Insolvency overhaul announced for small businesses
On 24 September 2020, the Federal Government announced significant reforms to Australia’s…
The Federal Government will extend the temporary modifications to both virtual meetings and electronic execution of documents to 21 March 2021 in light of positive feedback and the ongoing issues associated with the COVID-19 pandemic.
In our previous article we outlined the temporary modifications made pursuant to the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (the Determination) which were originally due to expire on 6 November 2020. In a media release on 31 July 2020, the Treasurer announced that the Determination has received positive feedback especially given its ability to provide certainty to businesses and allow continued operating during COVID-19.
An overview of the temporary modifications relating to how meetings are held and how companies can execute documents electronically is set out below.
The Determination applies to provisions contained in the Corporations Act 2001 (Cth) (the Act), the regulations, the Insolvency Practice rules and the Passport Rules, which:
Accordingly, the Determination will affect a variety of meetings including, without limitation, director’s meetings, meetings of members and meetings of creditors.
The Determination permits meetings to be held virtually without the need for the persons entitled to attend to be physically present at such meeting, and provides that notices of meetings can be given using technology, provided the notice includes sufficient detail on how persons entitled to attend can participate in the meeting. In terms of notices of meeting issued prior to the commencement of the Declaration, the person required or permitted to give such notice must, at least seven days before the meeting is held virtually, give a fresh notice of the meeting with sufficient details.
The following requirements will need to be met in respect of virtual meetings pursuant to the Determination:
The modifications provided in the Declaration will be welcomed by public companies which are now able to hold annual general meetings virtually, without the need of a physical venue with each shareholder being in attendance. Similarly, given the current economic climate, voluntary administrators who are appointed will be able to take advantage of the modifications when giving notice of, and convening, meetings of creditors.
Execution of documents
The Determination modifies the operation of section 127(1) of the Act which permits a company to execute documents by two directors, or a director and company secretary. Pursuant to the Determination, a company is now permitted to execute a document electronically and on separate electronic copies of such document. In signing documents electronically pursuant to the Determination, sections 9(1)(a) and 9(1)(b) of the Electronic Transactions Act 1999 have been adopted, meaning that the method used for electronic signing must identify the person executing and indicate their intention to be bound, and that such method is appropriate for the purpose for which the company is executing the document.
The Determination has also temporarily removed the uncertainty around split-execution of documents signed in ‘wet-ink’ as it expressly permits the company officers to sign different counterparts of the same document under section 127(1) of the Act. The Determination does, however, require that the counterpart that is signed contains the entire agreement rather than just the extracted signature page(s).
Although the Determination has not specifically made mention of a modification to the paper, parchment or vellum rule for deeds, it could be inferred that deeds are meant to be captured in the modifications. To err on the side of caution, we recommend that the modifications be used only as a last resort for the execution of a deed.
Lastly, the Declaration also modifies section 129(5) of the Act to allow a person to assume that a document (including an electronic document) has been duly executed by a company where such document has been signed under section 127(1) of the Act.