Government amends Corporations Act to provide temporary practical COVID relief to companies

With effect from Monday 5 May 2020, the Treasurer amended certain provisions of the Corporations Act 2001 (Cth) (Corporations Act) to provide companies with welcome flexibility in how they may hold their meetings and execute documents electronically whilst individuals are subject to social distancing mandates.

The amendments will operate for 6 months^[1] and will cease to be in force on 5 November 2020.

Meeting of members and permitted uses of technology

As previously discussed in our April bulletin article “Managing member meetings in the era of social distancing“, a company can only hold a meeting of its members via technology if its constitution expressly allows for meetings to be held in this way.

The amendments made to the Corporations Act overcome this limitation by permitting meetings to be held virtually, using technology. The amendments enable a quorum, votes, notices and the asking of questions to be facilitated electronically.

The amendments allow for the following:

• A meeting may be held using one or more technologies provided that the technologies give all persons entitled to attend the meeting a reasonable opportunity to participate in the meeting without being present in the same place.
• However, the notice of a meeting to be held via technology must include information about how those entitled to attend the meeting can participate in the meeting, including how they may participate in a vote taken at the meeting and speak at the meeting.
• A person who participates in a meeting via technology is permitted to be present at the meeting, including duly appointed proxies.
• A vote taken at the meeting held using technology must be taken on a poll, not a show of hands, by using one or more technologies to give each person entitled to vote the opportunity to participate in the vote in real time and, where practicable, by recording their vote prior to the meeting.
• There are a few web-based platforms that have a voting functionality built in. However, it may be more practicable to members to record their vote in advance of the meeting, for example, by submitting a completed ballot form issued to members prior to the meeting.
• Persons attending the meeting who have a right to speak and be heard (such as, by asking questions) must be given that opportunity by using one or more technologies which allow them to speak and be heard.
• A proxy may be appointed using one or more technologies specified in the notice of the meeting, for example, by email.
• A notice of meeting may be given and other information may be provided using one or more technologies to communicate to those entitled to receive notice (e.g. members, auditor), the following:
  • the contents of the notice and any other related meeting information for example, financial statements, explanatory memoranda; or
  • details of the online location where these documents can be viewed or downloaded.

For example, if your company has email addresses for some of its members, this section permits the company to send those members an email setting out or attaching notice of a meeting and other meeting materials, or providing a link to where the notice and other material can be viewed or downloaded.  The company could then send a letter or postcard to the remaining members for whom it does not have email addresses which contains the URL for the viewing or downloading of the notice and other meeting materials.

If you have already called your meeting prior to the introduction of these modifications, then you can still proceed to take advantage of the amendments and hold your meeting via technology provided that at least 7 days before the meeting is to be held you send a fresh notice to those entitled to attend which includes the information referred to in paragraph 11(1)(a) above.

In terms of running the meeting via technology, as mentioned in our earlier article, we recommend that the chair prepare and deliver clear rules for how the meeting will run and how attendees are to engage to ensure the meeting runs as smoothly as possible.

Execution of company documents

Currently, when 2 directors, or a director or secretary, sign a document without using a common seal under s.127(1) of the Corporations Act, the signatures:

• must be ‘wet’ signatures, meaning that electronic signatures cannot be used; and
• must be on the same original piece of paper, that is, it cannot be signed in counterparts by the same party.

In recognition of the practical difficulties being faced by businesses in complying with these requirements in the current circumstances, and in the interests of keeping business activity alive, s.127 of the Corporations Act has been amended to allow for the use of electronic signatures and for execution in counterparts by companies, subject to some conditions.

Under the amended section, a company may now also execute a document without using a common seal if:

• 2 directors of the company; or
• a director and a company secretary of the company; or
• for a proprietary company that has a sole director who is also the sole company secretary – that director:

either:

• • signs a copy or a counterpart of the document that is in physical form; or
  • complies with the electronic communication requirements.

The copy, counterpart or electronic communication must include the entire contents of the document (that is, it cannot just be the execution provision) but does not need to include the signature of another person signing the document i.e. it can be a counterpart.

An electronic communication is defined in the Electronic Transactions Act 1999 (Cth) (ETA) to include a communication of information in the form of data, text or images by means of guided and/or unguided electromagnetic energy.

The electronic communication requirements (which are effectively the same requirements as the requirements under the ETA) are that:

• a method must be used to identify the person in the electronic communication and to indicate the person’s intention in respect of the contents of the document; and
• the method:
  • is as reliable as appropriate for the purpose for which the company is executing the document, in light of all the circumstances, including any relevant agreement (such as another clause in the document); or
  • is proven in fact to have fulfilled the functions of identifying the person and indicating their intention, by itself or together with further evidence.

Practically, there are a numbers of ways in which officers of a company may sign a document electronically, including:

• pasting a copy of a signature into a document;
• signing a PDF on a tablet, smartphone, laptop or other device using a stylus or a finger; and
• cloud-based signature platforms such as DocuSign.

The Corporations Act has also been expressly amended to permit a third party assume that a document executed in this way has been properly executed by the company.

Adoption of electronic signatures

Many businesses have been waiting for reform which allows them to adopt a modern means of executing documents. However, caution should be exercised when adopting electronic signatures because the risk of fraud through the unauthorised application of signatures still exists.

We recommend that if you are considering moving towards the electronic signing of documents as currently permitted, you consider:

• adopting a software solution which is sufficiently secure and not liable to interference, for example, DocuSign. Whilst a scanned image of a signature may be sufficient for correspondence, it does not provide the requisite level of protection necessary for entering into legally binding arrangements; and
• ensure that a robust protocol regarding the use and application of electronic signatures, including permitted delegations to staff, be prepared and implemented.

[1] Section 1362A(4)(a) of the Corporations Act 2001 (Cth).