In a significant development for companies, the Treasurer has utilised his new power to modify the Corporations Act 2001, the Corporations Regulations 2001, the Insolvency Practice rules, and the Passport Rules so that, for a period of six months effective from 6 May 2020:
The Treasurer has exercised these powers through the issuing of Corporations (Coronavirus Economic Response) Determination (No. 1) 2020, pursuant to his new powers afforded under the recently installed section 1362A of the Act to respond to the COVID-19 situation.
In March, ASIC issued guidelines for, among other things, meeting upcoming AGM requirements for companies that had a statutory deadline of 31 May.
Among other things, ASIC noted that, subject to the company’s constitution, while the Corporations Act permitted ‘hybrid’ meetings (i.e. a combination of a physical location and the use of technology), there was doubt as to whether a ‘virtual’ meeting (i.e. online only) was permitted by the Corporations Act.
In response, ASIC issued a ‘no action’ position, indicating that it would not take regulatory action against a company obliged to hold its AGM by 31 May (or as lawfully extended) if the company conducted a ‘virtual’ meeting. This ‘no action’ position is conditional on the technology providing members as a whole a reasonable opportunity to participate in the meeting, including:
Though helpful, this ‘no action’ position is an incomplete solution because it doesn’t protect the company from shareholder action alleging a virtual AGM is unlawful or, where applicable, inconsistent with the company’s constitution. (ASIC’s ‘no action’ position did allow for a deferral of the AGM if the constitution didn’t allow the use of technology or if the technology couldn’t meet ASIC’s conditions of ‘no action’.) It also doesn’t address other types of meetings, such as creditors’ meetings.
The Treasurer’s Determination attempts to offer a comprehensive solution for all companies and schemes over the next six months.
In general terms, the Determination allows entities who are required, or permitted, to hold meetings under the Corporations Act (or certain instruments derived from the Act) to do so remotely as ‘virtual’ meetings. This appears to extend also to creditors’ meetings. Notice of meeting may also be given electronically.
The Determination sets out conditions for, and impact on, both the meeting and the notice. In broad terms:
If notice of the meeting had already been given before 6 May 2020, the person required or permitted to give notice of the meeting must, at least 7 days before the meeting is held, give a fresh notice of the meeting that includes information about how those entitled to attend can participate in the meeting.
Notably, the Determination is also intended to have the effect of overriding anything in the constitution of a company or registered scheme, or to any other arrangement, that requires or permits a meeting to be held, that deals with giving a notice of a meeting or the conduct of a meeting. It remains to be seen however, whether the Determination is sufficiently comprehensive to have the effect of overriding any specific provisions of a company’s constitution to the contrary.
The Determination also amends the Corporations Act to confirm that valid execution of a document, without a common seal, for the purpose of section 127 of the Act, whether by two directors, a director and company secretary or, in the case of sole director/secretary companies, that person:
provided that the copy, counterpart or electronic communication includes the entire contents of the document. In the context of documents that are electronic communications, certain principles found in the Electronic Transactions Act 1999 have been expressly included in the Determination, namely that, in respect of an electronic communication:
With the 20th anniversary of the commencement of the Electronic Transactions Act having recently passed, many will say that these changes are a long time coming. While the Electronic Transactions Act was progressive at the time in seeking to provide assurance of the validity of documents made and signed electronically, the Corporations Act has specifically been excluded from the effect of that legislation.
This Determination is therefore a significant development. While companies have been able to sign contracts in other ways (subject to their governing document) including electronically, execution under section 127 is particularly important because it usually will afford the counterparty the benefit of a statutory assumption, by virtue of sections 128 and 129, that the document has been validly executed.
Arising from this, the immediate action items for companies are likely to include the following:
The changes implemented to permit the hosting of virtual meetings and electronic signatures provide greater flexibility to the impacted COVID-19 business community. We are pleased to have advised a number of banks on their submissions to the Australian Banking Association to assist in achieving these progressive legislative advancements.
Though the Determination only has effect for six months, and can only be made where the Treasurer is satisfied that it is necessary to respond to the impact of COVID-19, many will be hoping this paves the way for amendments to the Corporations Act itself in due course and for these arrangements to become permanent in some fashion.
At the very least, the current temporary arrangements will afford time to test them in the real world and gather learnings, which will inform further policy debate about whether to make something akin to these permanent.
Should your organisation wish to avail itself of the Determination, Gadens experienced practitioners are well placed to assist.
For details of all our COVID-19 tips and updates, visit the Gadens COVID-19 Hub.
Adam Walker, Partner