The Australian Government has passed changes to the Corporations Act 2001 (Cth) (Corporations Act) allowing companies the flexibility to sign documents electronically and conduct virtual company meetings.
In our view, the amendments are a long-awaited and much-needed practical reform to modernise the Corporations Act and align the legislation with contemporary business practices.
Initial measures were introduced by way of a Covid-19 emergency legislative instrument issued under the Corporations Act. The instrument expired in , before new legislation could be passed, leaving a gap where the law reverted to the original Corporations Act provisions.
Temporary changes were introduced under the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 (Cth) (2021 Measures Act), which received royal assent on after passing both houses of Parliament. The temporary amendments commenced on and continued in effect until , when the 2021 Measures Act expired.
On , the Corporations Amendment (Meetings and Documents) Act 2022 (Cth) (Amendment Act) received royal assent. Commencement of these amendments is set for . These amendments permanently supersede the previous temporary amendments and will be permanent, subject to any further review of the legislation.
The operation of the Amending Act is subject to formal review after , with reports to be tabled to Parliament not later than .
Execution of Documents
The amendments include changes to section 127 of the Corporations Act, which governs execution of documents, agreements and deeds by a company.
The Fundamentals are Unchanged
It is important to note the legislation does not change the fundamental principles around the signatories for execution of a document by a company.
To recap, the principles provided by section 127 are:
- Where there are 2 or more directors - the document may be signed by 2 directors, or 1 director and 1 company secretary;
- Where there is 1 director and 1 company secretary - the document may be signed by that director and the secretary;
- Where there is only 1 director (and no company secretary) - the document may be signed by the director.
The above principles do not set a strict requirement, but rather provide for an acceptable method of execution. Other methods of signing by a company may still be valid and legally binding on a company. However, conformance with the section 127 provisions allows statutory assumptions to be made as to the validity of the document's execution (see section 129).
Prior to the amendments, there was no express provision in the Corporations Act to allow companies to execute documents electronically.
Instead, companies had to rely upon the Commonwealth and State and Territory Electronic Transactions Act (ETA) legislation to sign transactional documents, deeds and agreements. Usually this required the consent of all parties to a transaction.
There has also been conjecture about the validity of electronic signatures or counterpart execution of some types of documents, especially documents executed as a deed.
The temporary amendments inserted sub-sections 127(3A), (3B) and (3C), which respectively provided:
- documents may be signed by separate physical counterparts, so long as each counterpart includes the entire contents of the document. For Example: Where the document is required to be signed by 2 directors, each director may sign a separate physical copy of it.
- documents may be signed using an electronic method, such as a digital signature - so long as the electronic method is "as reliable" as a traditional method, the electronic version contains the entire contents of the document, and the method enables the signatory to be identified.
- it is not necessary for each counterpart or electronic copy to bear the signatures of all signatories to the document, or the common seal of the company (if any).
The permanent amendments under the Amendment Act insert a new Part 1.2AA into the Corporations Act. The new Part allows for "Technology Neutral Signing" of documents and applies to:
- documents (including deeds) signed on behalf of a company under sections 126 or 127;
- documents (including deeds) made in connection with company members' meetings, such as minutes and resolutions;
- other documents prescribed under regulations.
The "Technology Neutral Signing" provisions allow documents to be signed in the following ways:
- in physical form - by hand, using traditional "wet-ink" signatures;
- in electronic form using an electronic signature; or
- using a combination of both of the above methods.
However, the method used to sign the relevant document must:
- sufficiently identify the signatory and that person's intention with respect to the document; and
- be "as reliable as appropriate for the purpose".
It is not a requirement that each party signing the document do so in the same form, or using the same method. In other words, if one signatory signs using a traditional signature, and the other party signs electronically, this does not in itself mean the document is not validly signed.
The Amendment Act also clarifies that a person may sign a document once in multiple capacities. For example: a single signature is sufficient where an individual signs in both their capacity as director and company secretary, and this is noted on the document.
Virtual Company Meetings & Electronic Communications
The Corporations Act did not provide a explicit option for conducting meetings via technological means (such as via videoconference, virtual meeting or streaming technology). This omission also extended to serving statutory notices of meetings and accompanying documents on the members or directors of the company.
It was up to the company's constitution to make specific allowances for the use of digital and online technologies when conducting meetings. Indeed, the constitutions of many modern companies may well contain such provisions.
The 2021 Measures Act introduced a range of changes to facilitate virtual meetings of a company's members or directors (including board committees). These provisions include:
- express provisions allowing for meetings to be held via virtual technologies, or in multiple locations [s 249R], provided that each participant in a meeting is reasonably able to participate in the meeting (such as by speaking or voting) [s 253Q];
- provisions to allow the company to serve a notice of meeting (and accompanying documents) electronically - unless the recipient has opted-out [ss 253R – 253RD];
- provisions to allow minute books and records to be kept in electronic format [s 253S];
- technical provisions to determine the "location" of the meeting if held in multiple locations or virtually [s 253QA];
Permanent Amendments - Members' Meetings
The Amendment Act introduces similar provisions relating to the conduct of company meetings.
These include that meetings of members may be held physically, virtually or by a combination of both methods, so long as each member has a reasonable opportunity to participate in the meeting.
"Reasonable opportunity to participate" has been extended to include that:
- the meeting is held at a reasonable time (at least at the main physical venue);
- the main physical venue selected for physical meetings is a reasonable venue for the meeting; and
- where technology is used - the use of that technology is reasonable and allows eligible members the ability to vote, ask questions and make comments both orally and in writing.
Permanent Amendments - Distribution of Documents
The permanent amendments introduced under the Amendment Act also address the distribution of notices and documents by a company to its stakeholders.
- documents relating to a meeting of members of a company;
- documents relating to a proposed resolution for consideration without a meeting;
- annual financial reports (made under section 314);
- notices of members' rights (made under section 110K); or
- other documents prescribed by regulations.
A covered document may be sent by the company:
- in physical form (eg via traditional hand delivery, courier or post);
- sending a link or information to allow the recipient to access the document electronically (this information can be sent physically or electronically);
- sending the document by electronic communication (including by email or fax);
- making the document "readily available" in electronic form on a website - where the document is a section 314 Financial Report or other document prescribed by regulations.
Note that the above list is not prescriptive - a company may send documents via other means if appropriate.
Members of a company may elect to receive documents either electronically or physically by notifying the relevant company of their choice. A member may also elect to opt out of receiving certain documents altogether (applies to section 317 Reports and other documents prescribed under regulations). A company's failure to follow the member's instructions may constitute an offence under the Corporations Act.
Practical Steps for Companies
It is important to note that the amended provisions only apply to documents signed, or meetings held, after the commencement date of the amending legislation. Documents and meetings prior to the commencement date will likely be subject to the previous legislative provisions. Care should be taken in these instances to ensure that documents and meetings are valid.
It is suggested that companies review their current policies and procedures to ensure they comply with the new legislation once it commences.
This may include review and amendment of relevant provisions of their Company Constitution or Memorandum & Articles of Association to bring them into line with the legislation.
Companies may also need to review applicable State and Territory legislation, noting that some provisions of State and Territory legislation may be overrruled by the new Commonwealth amendments.
Cover Photo Credit: Kelly Sikkema via Unsplash.