COVID-19: Extension of Virtual AGMs and electronic execution of documents
With the ongoing global COVID-19 pandemic and as AGM season approaches, the ability for company meetings to be held online and documents to be signed electronically has been extended for a further period of six months, now expiring on 21 March 2021. At a time when business operations continue to be disrupted by COVID-19 and social distancing and remote working remains the norm, the Treasurer, The Hon Josh Frydenberg MP, has announced the extension of provisions under the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (Cth) (Determination) beyond the original ‘expiry date’ of 6 November 2020. These changes will allow companies to continue to fulfil their legal obligations while remaining COVID-safe and socially distant, well beyond the end of the year.
What are the changes?
In May 2020, the federal government temporarily modified the provisions of the Corporations Act 2001 (Cth) (Corporations Act), the Corporations Regulations 2001 (Cth) (Regulations) and other related legislation to permit virtual company meetings, electronic notices of meetings and the electronic signing of company documents during the COVID-19 pandemic. These changes were made under the Corporations (Coronavirus Economic Response) Determination (No 1) 2020 (Cth) using the Treasurer’s emergency powers under section 1362A of the Corporations Act. Effective from 22 September 2020, the Determination was repealed and replaced with the Corporations (Coronavirus Economic Response) Determination (No.3) 2020 (Cth), which made no substantive changes to the measures introduced in May, but extended their operation for a further 6 months until 21 March 2021. The recent extension measures reiterate that companies must continue to provide shareholders or members with a reasonable opportunity to participate in meetings. It also confirms that online voting is permitted and company officers will continue to be able to sign documents electronically (which includes not requiring signatories to sign on the same physical document).
These updates to current corporate governance are welcome certainty and official ongoing approval for the practical and logistical realities facing businesses and boards operating remotely and navigating the governance and logistical challenges of virtual company meetings and annual general meetings (AGMs), particularly where their Constitution, and in some case the legislation, may not technically allow such methods. It also makes life easier for the many company directors and officers working remotely who are finding it difficult to arrange wet-ink signatures on paper documents due to a lack or access to scanners or printers at home and inability to get two authorised persons in the same room.
Below is a summary of the key changes introduced by the Determinations and how to comply with these new corporate governance procedures during the pandemic.
Virtual Company Meetings
The Determination modifies any provision of the Corporations Act or Regulations that requires a meeting to be held, or deals with giving a notice of a meeting or the conduct of a meeting. Many entities may be required to hold meetings over this period, including AGMs, board meetings and creditors’ meetings.
The Determination states that:
- Technology - a meeting may be held ‘using one or more technologies’ to enable member participation without needing to be physically present in the same place
- Quorum - members participating in the virtual meeting are taken to be present for the purposes of the relevant quorum and all other requirements
- Questions - the technology used for the virtual meeting should enable members to speak at the meeting (eg. by asking questions)
- Voting - voting at the virtual meeting must be according to a poll and not a show of hands, and each person entitled to vote must be given the opportunity to vote in real time and if practical ahead of the meeting
- Proxies - proxies may be appointed for virtual meetings using technology.
Notices of meeting
The Determination modifies the usual requirements for notices of meetings as follows:
- Sending notices - a company may use ‘one or more technologies’ to send notices, including where recipients have not provided an email address. For example, an entity would meet the requirements to give notice and provide other material relating to the meeting (such as reports or resolutions to be put to the meeting) by sending an email and/or a letter setting out where the recipient could view the information online and download it.
- Notice content - the notice of meeting must provide information about how persons entitled to attend can participate in the virtual meeting, including how they can vote, speak and ask questions at the meeting (or by proxy), and any other information they need to know to participate using technology.
- Notices sent pre-commencement - If a company, responsible entity or external administrator has already sent out a notice of an AGM or other meeting before the Determination came into force, they must issue another notice at least seven days before the meeting with information about how to participate in the meeting electronically.
- Treatment of Proxies - The Determination also requires the person conducting the meeting to treat a proxy in the same way the person who appointed the proxy would be treated if that person was attending the meeting.
- Applies to all meetings - The modifications included in section 5 of the Determination and described above also affect the operation of the constitution of a company or registered scheme, or to any other arrangement that requires or permits a meeting to be held, deals with giving a notice of a meeting or the conduct of a meeting.
Practical Tip: If participation is affected due to issues with technology, you should consider whether this justifies the meeting to be adjourned or a short break taken until the issue can be fixed to ensure compliance with quorum and other requirements continue to be met. It is also important to check your notice of meeting clearly explains the technology being used, how members can participate and use the technology to participate by speaking, submitting or asking questions and voting (including how to cast their votes online and/or appoint a proxy ahead of the meeting).
Electronic signatures and execution of documents by directors and secretaries (s127 Corps Act)
The Determination modifies section 127 of the Corporations Act for companies, directors of companies, company secretaries and any persons that have dealings with companies, to allow use of an electronic signature to meet requirements for a signature. It also extends the section 127 definition of ‘document’ so that it covers execution of a document in electronic form.
The Determination provides that a company may execute a document without its common seal if each person required to sign the document on behalf of the company either:
- Physical signing - signs a physical copy or counterpart of the document; OR
- Electronic signing - uses some form of electronic communication (e.g. an electronic signature or some other method) that reliably identifies the person and indicates the person’s intention about the contents of the document.
In both cases the physical or electronic communication must include the entire contents of the document, but does not need to include the signature of another person signing the document physically or electronically.
What does this mean practically - how do you sign documents electronically?
The Explanatory Memorandum for the original Determination explains that in practice, there are a wide variety of means by which officers of a company might sign a document electronically. 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.
The modification means that signatories 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.|
If these elements are satisfied, then an electronic signature applied under section 127 will be effective to execute a document.
Finally, there is a catch all provision in section 8 of the original Determination intended to give certainty and comfort to entities and their members that anything done in accordance with the modified procedures set out in the Determination is as valid and effective for all purposes as if it had been done in accordance with the original provisions in the Corporations Act or other relevant legislation modified by the Determination.
Technology and future proofing your corporate governance
For some companies who find they and their members prefer virtual AGMs and meetings, they may wish to consider amending their Constitution to include a permanent ability to hold meetings and vote using technology, so that they may continue to do so after the COVID-19 pandemic when the Determination is repealed in March 2021. In any case, this pre-AGM season is always a good time to consider in advance (given timing and notification requirements) any updates that may be required to your Constitution so that the proposed amendments can be put to members for approval. Organisations should also consider whether their governance and Board policies need to be updated to reflect virtual meeting protocols developed formally or informally during the pandemic and to accommodate the changes in the roles of Chair and Company Secretary, who are increasingly focused on keeping other directors informed, managing information flows and assisting directors with technology.
If you are concerned about your corporate governance obligations or require assistance with your AGM documents, notices or execution of company documents, contact our corporate governance experts on 1300 565 846 for a confidential discussion.