On 10 August 2021, the Treasury Laws Amendment (2021 Measures No.1) Bill 2021 (Bill) was finally passed by both houses. Schedule 1 of the Bill reinstates certain temporary measures that modified the operation of the Corporations Act 2001 (Corporations Act) to permit, among other things, the electronic execution of documents by companies and the holding of virtual company meetings. The Bill will take effect on the day after it receives Royal Assent, which is expected shortly. Permanent reforms are anticipated to replace these temporary measures when they expire on 31 March 2022.
The Bill was initially introduced and read by the House of Representatives on 17 February 2021. It was intended that the Bill would pass prior to the expiry of last year’s equivalent temporary measures on 21 March 2021 (a summary of these measures can be found here). Although the changes proposed by Schedule 1 of the Bill were uncontroversial, due to certain political divisions that arose in respect of the continuous disclosure and misleading or deceptive conduct reforms contained in Schedule 2 of the Bill, the Senate’s debate on the Bill stalled and was adjourned until its resumption last week. After the Senate resumed, the Bill was promptly passed by the Senate with amendment on Tuesday, 10 August 2021.
The amendments made by the Bill to Australia’s continuous disclosure laws will be discussed in a separate article.
Overview of reforms
The amendments contained in Schedule 1 of the Bill enable a company to validly execute a document electronically under section 127 of the Corporations Act, with the further clarification that the section extends to the execution of deeds, permits the ‘split execution’ of documents, and permits the remote witnessing of the affixing of a company seal, through electronic methods. This Bill also permits company meetings, including meetings of shareholders and directors, and meetings of members of registered schemes, to be facilitated electronically, and for information required for a meeting to be circulated and accessed electronically by members. These temporary measures will apply until 31 March 2022.
The temporary measures introduced by Schedule 1 of the Bill take inspiration from other electronic execution regimes such as the legislative regime under the Electronic Transactions Act 1999 (Cth).
Do the reforms apply retrospectively?
No. The Bill does not contain any transitional provisions dealing with execution of documents following the expiry of the original relief on 21 March 2021. Documents executed by companies during this intervening period were required to be executed pursuant to section 127 of the Corporations Act, without the benefit of the modifications allowing electronic execution.
Requirements for electronic execution
For a document to be validly executed electronically under section 127 of the Corporations Act:
- Intention: A method must be used to identify the person and indicate the person’s intention to sign a copy or counterpart of the document. In many cases, this may be satisfied by the signatory’s electronic signature accompanied by their name and title, but further consideration should be given to additional steps such as the incorporation of an express provision in the document that states the intention to be bound by an electronic signature.
- Entire document: The copy or counterpart of the document must include the entire contents of the document.
- Reliable method: The method used must either be as reliable as appropriate for the purposes for which the document was generated or communicated, in light of all the circumstances, including the relevant agreement, or proven in fact to have fulfilled the function of identifying the person and that person’s intention to sign. Whether or not a method is sufficiently reliable depends on the circumstances and the purpose for which the signature is required. For example, consideration should be given to whether it is appropriate in the circumstances of the document being signed for there to be password protection of the document, additional checks of authenticity and identity, additional evidence of authority to affix an electronic signature, or for third party software to be utilised that requires authentication prior to digitally signing.
The new rules are otherwise agnostic in relation to which method may be used for the electronic execution of a document.
The Bill further clarifies that:
- Deeds: The reforms apply to deeds. Any common law requirements (including for a document to be signed with ‘wet-ink’ or for the signing of a single, static physical document by a company) do not need to be satisfied if the deed is signed pursuant to section 127 of the Corporations Act.
- Split execution: A document may be validly executed by “split execution”. This means that a director, company secretary or witness does not need to sign the same document but may sign a copy or counterpart of the document, provided the copy or counterpart includes the entire contents of the document. Where a seal is to be affixed to the document, the seal and the signature also do not need to be in the same copy or counterpart of the document.
- Wet-ink execution still valid: The new rules do not replace the existing regime under section 127, and a combination of using ‘wet-ink’ execution (including by way of split execution) and electronic execution is possible.
Unfortunately, the wording of the reforms is such that it remains arguable as to whether or not a document being signed physically must be printed in its entirety. Although the Explanatory Memorandum accompanying the Bill seeks to clarify that the wording does not mean that “the person needs to physically print or sign every page”, the requirement that a copy or counterpart “includes the entire content of the document” would, on balance, tend to the view that a person must either physically print and sign an entire document or electronically sign an entire electronic document. Until this is clarified, the practice of signing and exchanging signature pages only should be avoided.
Electronic witnessing of affixing company seal
If a company is to execute a document with a company seal, remote witnessing of the fixing of the seal may now occur provided that:
- the witness observes the fixing of the seal by electronic means;
- the witness signs the document or a counterpart of the document; and
- the document includes a statement that the witness has observed the fixing of the seal by electronic means (this is similar to the electronic witnessing requirements under the existing electronic transaction regimes at the state level).
The temporary measures in Schedule 1 of the Bill modify the operation of Part 2G of the Corporations Act to permit meetings of shareholders (including Annual General Meetings), directors, and members of registered schemes, to be held virtually provided that the participants as a whole have a reasonable opportunity to participate notwithstanding they are not physically present at the meeting.
Under the new rules, meetings may be held:
- using virtual meeting technology;
- inviting persons to physically attend at a designated location;
- inviting persons to physically attend at different locations and using virtual meeting technology to connect the different locations together; or
- using a combination of the above methods.
Where a meeting is to be held virtually or in multiple locations, the new rules include a process for ascertaining the place and time of the meeting.
The temporary measures allow documents or communications relating to meetings to be dispatched and signed electronically (such as requests in relation to a meeting, notice of a meeting, resolutions or documents appointing or relating to a proxy) and minutes to be kept electronically (regardless of whether the meeting is held virtually or not).
Where a meeting is held virtually:
- the notice of meeting must include sufficient information to allow the persons entitled to attend the meeting to participate using the virtual meeting technology (such as dial-in details) or list all physical locations for those attending in person; and
- the notice of meeting must also include sufficient information to allow members to provide proxy documents by electronic means.
Reasonable opportunity to participate in virtual meetings
Where a meeting is to be held virtually, it must be held in a manner that provides members as a whole with a reasonable opportunity to participate in the meeting. This includes ensuring that people participating in the meeting are given a reasonable opportunity to speak and verbally ask questions rather than in writing.
When considering the adoption of electronic technologies to conduct meetings, careful consideration should be given to whether the company’s constitution needs to be amended to facilitate the holding of meetings in this new virtual way, and how members will be provided with a “reasonable opportunity to participate” (for example, the adequacy of the technology used) and to adequately fulfil the corporate governance and principles of director accountability that underpin the purpose of company meetings generally.
The reforms give ASIC the power to grant short term relief from:
- the requirement to hold a meeting at a physical location or extend the timeframe for holding a meeting (including an AGM of a public company) if it may be unreasonable to expect compliance with the meeting requirements due to circumstances that are beyond the control of the entity or class of entities (such as those related to COVID-19); and
- requirements to give documents in hard copy if ASIC is satisfied that it may not be reasonable to expect the entity or class of entities to comply with the requirement due to circumstances beyond the control of the entity or class of entities (such as those related to COVID-19).
The flexibility afforded to a company by the reforms will no doubt be welcomed by the broader Australian corporate community. The reforms greatly assist with overcoming the ambiguity of the legislation to date and the practical difficulties of holding face-to-face meetings and signing documents in circumstances of border closures and mandatory lockdowns.
Commenting on the Bill, Adam Jeffrey of Hamilton Locke’s Finance team said: “These amendments will enable transactions to proceed more efficiently during this period of lockdowns and other COVID related restrictions. Making these changes permanent will be well received by business and assist in modernising the transaction process.”
In light of positive feedback received during the consultation phase, the Federal Government has also signaled intentions to turn the temporary measures in Schedule 1 into permanent reforms with the passing of a proposed ‘Corporations Amendment (Virtual Meetings and Electronic Communications) Bill’, once the temporary relief expires on 31 March 2022.