Federal Government temporarily permits virtual shareholder meetings

Following on from our alert where ASIC released guidance on upcoming AGMs and financial reporting requirements, the Federal Government has this week made changes to the Corporations Act 2001 (Cth) (Corporations Act) to provide greater certainty to companies and boards in meeting their legal obligations during the COVID-19 pandemic. 

The Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (Instrument) modifies the Corporations Act so that: 

• company boards can provide notice of annual general meetings and other meetings prescribed by the Corporations Act via email and conduct meetings entirely online; and
• company officers can sign documents electronically and in counterpart. 

General meetings 

For a period of six months from 6 May 2020, companies will be legally permitted to hold virtual meetings of shareholders (including annual general meetings). 

Specifically, the Instrument enables: 

• a meeting may be held using one or more technologies that give all persons entitled to attend a reasonable opportunity to participate. There was previously some doubt as to whether virtual meetings were permitted under the Corporations Act due to the requirement to hold the meeting at a particular ‘place’;
• a quorum is determined by all persons so participating in the meeting being taken to be present; 
• a vote must be taken on a poll and not a show of hands, using one or more technologies to allow each person entitled to vote the opportunity to participate in the vote in real time. Where practical, each person should record their vote in advance of the meeting; 
• there is a requirement to allow the opportunity for persons attending the meeting to speak and ask questions, which may be complied with by using one or more technologies; 
• a proxy may be appointed by using one or more technologies specified in the notice of meeting (NOM); and
• a NOM may be given using one or more technologies, for example, by email to members and also by post with a URL for the notice and other material. 

The Instrument provides conditions to which a virtual meeting is subject to, including:

• the NOM must include information about how those entitled to vote can participate in the meeting, including how they can participate in a vote taken at the meeting and to speak at the meeting (if entitled to); 
• if the NOM has been given prior to 6 May 2020, a fresh NOM can be given to set out how those entitled to vote can participate in the meeting, including how they can participate in a vote taken at the meeting and to speak at the meeting (if entitled to); and 
• if a person is validly appointed under a proxy to attend a virtual meeting, the chairman of the meeting must treat this person in the same way if the person had attended a physical meeting. 

The modifications under the Instrument apply to the operation of each provision of the Corporations Act that:

• requires or permits a meeting to be held, or regulates giving notice of a meeting or the conduct of a meeting; or 
• gives effect to, or provides a means of enforcing, a provision in the constitution of a company that requires, or permits a meeting to be held, or regulates giving notice of a meeting or the conduct of a meeting. 

While the Instrument seeks to modify the operation of a company’s constitution (which is reflected in the Explanatory Statement to the Instrument), each company should still carefully check the provisions of their constitution for any specific requirements around the holding of general meetings. 

The Instrument contains a provision whereby it is repealed in six months’ time. There are calls to allow the provision of virtual meetings in line with current technologies indefinitely, but only time will tell whether the Federal Government will enact such provisions permanently. There would be obvious logistical benefits to continued use of virtual meetings, however there is a school of thought that the end of face to face meetings may compromise the ability of shareholders to question boards in a meaningful way.

It is recommended that entities consult with their share registry to ensure the virtual general meeting runs smoothly and with the appropriate technologies in place. It is critical that the technology used is secure and should be considered prior to calling a virtual meeting. 

Execution of documents 

The Instrument also modifies the Corporations Act to allow company officers to sign documents electronically. Previously, it was considered best practice for company officers to sign the same physical document in order for the document to be validly executed by the company under s 127 of the Corporations Act. This is because s 127 refers to “the document” and did not contemplate signing of counterparts. 

The Instrument modifies s 127 of the Corporations Act by providing that a company may execute a document in the following manner: 

1. each company officer may sign a copy or counterpart of the document that is in physical form; or 
2. in relation to an electronic communication: 

• a method is used to identify the company officer in the electronic communication and to indicate the officer’s intention in respect of the contents of the document; and 
• the method is reliable and appropriate for the purpose for which the company is executing the document – having regard to the circumstances including any relevant agreement. 

The copy, counterpart or electronic communication must include the entire contents of the document but does not need to include the signature of another person signing the document. 

The Explanatory Memorandum to the Instrument cites the following examples as means by which officers of a company might sign a document electronically: 

• pasting a copy of a signature onto a document; 
• signing a PDF on a tablet, smartphone or laptop using a stylus or finger; and
• cloud-based signature platforms like Docusign. 

A person will be entitled to assume that the document has been validly executed in accordance with s 127 of the Corporations Act where it is executed in accordance with the Instrument. 

The Federal Government notes that the Instrument will ensure that documents are able to be properly executed at a time when ordinary business operations have been disrupted. 

Key takeaways 

• A number of publicly listed companies with large shareholder bases have successfully held virtual shareholder meetings in recent times. The Instrument and likely widespread adoption of virtual AGMs later this year could potentially lead to a more permanent re-think on virtual meetings.
• While the Instrument seeks to modify certain provisions of the Corporations Act and a company’s constitution to facilitate virtual meetings, each company should still review its constitution to check for any specific requirements relating to the holding of general meetings. 
• Virtual meetings must give shareholders a reasonable opportunity to participate. Companies will need to adopt appropriate technology to ensure real-time participation and voting, which should include appropriate protocols around shareholder access and verification. 
• Company officers signing a document in counterpart (including by electronic means) will constitute valid execution by the company. 
• These provisions will be repealed on 6 November 2020, unless further changes are announced by the Federal Government. 

If you would like further advice on the matters discussed in this article, please contact our Corporate team.