COVID-19 | No extension to temporary reforms to permit electronic signing of company documents

23 March 2021
Peter Grotjan, Partner, Melbourne Antoine Pace, Partner, Melbourne Adam Walker, Partner, Melbourne

In a blow for advocates of efficiency (both technological and practical), the temporary reforms under Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 (Determination), which had permitted the conduct of virtual meetings, electronic execution of documents and split execution of documents under section 127 of the Corporations Act 2001 (Cth) (Act) expired on 21 March 2021.

Unless, and until, a replacement relief mechanism is put in place, companies will now therefore need to resort to conducting meetings as they did prior to 6 May 2020 (subject to anything permitted by their constitution). Likewise, anyone wishing to rely on the statutory assumptions afforded by a company executing a document under section 127 of the Corporations Act 2001 (Cth) will again require signatories to physically sign the same piece of paper using wet ink.

Expired temporary relief

As noted in our update in May 2020, the Treasurer exercised powers at the time, through the issuing of Corporations (Coronavirus Economic Response) Determination (No. 1) 2020, to permit:

  • entities to hold virtual meetings without the need for a physical location; and
  • for the purpose of section 127 of the Act, execution of documents by a company electronically and, where there are two signatories, on separate documents.

That relief had been extended until 21 March 2021 under Corporations (Coronavirus Economic Response) Determination (No. 3) 2020.

Proposed extended relief

In February 2021, the Government introduced the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021, which intends to:

  • extend until 15 September 2021 these measures as well as make amendments to the law so as to facilitate electronic communications and minute books; and
  • make permanent changes to continuous disclosure laws, notably by continuing a ‘fault’ element that would reduce officers’ exposure to civil penalty proceedings arising from circumstances where the market was not updated with price sensitive information.

Despite the Government’s protests, the Senate has referred the Bill a second time to the Senate’s Economics Legislation Committee for inquiry, with a report not due until 30 June and the Senate not expected to consider the Bill further until August. This follows concerns expressed in an earlier Committee dissenting report regarding peoples’ ability to elect to receive hard copy communications, whether virtual AGMs constrain shareholders’ ability to hold companies to account, and whether amendments to continuous disclosure laws will undermine market integrity.

Documents executed up to and including 21 March 2021

The fact that the temporary reforms have expired will not affect the validity of documents that have been executed using electronic communications and/or through split execution in accordance with the Determination up to and including 21 March 2021.

Where to from here?

The Government has stated that it remains committed to permitting electronic execution and communication of documents, and also to facilitating a trial of hybrid AGMs beyond the initially proposed September sunset date.

Virtual meetings

It may be that, in the interim, the Australian Securities and Investments Commission issues a ‘no action’ position and further guidelines as to its regulatory intent regarding AGM requirements and other virtual meetings. However, even if it were to do so, it would not be able to protect the company from shareholder action alleging a virtual meeting was conducted unlawfully or, where applicable, inconsistent with the company’s constitution.

Executing documents on and from 22 March 2021

On and from 22 March 2021, section 127 of the Act must be interpreted as it had been prior to the Determinations originally came into force.

Prior to the Determinations, there had been some uncertainty as to whether a company could execute a document using electronic communications and whether split execution would be permitted under section 127 of the Corporations Act. As we previously discussed, the Court in Bendigo and Adelaide Bank Limited v Pickard [2019] SASC 123 interpreted section 127(1) of the Act to require officers to sign a single, static document in order for a document to be executed in accordance with this provision.

On this basis, we consider that it is again good practice to ensure that any documents to be executed by companies under section 127 of the Act to be signed by ‘wet ink’ signature only.

In the absence of supporting legislation, it will most likely be a case of returning to previous practices while monitoring developments in the Senate’s Committee in the meantime. The Committee is inviting submissions until 23 April.

Move to permanent reforms in Victoria

On 23 March 2021, the Justice Legislation Amendment (System Enhancements and Other Matters) Bill 2021 received royal assent. Among other things, it includes amendments to the Electronic Transactions (Victoria) Act 2000 (Vic) (ETA) to make the temporary reforms under the COVID-19 Omnibus (Emergency Measures) (Electronic Signing and Witnessing) Regulations 2020 permanent.

Specifically, under the ETA, the following will be permitted once the relevant amending provisions come into force on 26 April 2021:

  • The witnessing by audio-visual link.
  • The execution of deeds using electronic communications.
  • The execution of mortgages in Victoria using electronic communications.

Should your organisation require clarification about the impact of the reforms in Victoria, the conclusion of the temporary measures for companies, or require assistance in making a submission to the Economics Legislation Committee’s review of the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021, Gadens’ experienced practitioners are well placed to assist.

 

For details of all our COVID-19 tips and updates, visit the Gadens COVID-19 Hub.


Authored by:

Antoine Pace, Partner
Adam Walker, Partner
Peter Grotjan, Partner
Martin Nguyen, Senior Associate
Raisa Blanco, Senior Associate

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.

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