Are electronic execution of documents and virtual meetings here to stay?

Since March 2021, the Federal Government has been pushing the Senate to pass legislation to amend the Corporations Act 2001 (Cth) (Corporations Act), to extend this temporary regime until 15 September 2021, known as the Treasury Laws Amendment (2021 Measures No.1) Bill 2021 (Bill).

As discussed in our March article, in the absence of the Bill being passed before the Senate’s last sitting day in March, ASIC published a ‘no-action’ position in relation to conducting virtual company meetings, such as AGMs, to provide companies with some certainty after the expiry of these measures. Unfortunately, ASIC maintained silence on whether electronic execution (including use of services such as DocuSign), would remain a valid form of execution for companies under section 127, creating uncertainty and confusion amongst directors.

Treasury Laws Amendment (2021 Measures No. 1) Act 2021 – law at last (for now)!

After months of silence, in some welcome news – Parliament finally passed the Bill on 10 August 2021 and the practice of virtual meetings and electronic execution of documents is now legislated until 31 March 2022 under the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 (Act).

This will give companies some much-needed certainty heading into AGM season, especially in Sydney and Melbourne where lockdowns and working from home are likely to be the new normal until the end of the year.

What are the changes?

A brief overview of the Act’s key amendments to the Corporations Actare as follows:

Virtual Meetings

• Companies can hold virtual meetings provided the technology used gives all persons entitled to attend the meeting reasonable opportunity to participate. All participants:
  • must have a reasonable opportunity to exercise a right to speak (orally or in writing, depending on the participant’s election); and
  • if entitled to vote, must be given the opportunity to vote in real time.
• These meetings can be either entirely physical, physical and virtual (hybrid), or entirely virtual, but the meeting must be held at a time that would be reasonable at the determined place of meeting.
• Documents may be tabled and signed during these virtual meetings by electronic means, provided certain conditions are met (see below).

Electronic Execution

• The fixing of a common seal will be taken to be witnessed if it is done so electronically, provided the document includes a statement that electronic observation has occurred.
• Provided the entire document is included, execution by way of copy or counterpart, whether physical or electronic, will become a valid form of execution, attracting the assumptions under section 129. Note the additional conditions when signing electronically below.
• Electronic execution is valid provided the following is adhered to:
  • a method is used to identify the person and indicate their intention to sign a copy or counterpart;
  • the copy or counterpart to be executed includes the entire contents; and
  • the method of execution used was:
    • as reliable for the purposes of the document, in light of all circumstances; and
    • proven to have fulfilled the function of identification, either by itself or with supporting evidence.

When will these changes take effect?

The Bill was given Royal Assent on 13 August 2021, and these changes to the Corporations Act are effective from 14 August 2021.

Permanent changes around the corner?

At present, the Act will only be effective until 31 March 2022. On this date, the provisions outlined above will fall away, meaning virtual meetings and electronic execution will no longer be valid practices after this date.

Fortunately for companies, the 31 March expiry date is expected to be repealed by the introduction of new legislation. In late June this year, the Government released for consultation a draft bill – the Treasury Laws Amendment (Measures for Consultation) Bill 2021: Use of technology for meetings and related amendments (Exposure Draft). If this Exposure Draft is passed, virtual meetings and electronic execution will become a permanent mainstay of the Corporations Act, subject to a review after two years. The consultation process for the Exposure Draft has now been completed.

Key Take-aways

1. On 10 August 2021, the Parliament passed legislation to extend the validity of electronic execution of documents and virtual meetings to 31 March 2022.
2. The Bill amends the Corporations Act to allow electronic meetings and electronic execution, provided certain requirements are complied with.
3. The Bill was given Royal Assent on 13 August 2021, meaning virtual meetings and electronic execution documents are (at least until 31 March 2022) valid practices under the Corporations Act.
4. An Exposure Draft has been released seeking to make further amendments to the Bill, including a proposal to remove the 31 March 2022 expiry date, effectively making electronic execution and virtual meetings permanent.
5. If the Exposure Draft is passed in its current form, the changes allowing electronic execution and virtual meetings will be subject to a review after two years – so companies must behave or the changes may be repealed!

If you are a company director currently looking to execute a document electronically or host a virtual meeting of shareholders or directors and you are unsure about how the amendments to the Corporations Act 2001 (Cth) apply to your circumstances, please contact us at enquiries@mctaggartgrant.com.