By Mark Armstrong, Solicitor and Heidi Bruce, Principal
15 March 2022
After the initial outbreak of the COVID-19 pandemic, an enormous sector of the working population ditched their desks to work from home and it became clear that signing documents and holding meetings physically was simply not an option. The last two years have proved that the impact of COVID has pervaded the legal system and our working lives, and where certain laws became unworkable, various sections of government have necessarily introduced or updated legislation to keep up with modern challenges in contemporary society. While the pandemic dramatically changed the lives of people around the world, it is likely that we have it to thank for recent reform to the Corporations Act. The incoming Corporations Amendment (Meetings and Documents) Bill 2021 (the “Bill”) amends the Corporations Act 2001 (Cth) (the “Act”) and means that finally, documents signed and witnessed electronically, company meetings required to be held virtually and documents sent electronically are valid under the Corporations Act. The Bill also introduces additional changes that make executing contracts easier, including allowing for a contract to consist of counterpart documents and allowing documents to be executed by an authorised agent. Further details of the changes are below.
Before COVID hit, there were uncertainties and differences in application for executing company documents (including the witnessing of signatures) and company meetings. In May 2020, we released an article outlining changes to NSW laws that temporarily allowed for the witnessing and attestation of documents via audio-visual link – these changes have now been incorporated permanently into Part 2B of the Electronic Transactions Act 2000 (NSW). As further reform to Commonwealth legislation was introduced, we also released another article in September 2021 detailing amendments introduced by the Treasury Laws Amendment (2021 Measures No.1) Act 2021 (Cth) (the “Treasury Amendment”), which provided temporary relief for Australian corporations by allowing companies to execute documents electronically and to hold meetings via any means of technology that allowed attendees a reasonable opportunity to participate without being physically present in the same place. The changes in the Treasury Amendment are due to expire on 1 April 2022, however, all sections of the new Bill will commence by this date, which effectively incorporates the Treasury Amendment changes into the Act with some additional updates.
What are the updates?
The introduction of the Bill to amend the Act means the following now applies:
Signing and Executing Documents (Schedule 1 of the Bill)
- Technology neutral signing
The Bill introduces a new Division 1, Part 1.2.AA of the Act and applies to documents (including deeds) signed by or on behalf of a company under section 126 or 127 of the Act and documents related to meetings. The new section 110A states that a person may sign a document to which the Division applies either by hand or by signing an electronic form of the document using electronic means, provided that the method of signing:
- identifies the person and indicates the person’s intention in respect of the information recorded in the document; and
- the method was either:
- as reliable as appropriate for the purpose for which the information was recorded, in light of all the circumstances, including any relevant agreement; or
- proven in fact to have been appropriate by itself or together with further evidence.
- Counterpart signatures
Division 1 of Part 1.2.AA of the Act has been purposely drafted in a manner that allows for document execution via any appropriate technology in any number of counterparts.
Section 110A(4) expressly states that it is not a requirement that all signatories sign in the same form or page of the document, nor that all signatories sign in the same method. An explanatory note states, “For example, a company may execute a document by one director signing a physical form of the document by hand, and another director signing an electronic form of the document by electronic means.”
Additionally, the previous wording in section 127(3B)(b) of the Act, which stated that a document is taken to have been signed by a person if the copy or counterpart includes the entire contents of the document, has been removed by the Bill. This update is significant because under the Treasury Amendment, signatories were still required to sign the entire contents of a document (meaning that each counterpart was required to have the same contents as the original document), whereas now, signing the relevant signature section will be sufficient and may be done in various forms and technologies, provided that it is it is easily identifiable which document the signature section relates to.
Additionally, if a person signs in more than one capacity (for example, as a director and secretary of the same company), they can sign a document in some or all capacities by only signing it once, rather than multiple times.
- Making contracts and executing documents (including deeds) by an agent
Updates to section 126 of the Act now allow an individual expressly or implicitly authorised by a company to make, vary, ratify or discharge a contract, or execute a document (including a deed) on the company’s behalf, without the requirement of a common seal.
Further, deeds can be executed by an authorised representative without that execution being witnessed, including where the deed is in electronic form.
- Witnessing of signatures and company seal fixing
Updates to section 127 of the Act mean that companies may now execute a document as a deed without that execution being witnessed, and regardless of whether a physical or electronic form of the document was signed.
For companies with a common seal, the fixing of the seal is taken to be witnessed by a person if:
- The witness observes the fixing of the seal, including by electronic means;
- The witness signs the document; and
- A method is used to indicate that the person observed the fixing of the seal to the document.
- Sole directors executing documents
Sole directors of a company with no company secretary can now use the statutory document execution mechanisms under section 127, whereas previously, if a sole-director company had no company secretary, these mechanisms were not expressly recognised.
Meetings and Sending Documents (Schedule 2 of the Bill)
- Technology neutral sending of documents
The new changes allow for the sending of certain documents in a physical form or in various electronic forms, provided that the recipient can readily access the electronic form of the document so as to be usable for future reference. This includes sending the document electronically, or sending the recipient information (in physical or electronic form) to allow for access of the document electronically. Examples include providing a physical or electronic notice of where documents can be accessed including, where the document is an annual report or specified in regulations, posting the notice on a website.
Documents able to be sent electronically include:
- Documents sent by a company or responsible entity of a registered scheme that relate to meetings;
- Documents sent by a company relating to a resolution to be considered by company members without a meeting;
- Annual financial reports;
- Notices relating to members’ rights; or
- Classes of documents specified in regulations.
- Member’s election of receiving documents
Members can now elect to receive documents (as noted in 6 above or documents in a particular format on an ad hoc basis) in physical or electronic form. Members can also elect to not receive certain documents (annual financial reports or regulation-prescribed documents) at all. Failure by a sender to comply with the member’s election is a strict liability offence with a maximum penalty of 30 penalty units.
- Use of technology to hold meetings
Directors’ meetings can now be called or held using any technology consented to by all directors. Additionally, a company can hold a members’ meeting:
- At one or more physical venues;
- At one or more physical venues and using virtual meeting technology; or
- using virtual meeting technology only if this is required or permitted by the company’s constitution expressly – the virtual meeting technology must allow all members a reasonable opportunity to participate, including to ask questions and make comments orally and in writing.
Wholly virtual meetings will be held to take place at the company’s registered office, whereas physical or hybrid meetings will be held to take place at the main physical venue.
- Other notable changes to meetings
Members of a company or registered scheme with at least 5% voting power may request the company appoint an independent person to observe and prepare a report on the conduct of the poll at the meeting, or to scrutinise and prepare a report on the poll’s outcome.
Certain resolutions of a listed company or listed registered scheme must be decided by a poll, rather than a show of hands, including if:
- the notice of the meeting set out an intention to propose the resolution and stated the resolution;
- the company has given notice of the resolution in accordance with section 249O (members’ resolutions); or
- a poll is demanded.
Amendments relating to the signing of documents (Schedule 1) have already commenced on 23 February 2022.
Amendments relating to meetings and the sending of documents (Schedule 2) will commence on 1 April 2022.
Where to from here?
In addition to all of the changes introduced by the Bill, additional changes are likely to be introduced, as the Federal Government passed the Treasury Laws Amendment (Modernising Business Communications) Bill 2022 in mid-February, which permits all Corporations Act documents to be signed electronically and additional Corporations Act documents to be sent electronically. Further, the changes introduced by the Bill will be reviewed and reported on within two years after the changes in Schedule 1 commenced (i.e. before February 2024), so these changes may require further tweaking after this initial two year period.
What does it all mean?
Finally, meetings facilitated via technology where required and electronic signatures and witnessing will be valid under the Corporations Act, signifying a pragmatic and necessary response from the government to overcome hurdles created by the pandemic. Providing corporations greater discretion and streamlining how documents are executed and how meetings are held, allows for greater flexibility and for more straightforward decision making and contract processes. These permanent changes highlight the importance of reform to keep up with changes and challenges presented by a world so heavily reliant on ever-changing technology.
If you would like further information on the above and how it impacts on your business or that of your clients, please contact one of our experts below.