In this article, special counsel Matt Moses drills down on the current state of play for virtual meetings and electronic signing with the Federal Government having missed the opportunity to extend the temporary changes.
A year ago, as the commercial world was coming to grips with the impacts of the COVID-19 pandemic on day-to-day business activities, we examined the issues surrounding electronic execution of legal documents.
Around the same time, the Federal Government announced temporary changes to the Corporations Act, to expressly permit the use of e-signatures by company officers when signing under section 127 of the Corporations Act.
The measures introduced back then also allowed companies and registered funds to call and hold AGMs (and other meetings) online. Without the changes, historical uncertainty over whether companies and funds can hold virtual meetings meant it might have been risky to do so - the validity of meetings and resolutions could potentially be called into question.
Some temporary softening of continuous disclosure obligations also came in, helping companies to provide guidance to the market in an uncertain time. These changes effectively raised the threshold for liability for continuous disclosure breaches.
The measures urgently introduced in relation to meetings and e-signing were sensible and welcome. However, they were initially to last for only six months. They were extended in September 2020, until 21 March 2021.
Earlier this year, a draft package of legislation was introduced to extend the virtual meeting and electronic execution relief until 15 September 2021. As you'd probably expect, the proposals to extend these initiatives were well supported within the Parliament.
However, the package also included extending the lighter continuous disclosure obligations; and this element was not so popular. The legislation was not passed and instead the package was referred to a Senate Committee. Debate on the Bill has been adjourned until early August 2021.
With the opportunity missed to extend the electronic execution and virtual meeting measures, where does this now leave us?
For electronic execution by companies, we are back to the pre-COVID position before the temporary amendments to the Corporations Act were made.
For virtual meetings, in terms of the law, we are also back to the pre-COVID position, which means there are once again some potential legal gaps. However, ASIC has at least issued a 'no-action' position, to help facilitate calling and holding virtual meetings. An ASIC 'no-action' position, by itself, is not an ideal solution, because it is not the same as changing the law.
However, it at least gives companies and fund managers some comfort if they choose to go down the virtual meeting path, a path which has become popular over the last year. For now, the 'no-action' position will apply to meetings held until the end of October 2021, unless Parliament passes relevant measures earlier.
As noted in our earlier article, there is some uncertainty around the use of e-signatures by directors when executing a document under section 127 of the Corporations Act, although the use of e-signatures on deeds is potentially more problematic than on agreements and other documents, because deeds need to meet various technical legal formalities. The benefit of the COVID-driven changes to the Corporations Act was they removed the uncertainties, albeit temporarily.
Until there is clarity about whether the previous measures will be re-introduced (or perhaps even be made permanent), we suggest following the guidance provided in our earlier article.
The regulator's 'no-action' position on virtual meetings is subject to some conditions around, for example, how technology is used and how investors participate in a meeting.
For further details, please see the Alert we issued in March 2021.
As we noted earlier, a 'no-action' position is not the same as fixing or amending the law.
This means there may still be some risks associated with holding a virtual meeting, even if you meet ASIC's conditions.
What this means is even though ASIC might not take regulatory action if a company holds a virtual meeting, the validity of the meeting or a resolution passed at the meeting is still not assured.
Our recommendation is that for now, companies and fund managers consider whether they can hold in-person AGMs or other meetings, or at least use a combination of an in-person meeting and online meeting (often referred to as a 'hybrid' meeting), if their entity's constitution allows this.
If you need further advice or assistance about the approach you should follow, then please contact us.