Electronic signing, virtual meetings, and continuous disclosure: the current state of play and progress on permanent reform
11 October 2021 07:02
Australian companies can continue to enjoy the current flexibility in using technology to sign documents and hold meetings, as the existing temporary relief measures remain in effect until 31 March 2022.
Additionally, significant permanent reforms to continuous disclosure became effective on 14 August 2021, enabling companies to balance appropriate disclosure to the market against ensuring they can confidently release information without facing “opportunistic” class actions.
State of play: current temporary relief for electronic signing and virtual meetings until 31 March 2022
From May 2020 until 21 March 2021, the Treasurer provided temporary relief for companies to sign documents electronically and use virtual meeting technology in a series of determinations.
After months of debate and uncertainty following the Treasurer’s relief expiring, on 14 August 2021 the Government passed the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 (Cth) (TLA1 Act), effectively reinstating the temporary relief.
The TLA1 Act makes the following temporary amendments to the Corporations Act until 31 March 2022:
|Electronic signing of documents under s127||Requirements/process|
|A company director, secretary or witness may electronically sign a document (including a deed) or a copy or counterpart of the document|
|Split execution is allowed (for both physical and electronic documents)|
The physical/electronic copy or counterpart must include the entire contents of the document, but need not include other signatories’ signatures.
Each signatory may execute the document using different methods, eg one director physically signs while the other signs electronically.
|Fixing of common seal can be witnessed remotely|
Witnessing may occur by:
|Virtual meeting technology can be used to hold members’ meetings (companies and registered schemes) and directors’ meetings (together, Chapter 2G meetings), regardless of what the constitution provides||The technology must give the persons entitled to attend, as a whole, a reasonable opportunity to participate (including orally and/or in writing) without being physically present in the same place.|
|Chapter 2G meeting documents or resolutions to be considered without a meeting can be signed and communicated electronically (for virtual, hybrid or physical meetings)|
|Minute books can be kept electronically|
In addition, a new “exceptional circumstances” framework empowers ASIC to give relief (lasting up to 12 months) that:
- extends the deadline for holding AGMs;
- allows companies and registered schemes to hold members’ meetings using virtual meeting technology (even if not required or expressly permitted by the constitution); and
- allows documents to be given electronically and extends the time for giving documents.
What are the proposed permanent reforms for electronic signing and virtual meetings?
The Government recently consulted on an exposure draft of the Treasury Laws Amendment (Measures for a Later Sitting) Bill 2021: Use of technology for meetings and related amendments (Bill).1 This follows an earlier consultation in June-July 2021 on an exposure draft bill: Treasury Laws Amendment (Measures for Consultation) Bill 2021: Use of technology for meetings and related amendments, which did not become law.
The Bill seeks to amend the Corporations Act permanently to allow companies to sign documents electronically and use virtual meeting technology. Although it broadly reflects the temporary measures already made by the TLA1 Act, the Bill:
- refines the drafting approach taken in the TLA1 Act by restructuring the provisions so that they apply to all types of member meetings; and
- moves the provisions relating to electronic communications and electronic signatures from Ch 2G to Ch 1 of the Corporations Act, so that they can be extended in the future to include additional types of documents that are unrelated to meetings.
The Bill requires a review as early as practicable after 2 years from its commencement.
Broadly, the exposure draft Bill provides for:
|Electronic signing of documents under s127|
When would the proposed permanent reforms for electronic signing and virtual meetings start?
The Bill would commence the day after Royal Assent (expected to be 1 April 2022), and would supersede the temporary TLA1 Act amendments. The amendments would not apply to a meeting if notice of the meeting is given before the commencement date and the meeting is held by 31 March 2022.
Which continuous disclosure obligations have been permanently reformed?
The delay in passing the TLA1 Act stemmed from proposed permanent reforms to continuous disclosure, which were acceptable as a temporary relief measure at the height of the pandemic but controversial as a permanent measure. However, after vigorous debate, these reforms passed with an amendment (discussed below). From 14 August 2021, the TLA1 Act:
- removes the strict liability regime for civil liability and introduces a fault or mental element in civil penalty proceedings in Ch 6CA, Corporations Act. Entities and their officers will only face civil liability (eg via shareholder class actions, but not civil regulatory enforcement action by ASIC) for breaching continuous disclosure obligations where they have acted with “knowledge, recklessness or negligence” as to the materiality of information not disclosed to the market; and
- precludes the liability of entities and officers under the misleading and deceptive conduct provisions in s 1041H, Corporations Act, unless this fault element is established (overcoming a significant limitation of the temporary relief, now-expired, previously given under Corporations (Coronavirus Economic Response) Determination (No. 2) 2020).
These amendments raise the evidentiary bar for establishing civil liability.
There is no change to the criminal liability regime for breaching continuous disclosure obligations, which continues to be a strict liability regime. The accessorial liability regime has also been retained.
The amendment that smoothed the passage of these reforms were requirements that:
- the provisions be independently reviewed within 6 months after the second anniversary of commencement;
- the written report of review be tabled in Parliament; and
- the government publish its response within 3 months of review.
If these requirements are not met, the continuous disclosure amendments will cease to have effect.
What are the proposed reforms that can be expected?
On the proposed reforms for electronic signing and meetings, we should expect to see movement in Parliament on the passage of the exposure draft Bill soon. Consultation on the Bill closed on 16 September 2021 and it is expected to be passed by 31 March 2022, when the TLA1 Act’s temporary measures expire. However, if there are delays, ASIC could either employ its exceptional circumstances powers, or the Government could utilise the contingency measures in the Treasury Laws Amendment (COVID-19 Economic Response No. 2) Act 2021 (Cth). This Act, which commenced on 11 August 2021, empowers the responsible minister for an Act or legislative instrument to alter statutory requirements or permissions temporarily (including as to giving information and signing, producing and witnessing documents) in response to COVID-19 circumstances. The Treasurer could use this power to address uncertainties or gaps in relation to signing under s 127, Corporations Act, by issuing a determination. Such determinations can operate retrospectively, ratifying acts that would otherwise be invalid. The power to make such determinations, and any determinations made under the Act, cease to have effect after 31 December 2022.
We may also see further reforms beyond the Bill. The Government has just separately consulted on a common approach for digital execution of deeds and statutory declarations. As part of its commitment to modernise business communications, the Government is seeking to ascertain and address the difficulties faced by individuals (including individual attorneys under a company’s power of attorney) and businesses when executing these documents, including those arising from inconsistent approaches across Australian jurisdictions. We expect further developments following the consultation which concluded on 8 October 2021 , so watch this space.
As for the continuous disclosure reforms, many will be watching with interest to see the impact of the changes on class action activity, especially when combined with recent developments (eg financial services regulation of litigation funders and the High Court’s decision that pre-settlement common fund orders cannot be made).
Directors of listed entities, however, should not be lulled into thinking that they can relax in discharging their duties. The same risk of criminal liability as before still lurks. Further, ASX Listing Rule 3.1 has not changed, with ASX retaining the same enforcement powers for breach. Finally, there is an ever-present risk of facing action for breach of directors’ duties for causing and/or permitting the company to breach the law.
Since this article was written, on 20 October 2021, the Government introduced the Corporations Amendment (Meetings and Documents) Bill 2021 (Cth) into the Commonwealth Parliament. This step follows completion of the Government’s consultation on the exposure draft of the Treasury Laws Amendment (Measures for a Later Sitting) Bill 2021: Use of technology for meetings and related amendments referred to above. Broadly, the new Bill seeks to amend the Corporations Act to adopt permanently the same measures on meetings and signing and communication of documents which were contained in the exposure draft, which in turn built on the TLA1 Act. However, the Bill also reflects feedback from the consultation process to provide a clearer and more comprehensive framework.
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