Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 proposes to temporarily extend until 15 September changes to meeting and electronic execution requirements that otherwise would have expired on 21 March and to make temporary changes to continuous disclosure laws, introduced in response to the COVID-19, pandemic permanent. Our key takeaways are below.
Use of technology
- A stop gap measure? The government has signalled that the further extension and expansion of temporary changes enabling electronic execution, electronic communication and electronic meetings does not indicate that it has abandoned plans to permanently modernise requirements.
- Hybrid meeting pilot scheme: The explanatory memorandum states that the government intends to conduct 'an opt-in pilot for hybrid annual general meetings in which shareholders can attend meetings in person or virtually' after the temporary extension sunsets on 16 September.
- Hardcopies: If passed, shareholders will be given the right to opt in to receive hard copies of meeting related materials. Companies and responsible entities of registered schemes will be required to notify members of their right to 'opt in', within two months of the day of commencement of Schedule 1 of the Bill. Failure to provide this notice will be a strict liability offence with a penalty of 30 penalty units.
- Issues to consider: Our recent report Key trends to emerge from the 2020 AGM season provides insights into how companies adapted to the rapid shift to holding electronic meetings in 2020 and puts forward some suggestions around the questions boards may wish to consider heading into the 2021 AGM season.
- Permanently easing disclosure laws: The proposed changes to continuous disclosure laws will implement the government's response to the parliamentary joint committee's recommendation that temporary measures introduced during the pandemic - Corporations (Coronavirus Economic Response) Determination (No. 2) 2020 (and subsequently extended by Determination No 4) - be made permanent. The permanent introduction of a 'fault' element is expected to insulate companies and their officers from the threat of 'opportunistic' litigation, while ensuring the market is kept informed of material information – an approach the Treasurer has described as striking the right balance.
Broadly, Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 proposes to do two things:
- Schedule 1 of the Bill proposes to temporarily extend and expand on the measures in Corporations (Coronavirus Economic Response Determination (No. 3) 2020 to provide companies with legal certainty around the use technology in the context of holding and conducting meetings, distributing meeting related materials and executing and witnessing documents. It's proposed that these measures will apply until 15 September 2021.
- Schedule 2 of the Bill proposes to make permanent the temporary changes to continuous disclosure laws introduced in May 2020, which are intended to insulate directors from opportunistic class actions, and which would otherwise expire in March 2021.
The Bill has been referred to the Senate Economics Legislation Committee for report by 12 March.
Schedule 1: Electronic execution, distribution of meeting related materials and electronic meetings
- Schedule 1 proposes to allow meetings (including AGMs) to be held using technology (as virtual or hybrid meetings), provided that 'the members as a whole' have a reasonable opportunity to participate.
- To facilitate this, it's proposed that the notice of meeting will need to include 'sufficient information' about how to participate in the meeting as well as 'sufficient information to allow members to provide proxy documents by electronic means'.
- Members will also need to be provided with a 'reasonable opportunity to speak and verbally ask questions in situations where they have a right to speak and ask questions'.
- The explanatory memorandum makes clear that the phrase 'members as a whole' is intended to ensure that meetings are 'not invalidated merely because a member experienced technical issues and is unable to participate virtually…so long as the vast majority of members can contribute and no member is intentionally excluded'. The explanatory memorandum further comments that 'similar language' is also used in the context of members' right to ask questions at an AGM.
- In the event that 'members as a whole' are not afforded a reasonable opportunity to 'participate, speak or ask questions' it would be open to members to apply to the court to have meeting invalidated.
- Quorum: If passed the changes will mean that where meetings are held using technology, every participant (whether attending virtually or physically) will be taken to be ‘present’ and need to be counted for the purposes of determining whether there is a quorum.
- Voting: If passed, the changes will mean that all participants entitled to vote at a meeting must be given the option to vote at the meeting itself.
- Tabling documents : If passed, the Bill would mean that documents could be tabled at a meeting by providing the documents to the person in advance of the meeting or by 'making the documents accessible to persons attending the meeting in any way' for example by using a 'screen sharing facility'. This would only apply where 'virtual meeting technology is used to hold the meeting'.
- Minutes of meetings: It's proposed that minutes of meetings will be able to be taken, provided to members/shareholders and kept electronically.
- Meeting-related documents: Schedule 1 also proposes to allow 'any document that relates to a meeting', to be given and signed electronically provided that: a) it is reasonable to expect that 'the document would be readily accessible so as to be useable for subsequent reference at the time that the document is given'; and b) the person has not exercised their right to 'opt in' to receive the materials in hard copy or, the person has not been notified of this right. It's proposed that these changes will apply 'regardless of whether the meeting is held using electronic technology or in person'.
- Option to receive meeting related documents in hard copy: If passed, companies and responsible entities of registered schemes will be required to notify members of their right to 'opt in' to receive meeting related documents or resolutions considered without a meeting in hard copy within two months of the day of commencement of Schedule 1. Failure to provide this notice will be a strict liability offence with a penalty of 30 penalty units.
Electronic execution of company documents
- Schedule 1 proposes to enable all documents executed by a company under section 127 of the existing law (including deeds) to be executed electronically.
It's proposed that until 15 September 2021,
- Documents executed without a company seal will be able to be signed electronically with no requirement for the signatories to sign the same copy of the document (provided that the copy being signed includes the entire contents of the original document). The explanatory memorandum states that this 'does not mean that the person needs to print or sign every page of the document'.
- Documents executed with a seal will be able to be executed and witnessed electronically, with the witness able to use technology (eg videoconferencing) to observe the fixing of the seal and no requirement for the witnesses to sign the same document as the one to which the seal was affixed. That is, witnesses will be able to sign and witness documents executed with a seal by:
- observing the fixing of the seal on the document using technology (the explanatory memorandum makes clear that this is intended to include watching the affixing of the seal 'live' rather than a pre-recording);
- signing (electronically or physically) the document or a full copy of the document; and
- annotating the document with a statement confirming that they have observed the fixing of the seal using electronic means. The explanatory memorandum comments that these changes 'expand upon the relief provided by Determination No 3 and ensure that the rules relating to the execution of company documents using a common seal are not more restrictive than the rules relating to the execution of company documents without a common seal'.
- Deeds: With respect to the execution of deeds, the explanatory memorandum makes clear that the proposed changes are intended to enable companies to execute company deeds by following the process outlined in section 127 with no requirement for companies 'follow the established process for signing, sealing and delivering a deed under the common law'.
- Mandatory rules: The proposed changes relating to electronic execution and virtual meetings (apart from those relating to time and place, and to the method of voting) will apply as mandatory rules rather than replaceable rules.
Why only a temporary extension?
The explanatory memorandum makes clear that the temporary changes being put forward in the Bill are not a signal that the government has abandoned plans to permanently modernise existing requirements. The explanatory memorandum states,
'The amendments do not apply on and after 16 September 2021. This reflects the fact that they are designed to provide companies with additional flexibility during the Coronavirus pandemic. The Government is intending to make permanent the changes relating to electronic communication and to conduct an opt-in pilot for hybrid annual general meetings in which shareholders can attend meetings in person or virtually. These changes will be in place when the temporary extension sunsets'. In his second reading speech, Assistant Treasurer Michael Sukkar also touched on this point stating that,
..'the government remains committed to consulting on making permanent this temporary relief — consistent with its agenda to modernise business communications and improve the technology neutrality of legislation, which it had made a priority of its Deregulation Taskforce. …The government also proposes to conduct an opt-in pilot for hybrid annual general meetings in which shareholders can choose whether to attend meetings in person or virtually. This pilot will commence when the extension to the temporary relief ends. The aim of the pilot will be to encourage companies and shareholders to engage with technology with a view to considering whether future permanent reforms are needed to further support companies to effectively use technology to positively engage with their shareholders.'
Response to the proposed temporary extension
- The Governance Institute has issued a statement welcoming the proposed changes but has raised concerns about the fact that they will sunset in September. Governance Institute CEO Megan Motto said that …'failing to make the ability to hold virtual AGMs a permanent change is a significant missed opportunity that will perpetuate further uncertainty…Keeping these measures in a temporary state means that many organisations, eager for clarity and confidence, have been placed into an extended holding pattern.'
- Business Council of Australia CEO Jennifer Westacott also welcomed 'the continued suspension of outdated, unnecessary red tape that makes it harder to do business'.
- The Australian Shareholders' Association's (ASA) Allan Goldin expressed qualified support, describing the Bill overall as a 'mixed bag'. Mr Goldin expressed concern that companies will continue to able to hold entirely virtual AGMs until 15 September on the basis that the virtual meeting format makes it more difficult for shareholders to hold management/boards to account. However, he described the government's planned hybrid meeting pilot project as a 'good measure'. Mr Goldin said that more information is required in order to be able to form a view on allowing corporate correspondence to be sent electronically. Mr Goldin reiterated that the ASA's position is that shareholders need to have the option to request a paper copy of notices, reports and proxy forms to ensure access for those without/who do not want internet access.
Schedule 2: Permanent relaxation of continuous disclosure requirements
Broadly, if passed, the changes will mean that:
- all civil penalty proceedings brought under the continuous disclosure and misleading and/or deceptive conduct provisions, will need to establish that an entity or officer was at fault – ie that the entity or officer acted with 'knowledge, recklessness or negligence' - in order to establish a contravention.
- existing criminal offences for failing to comply with the continuous disclosure obligations set out in sections 674(2) and 675(2) of the Corporations Act will continue to apply (though they will no longer be civil penalty provisions).
- ASIC will also retain the ability to issue infringement notices and administrative penalties without the need to establish 'fault'.
The proposed reforms implement the government's response to recommendation 29 in the Parliamentary Joint Committee's report - Litigation funding and the regulation of the class action industry- which recommended that the government permanently legislate changes to continuous disclosure laws in the Corporations (Coronavirus Economic Response) Determination (No. 2) 2020 (and subsequently extended by Determination No 4) (summary here).
Rationale for the proposed relaxation of requirements
Announcing the introduction of the Bill, Treasurer Josh Frydenberg reiterated that the changes will serve to insulate companies and their officers from 'opportunistic' class actions and help to facilitate the flow of material information to the market. Mr Frydenberg observed that since the introduction of the fault element in May there has been increase in the number of material announcements to the market, relative to the same period last year.
On this basis, Mr Frydenberg said that the government considers that,
'These changes strike the right balance between ensuring shareholders and the market are appropriately informed while also allowing companies to more confidently make forecasts of future earnings or provide guidance updates without facing the undue risk of class actions'.
In his second reading speech, Assistant Treasurer Michael Sukkar emphasised that the changes are part of the government's broader deregulation agenda.
'The government is always seeking to remove regulatory barriers and spur economic growth. Businesses should be able to pursue commercial growth without being impeded by legal actions that undermine their capacity to focus on their core operations'.
Response to the proposed changes to continuous disclosure laws
Business groups have welcomed the proposed approach, the ASA remains strongly opposed.
- Australian Institute of Company Directors (AICD) Managing Director and CEO, Angus Armour, said,
'The AICD welcomes the Treasurer’s announcement today which comes when encouraging investment and risk-taking is crucial to Australia’s economic future. Australia’s securities class action settings have been out of step with the rest of the world, making us a lucrative market for litigation funders and driving adverse consequences for businesses, shareholders and the economy generally. The amendments announced today will discourage opportunistic securities class actions which were being driven by funders’ returns rather than the interests of claimants. These changes do not "water down" disclosure requirements. The reckless or negligent director, and the individual who knew that disclosing information would affect the share price and said nothing, is still on the hook as they should be. The quality of disclosures has not decreased as a result of the Treasurer’s temporary relief and this permanent measure will put us on equal footing with other nations'.
- BCA CEO Jennifer Westacott said,
'These are sensible changes that will let company directors focus on our biggest challenge, creating the jobs we need to fuel our economic recovery…The threat of opportunistic class actions would have hampered business confidence at a time when business needs certainty to invest, expand and create new jobs'.
- The ASA's Allan Goldwin expressed concern that the proposed changes will undermine the intent of continuous disclosure obligations. Mr Goldin said,
'Now the pressure is taken off. Directors, they no longer need to ensure "Continuous Disclosure" is enforced. As ASIC says “the continuous disclosure regime is a fundamental tenet of our markets”, this must not be watered down. So the new instruction to management from Boards could be, if you want to keep some information to yourself or exaggerate a bit just make sure you don’t tell me so no one can sue me'.