consideration when deciding whether to rely on the Determination to execute electronically. Documents such as guarantees present particular risks which should be taken into account when considering such issues.
It is important to note that the Determination only applies to companies registered under the Corporations Act. As such, for example, the changes do not apply to individuals, foreign companies (not registered under the Corporations Act), partnerships, statutory corporations and governments signing documents. The ETA, as well as various state-based legislation, should be consulted in relation to the guidelines for execution by any of these entities.
What does this mean?
The Explanatory Statement to the Determination refers to a wide variety of means by which officers of a company might sign a document electronically in accordance with the Determination. These include:
- pasting a copy of a signature into a document;
- signing a PDF on a tablet, smartphone or laptop using a stylus or finger;
- cloud-based signature platforms like DocuSign.
This means that the majority of contracts signed during the period covered by the Determination will obtain the benefits of the assumptions set out in section 129(5). The Determination is expressed to be repealed 6 months from the date after it was made - so is currently set to expire on 5 November 2020.
The COVID-19 pandemic has changed many aspects of how we go about our every day lives. It would be beneficial for all companies if the changes made by the Determination extended beyond November 2020 and were also extended to expressly provide for the electronic execution of deeds. These changes will play a small role in helping the law to catch up with the practicalities of modern business.
Changes to meeting requirements
Under the Determination, companies are now permitted to hold meetings entirely through the use of technology, doing away with the requirement to hold face-to-face meetings. While ASIC has already advised that, due to the COVID-19 pandemic, it would not take action against public companies with a 31 December 2019 financial year end from holding an AGM conducted entirely online, (which you can read about here), the Determination provides greater certainty to all other companies seeking to hold shareholder meetings during the coming months.
An entity seeking to hold a meeting electronically must, when giving notice of the meeting to participants, give notice of information that outlines how people who are entitled to attend and participate at the meeting can do so.
The Determination also enables the following to be facilitated electronically:
- voting - votes must be taken on a poll and participants should have the option to cast a vote in real time during the meeting (in the same way that they would if they attended in person), as well as prior to the meeting (e.g. by proxy)
- notices - instead of notices being sent in hardcopy (by post), a notice can be sent using technology, such as via email (where a shareholder has provided their email address)
- quorum - all shareholders participating in a meeting virtually will be taken to be present at the meeting. This may have inadvertent consequences for persons that lodge a proxy and subsequently attend (or listen in to) the meeting virtually (as attendance at a meeting would typically act to revoke a proxy appointment)
- asking questions - shareholders must still be able to put questions to the board and the company should ensure its virtual meeting enables appropriate Q&A processes
- appointing proxies - a proxy may be appointed electronically
If a company has already given notice of an AGM, or other shareholder meeting, before the date of the Determination, that entity must issue another notice at least 7 days before the applicable meeting with any new information that informs the participant about how they can attend the meeting electronically.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.