Temporary changes to the Corporations Act to allow for the electronic execution of documents and virtual meetings after previous measures to facilitate these electronic processes had expired
The high level
What has changed? Temporary changes under the Corporations Act to allow documents to be signed electronically and for meetings to be held virtually.
Who does it apply to? Companies only.
When does it apply? 14 August 2021 until 31 March 2022.
On Monday, 10 August 2021, both Houses of the Australian Parliament passed a bill to enact the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 (Act) to reinstate temporary measures regarding electronic execution and virtual meetings. The Act amends the Corporations Act 2001 (Cth) (Corporations Act) to allow companies to execute documents, hold meetings, provide notices relating to meetings and keep minutes using electronic means or other alternative technologies until 31 March 2022. These arrangements are outlined in Schedule 1 of the Act, which became effective on 14 August 2021 after receiving Royal Assent on 13 August 2021.
The ability to conduct virtual meetings and sign documents electronically was first addressed under the Corporations (Coronavirus Economic Response) Determination (No 3) 2020, which commenced on 23 September 2020. Given this Determination expired on 21 March 2021, the reinstatement of these changes will come as a relief to directors and shareholders of Australian companies who are finding the usual process of signing company documents and holding physical meetings challenging given ongoing snap lock downs and social distancing requirements caused by the lasting pandemic.
Changes to the process for executing documents
Electronic execution under s 127
The Bill amends section 127 of the Corporations Act to make it clear that companies may execute documents electronically. In order to rely on a company's electronic execution in accordance with the Bill, you will need to be satisfied that the electronic communication method:
- identifies the person and indicates their intention to sign the document;
- is on a copy or counterpart of the document that includes the entire contents of that document; and
- is as reliable as appropriate for the purposes (or be proven in fact to have fulfilled that purpose).
Unfortunately, what constitutes 'as reliable as appropriate' has not been defined in the Act, and the concept has not been tested extensively in the Courts so some care needs to be taken.
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 Bill also provides for company officeholders to execute different counterparts of the same document. This 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.
Importantly, the counterparts must contain the entire contents of the document in question, not just the execution pages. The practice of signing an execution page that has been separated from the remainder of the document will not meet the requirements of section 127.
Do these changes apply to the execution of a deed by a company?
Directors and shareholders will be relieved to know that the temporary changes do allow for a company to execute a deed electronically. This was not made clear in the previous temporary rules, so it is reassuring to have some clarity around the signing of deeds by companies in the current environment.
Changes to meeting requirements
Under the Act, companies are permitted to hold meetings entirely through the use of technology, removing the requirement to hold face-to-face meetings. The technology must give the persons entitled to attend the meeting, as a whole, a reasonable opportunity to participate without being physically present in the same place. 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 Bill 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– notices can be provided and signed electronically, such as notices of meetings, notices of a resolution and notices of a statement in relation to a meeting;
- minutes – company minutes can be recorded and stored electronically, provided the information is readily accessible for subsequent reference;
- quorum – all shareholders participating in a meeting both physically and virtually will be taken to be present at the meeting. This may have inadvertent consequences for persons who 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; and
- proxies – a proxy may be provided electronically.
The Act also covers scenarios such as the remote witnessing of the fixing of a company seal for the purposes of execution under section 127. McCullough Robertson can assist with any queries relating to the temporary rules. Please reach out to one of our specialists for more information.
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.