Virtual AGMs and electronic communication relief expired
The relief allowing companies to use technology to meet regulatory requirements to hold meetings, such as AGMs, distribute meeting-related materials and execute documents, which the government introduced during COVID, expired on Sunday 21 March. From this date, meetings will need to be conducted in person as per pre-COVID laws, with a hybrid component also permitted.
See K&L Gates Advice below
Disclosing and managing climate risk: A key director responsibility
ASIC Commissioner Cathie Armour has stated that ASIC’s is focussed on ensuring that companies have appropriate governance structures in place to manage climate risk and “providing the market with reliable and useful information on their exposure to material climate-related risks and opportunities.”
Proposed amendments to ASX Listing Rules
The proposed amendments – yet to be released in final form – include:
- new Listing Rule 12.13 specifying when an entity that has announced a dividend or distribution may change the amount and/or date;
- new Listing Rule 3.10.3E relating to the notification of the cessation of securities (expiry or extinguishment or an option or other right); and
- amendments to Listing Rules 2.8.3, 3.10.3A and 3.10.3B to shorten the timeframe for notifying ASX of the conversion of convertible securities from 10 business days down to 5.
Key developments in UK corporate governance and reporting
Listed UK companies are expected to keep abreast of key developments in areas of corporate governance and narrative reporting, including: the continued impact of COVID-19 on business, climate-related issues, the use of video in corporate reporting, among others.
The Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 (No. 3 Determination) expired 21 March 2021
The Treasury Laws Amendment (2021 Measures No. 1) Bill 2021, which as drafted will
- extend the provisions of the No. 3 Determination relating to virtual meetings and signing and sending electronic documents; and
- make permanent the temporary changes it made to the continuous disclosure laws under the Corporations (Coronavirus Economic Response) Determination (No. 4) 2020
has not yet been enacted and the Treasurer no longer has the power to make a further Determination (his power to do so under s1362A expired on 24 September 2020).
Unfortunately, this means that until further laws are enacted:
- for meetings and execution of documents, companies must comply with the Corporations Act (CA) provisions as written in respect of the matters listed in 1 above, as the temporary modifications that have been in place since 5 May 2020 no longer apply.
- from 23 March 2021, the continuous disclosure provisions in the CA as written will apply again, as the temporary modifications that have been in place since 25 May 2020 will no longer be in effect from this date.
What does this mean in practice?
Execution of documents by a company
Companies may no longer rely on the No. 3 Determination to validate the electronic execution of documents (including deeds) or the split execution of documents under s127(1) of the CA.
To ensure that a company’s execution of an agreement is valid:
- if signing under s127(1), the balance of current authority (pre the No. 3 Determination) is that wet signatures of the relevant officers of the company are needed on a single hard copy document (not on separate counterparts).
- if parties agree that electronic signatures can be used to sign the agreement:
- consider deleting the words “in accordance with section 127(1) of the Corporations Act 2001 (Cth)” from the execution clause (noting that these words aren’t necessary, even if the parties are signing under s127)
- there is a risk that a counterparty won’t be able to rely on s 129 assumptions and they bear that risk
- in practice, any “due execution” or closing legal opinion may be qualified. Conservative legal advisors or parties may not accept electronic signatures under s127.
- it would be preferable to have an agent or attorney sign the agreement on the company’s behalf, as this can be done electronically.
- If contemplating split execution, note that the conservative view is that this does not satisfy s 127 and there is therefore a risk that execution in this way, whether in wet ink or electronically, will not be accepted by the counterparty, third parties such as financiers, or ultimately the courts.
For valid execution by a company of a deed:
- if the company is signing under CA s127(1) and (3), again the balance of current authority (pre the No. 3 Determination) in all jurisdictions is that wet signatures of the relevant officers of the company are needed on a single hard copy document (not on separate counterparts).
- for any other form of execution by or on behalf of the company, the balance of current authority is that the common law requirement for deeds to be on paper, parchment or vellum is still the law and wet ink signatures on paper are currently needed in all jurisdictions except NSW, VIC and QLD.
- if the governing law of the deed is, or the company is signing the deed in, NSW, QLD or VIC, a duly authorised attorney can sign the deed electronically on behalf of the company – except in QLD, this is the only way a deed can validly be signed electronically. Note that such execution by the attorney is not under s 126 (or 127) of the CA and the execution block should not refer to these sections. In all jurisdictions other than QLD, the attorney should be appointed by a deed. In QLD, under the current Justice Legislation (COVID-19 Emergency Response—Documents and Oaths) Regulation 2020 (Qld) (QLD Regulations), the attorney does not need to be appointed by deed and the appointment does not need to be witnessed.
- If the governing law of the deed is, or the company is signing the deed in, QLD, the company may electronically sign a deed (but not an agreement) under Reg 12Q of the QLD Regulations. Reg 12Q, which falls within Part 3D (Deeds) of the QLD Regulations, sets out how a corporation may sign a document, with the provisions mirroring s127 CA in many respects. In that case, the execution block should not refer to s127 CA and the counterparty will not be able to rely on the assumptions under s129 CA.
- As with agreements, the conservative view is that split execution of a deed by the officers signing does not satisfy s 127 and there is therefore a risk that execution of a deed in this way, whether in wet ink or electronically, may be invalid.
There are arguments that can be made in favour of electronic execution being valid under s127(1) CA but these are untested before the courts. Parties proceeding in this way therefore take a risk that such signing may ultimately be found to be invalid.
With the expiry of the No. 3 Determination, companies can no longer rely on its provisions to hold meetings remotely via virtual meetings and quorums, votes, notices of meeting and the asking of questions can no longer be facilitated electronically.
Companies will need to think carefully about how best to proceed and plan an upcoming meeting that meets the requirements of the normal ie unmodified, provisions of the Corporations Act and the company’s constitution. In these circumstances, planning to hold a physical meeting may remain the most reliable option. Companies considering holding a hybrid meeting will need to check whether their constitution actually permits holding hybrid meetings and should consider the potential downsides of this form of meeting – including the risk of a technology failure that may invalidate the meeting, creating a precedent for future meetings and the additional effort and administration that managing essentially 2 forms of meetings at the same time (ie both a physical and online platform together) can create.
The modifications to the continuous disclosure obligations in the CA made by the Corporations (Coronavirus Economic Response) Determination (No. 4) 2020 cease with the expiry of that Determination on 23 March 2021. Therefore from tomorrow, ASX-listed entities will need to comply with the normal ie unmodified, provisions of the CA in relation to continuous disclosure.
We are tracking the progress of the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 closely. As we expecting further announcements about that soon, we do not plan to update our precedent materials dealing with electronic signatures yet. Those materials should therefore be used with caution for the time being.
Advice provided by K&L Gates on 22 March 2021
Sources of information: Australian Government; Australian Institute of Company Directors (AICD); Australian Securities and Investments Commission (ASIC); ASX; Governance Institute of Australia; K&L Gates; Norton Rose Fulbright.
Disclaimer: Mertons Corporate Snapshot is only intended to provide a general overview on matters of interest. It is not intended to be comprehensive and is not legal advice. We attempt to ensure that content is current, but we do not guarantee its currency. You should seek legal and/or professional advice before acting or relying on any content.