Temporary changes for companies during COVID-19
Changes to meetings and document execution
The Federal Government has temporarily modified the Corporations Act 2001 (C’th) (‘Corporations Act‘) to facilitate companies to execute documents electronically and to hold virtual meetings.
On 5 May 2020 the Federal Treasurer issued a Determination which changes the way companies can hold meetings and execute documents during the COVID-19 pandemic.
The Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (‘Determination‘) modifies requirements for physical attendance at meetings and amends section 127 of the Corporations Act by allowing companies in particular circumstances to execute documents electronically (that is, by applying the relevant officeholders’ electronic signatures to the document).
Now that we are subject to social distancing measures, this Determination addresses the issues arising about whether two company officers need to ‘wet-sign’ a paper document for it to be valid under the Corporations Act, or for company officers to be present in the same room to have a meeting.
Electronic execution of documents
The Determination provides that a company may execute a document without a common seal if each person required to sign the document on behalf of the company either:
- signs a copy or counterpart of the document in physical form; or
- uses electronic communication which reliably identifies the person and indicates the person’s intention about the contents of the document.
Means by which officers of a company might sign a document electronically include:
- pasting a copy of a signature into a document;
- signing a PDF on a tablet, smartphone or laptop using a stylus or finger;
- cloud-based signature platforms like DocuSign.
The modification means that signatories do not need to sign the same physical document. Instead, a document could be signed and scanned by the first signatory and then printed and signed by the second signatory – or separate electronic signatures could be applied to fully electronic versions of the document.
If these elements are satisfied, then an electronic signature applied under section 127 of the Corporations Act will be effective to execute a document.
Does this also apply to execution of deeds?
The electronic execution of deeds should be approached with great caution. The current practice is for a deed to be signed with a wet-ink signature on paper. The Determination does not specifically exclude deeds from electronic execution; however, it doesn’t explicitly include them either.
Where possible, we recommend that the current practice for dealing with deeds should remain. If the situation makes it necessary for a deed to be electronically executed, extra care should be taken to ensure that all the formalities of the Determination are satisfied. A typed or pasted image of a signature to a document and subsequently printing the whole document may be enough to satisfy the paper rule for deeds.
Change to meeting requirements
Under the Determination, companies may do away with the requirement to hold face to face meetings and hold the meeting entirely through electronic means.
The social distancing requirements brought about by COVID-19 have made it challenging to hold meetings that require physical attendance or to obtain wet-ink signatures on physical documents.
A company seeking to hold a meeting electronically must, when giving notice of the meeting to participants, give notice of information that outlines how people who are entitled to attend and participate at the meeting can do so.
The Determination also enables the following to be facilitated electronically:
- voting – votes must be taken on a poll and participants should have the option to cast a vote in real time during the meeting (in the same way that they would if they attended in person), as well as prior to the meeting (e.g. by proxy);
- notices – instead of notices being sent by post, a notice can be sent using technology, such as via email;
- quorum – all shareholders participating in a meeting virtually will be taken to be present at the meeting;
- asking questions – shareholders must still be able to put questions to the board and the company should ensure its virtual meeting enables appropriate Q&A processes;
- appointing proxies – a proxy may be appointed electronically
The Determination lasts for 6 months
The Determination came into force to deal with the COVID-19 pandemic situation and although for companies to conduct business, you must be mindful that its provisions will expire.
The Determination is expressed to be repealed 6 months from the date after it was made – so is currently set to expire on 5 November 2020.
Please note that this article has been prepared by Bell Legal Group, for information purposes only. It is not legal advice nor should it be relied upon as such.
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