An overview and discussion of proposed reforms and the current situation.
- Despite ongoing COVID-19 restrictions, including the introduction of hard lockdowns, there is currently no permanent or temporary legislative relief in place to enable electronic execution of documents/convening of meetings: pre-Covid requirements under the Corporations Act 2001 (Cth) continue to apply.
Some entities may be opting to rely on ASIC's temporary no-action position on electronic meetings in the immediate term.
Despite broad support for modernising existing Corporations Act 2001 (Cth) requirements around execution of documents and convening of meetings, and despite the ongoing uncertainty arising from COVID-19 restrictions, legislating change even on a temporary basis, has proven not to be a straightforward process. A brief overview of the developments to date is below.
Developments to date
Expiration of temporary relief in March
Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 (Determination No. 3) which operated to temporarily remove legal uncertainty around the validity of virtual meetings and to enable electronic execution of documents by company officers under section 127 of the Corporations Act 2001 (Cth) expired on 21 March 2021. You can find a short summary of the measures in the original determination (which were subsequently extended) here.
In consequence, pre-COVID requirements now apply. That is, the temporary changes to requirements in the Corporations Act 2001 (Cth) and regulations have reverted to their pre-COVID form.
ASIC's temporary no-action position
In light of the ongoing uncertainty around COVID-19 restrictions, and following the expiry of Determination No. 3, the Australian Securities and Investments Commission (ASIC) has adopted a temporary ‘no-action’ position on non-compliance with requirements around holding/convening electronic meetings (summarised here).
Importantly, the 'no action' position is a 'statement of regulatory intention'. As such, it does not preclude either:
- third parties (eg the Office of the Director of Public Prosecutions) from taking action in relation to the conduct covered by the no-action position
- a Court from holding that particular conduct infringes the relevant legislation.
Further, though the position may remain in place until 31 October 2021, it may be withdrawn earlier should Parliament pass relevant measures.
The position also does not cover electronic execution of documents.
As such, though ASIC has said the position provides business with 'certainty in the current environment', this is somewhat limited.
A Bill to temporarily extend relief
A government Bill - Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 (TLA 1 Bill) (our summary here) – which would have temporarily extended and expanded on the changes in Determination No. 3 to 15 September 2021 passed the House on 17 March 2021, but has so far failed to pass the Senate.
Parliament has now risen and the Senate is not due to sit again until 3 August 2021.
Passage of the TLA 1 Bill in its current form may be in doubt?
However, in a report released on 30 June 2021, the Committee recommended that only Schedule 1 (which relates to electronic meetings and electronic execution) be passed subject to two amendments. These are: 1) that the date at which the relief will sunset be pushed out to 'at least six months from the Bill's date of Royal Assent'; and 2) that the government finalise the drafting of permanent provisions within six months of the date of Royal Assent of the TLA 1 Bill.
The Committee further recommended that the proposed permanent relaxation of continuous disclosure requirements in Schedule 2 not be passed.
However, the Committee was not unanimous in this view. Dissenting coalition senators recommended that the Bill be passed unamended.
Consultation on another separate Bill – this time proposing to make the changes permanent
On 25 June 2021, the government released exposure draft legislation for consultation – [exposure draft] Treasury Laws Amendment (Measures for Consultation) Bill 2021: Use of technology for meetings and related amendments – proposing to permanently enable electronic execution of company documents, distribution of meeting-related materials and use of technology in meetings (summary here).
A point to note is that the draft Bill proposes to permanently enable companies to elect to hold meetings in hybrid form, but will only allow them the option to hold wholly virtual meetings where this is 'expressly permitted or required' in their constitutions. This means that if legislated, companies who wish to have the option to hold virtual meetings will need to amend their constitutions.
Importantly, the draft Bill assumes the passage of Schedule 1 of the TLA 1 Bill in its current form ie it assumes that temporary measures to enable companies and registered schemes to hold virtual or hybrid meetings and to electronically sign documents until 15 September 2021 will be legislated.
If passed, the proposed changes in Schedule 1 of the draft Bill would not alter this position – ie companies would continue to be able to hold wholly virtual meetings until the sunset date in TLA 1 Bill.
It's proposed that the measures concerning hybrid meetings and use of technology to facilitate meetings in the draft Bill (if passed), would then apply permanently from 15 September 2021.
Longer term outlook for reform?
The two Senate Committee reports on TLA 1 Bill found there is broad stakeholder support for the measures included in Schedule 1 (which relate to electronic meetings and electronic execution) at least on a temporary basis, as well as the necessary political support from opposition parties.
However, the proposed changes in Schedule 2 (relating to the permanent relaxation of continuous disclosure requirements) remain controversial and the second of the Committee's reports expressly recommends that the measures should not be legislated.
It remains to be seen whether the government will bow to pressure to split the TLA 1 Bill to enable passage of the less controversial reforms in Schedule 1 and if so, whether temporary relief will be extended as recommended by the Committee.
The eventual form of the draft Bill proposing to enact permanent change will necessarily be impacted by this.
The government has indicated its intention to take steps to progress reform when parliament resumes, signalling that should the TLA 1 Bill fail to pass, 'work' is 'being undertaken to ensure that these amendments can be progressed in the Spring sitting period'.
Where does this leave us?
For now at least pre-COVID requirements now apply, though some entities may be opting to rely on ASIC's temporary no-action position on electronic meetings in the immediate term.