The Government’s Treasury Laws Amendment Bill (2021 Measures No.1), which proposed extending the COVID-19 relief to hold virtual AGMs, and in Schedule 2 introduce a fault element in respect to director liability for continuous disclosure requirements, did not pass the Senate last week.
While there was bipartisan support in Parliament for a six month extension of virtual AGMs and electronic signatures relief, concerns continue to surround the Government’s proposal to make permanent the Treasurer’s COVID-19 relief in relation to continuous disclosure requirements.Refer to AICD’s earlier article for further details on the bill’s proposed amendments to the continuous disclosure requirements here.
The Government will likely seek the bill’s passage when Parliament resumes in May. In the meantime, we outline what directors need to know about the various COVID-19 relief measures expiring this month.
To help organisations navigate the ongoing uncertainty around holding AGMs and executing electronic documents in the current environment, the AICD has issued joint guidance with the Governance Institute of Australia, Australasian Investor Relations Association and the Law Council of Australia.
You can access a copy of this guidance, Update on AGMs, electronic document execution and digital shareholder communications, here.
The bill proposed extending the expiry date of the temporary relief allowing companies to hold virtual meetings, such as annual general meetings (AGM), as well as distribute related meeting materials electronically from 21 March 2021 to 15 September 2021. This was particularly welcomed by those 31 December financial year close entities that are currently planning their AGMs.
However, in the absence of the bill’s passage last week, the Treasurer’s COVID-19 relief has now since expired as of 21 March 2021. Critically, this means that general meetings will need to be conducted consistent with pre-COVID-19 laws which require:
- a physical in-person meeting to be held (or a hybrid AGM using technology to connect people at one or more locations, where permitted by a company’s constitution); and
- notices of meetings to be hard-copy mailed unless shareholders have opted in to receive electronic communications in accordance with section 249J(3A) of the Corporations Act.
ASIC’s ‘no action’ position
In welcome news, ASIC has adopted a ‘no action’ position in relation to the convening and holding of virtual AGMs.
For companies with a financial year end from 7 January 2021 to 7 July 2021, the ‘no action’ position:
- supports the holding of meetings using appropriate technology;
- facilitates electronic notice of meetings including supplementary notice;
- allows additional time for the lodgement and distribution to members of financial reports, directors’ reports and audit reports for listed and unlisted entities prior to the AG; and
- allows public companies an additional two months (up to seven months after year end) to hold their AGMs.
See ASIC’s guidelines on virtual AGMs and its ‘no action’ position here. For more information on ASIC’s extended deadlines for financial reports and AGMs, see here.
Importantly, a ‘no action’ position will not necessarily remove the risk of legal action from third parties, but it is nonetheless a pragmatic solution that ASIC can facilitate without legislative amendment in the current environment.
What does this mean for NFPs and charities?
The proposed changes to the Corporations Act to enable virtual AGMs in the Government’s bill applies to public companies, including companies limited by guarantee. This will also capture NFPs structured as companies limited by guarantee. For the time being, organisations in this category will be best placed to revert to the pre-COVID-19 approach of holding in-person meetings (or a hybrid AGM, where permitted by the constitution or articles of association).
However, registered charities that are companies limited by guarantee are not required to comply with the requirement to hold AGMs under the Corporations Act. Instead, they must comply with ACNC Governance Standards, which require charities to be accountable to members. Charities may still however choose to convene meetings of members to assist in complying with the ACNC Governance Standards. The charities rules or constitution may also mandate an in-person meeting.
Incorporated associations (a common NFP structure) will need to refer to requirements set out in each State and Territory.
Refer to this AICD tool further guidance for NFPs on virtual member meetings.
The Government’s bill also proposed making permanent the relief to enable electronic signatures for the purposes of signing documents under section 127 of the Corporations Act 2001 (Cth) (Corporations Act), as well as directors’ meetings and general members’ minutes. With the Treasurer’s temporary relief having now lapsed as of 21 March 2021, the signing requirements under the Corporations Act have reverted to the status quo pre-COVID-19.
It should be noted that electronic signatures have been recognised in Australian law under the Electronic Transactions Act 1999 (Cth) (and similar state and territory legislation) provided certain requirements are met. However, these provisions do not currently apply to the Corporations Act and, legal practitioners have differing perspectives concerning the use of wet ink versus electronic signatures.
For the time being, in the absence of express statutory authority to sign documents electronically, a prudent approach for directors would be to meet the signing requirements under the Corporations Act on the following basis:
- Section 127 documents – use a ‘modified split execution’ method involving officers of a company wet-ink signing the same document. For example, a document is wet-ink signed by one director, then scanned to the other director or the secretary to print out the document (incorporating the first signature) to also be wet-ink signed.
- Meeting minutes – wet-ink sign the minutes to be kept in accordance with section 251A of the Corporations Act (noting an electronic copy of the meeting minutes are permitted to be kept under section 1306 of the Corporations Act provided they are able to be reproduced at any time in written form). See the AICD Director Tool on Board Minutes for further guidance.
Continuous disclosure reforms and extension to misleading and deceptive conduct provisions
The Treasurer’s temporary COVID-19 amendments to the Corporations Act to provide that companies and officers will only be liable for continuous disclosure breaches if there has been ‘”knowledge, recklessness or negligence” with respect to updates on price sensitive information to the market expires on 23 March 2021.
The Government’s bill, if passed last week, would have made permanent these temporary changes to the Corporations Act with the important exception that it is intended to extend to potential liability for misleading and deceptive conduct (which was originally omitted from the Treasurer’s COVID-19 relief). In other words, a plaintiff would need to prove fault where misleading or deceptive disclosure is alleged (ensuring alignment with the approach taken to the continuous disclosure provisions).
Backlash to the Government’s proposed amendments to these provisions in the bill has been swift, and there has been a degree of misinformation in the commentary that these changes if legislated would represent a ‘watering down’ of Australia’s disclosure laws. The AICD is of the view that the objective of the changes is sound, and should not undermine shareholder rights. In important respects, they bring Australia more into line with overseas jurisdictions that already incorporate an element of fault or culpability into their disclosure rules (for further discussion, see here).
Critically, continuous disclosure requirements have reverted to the pre-COVID-19 position where director and officer liability is assessed according an objective standard (essentially a lower fault threshold), where a reasonable person would expect the relevant information to have a material effect on the price or value of the entity’s securities.
Directors should be mindful of this lower bar and increased risk of class actions when making forward-looking statements, particularly where they are still attempting to understand the impact of COVID-19 or if it is unclear whether certain information has already been factored into the value of their securities.
The AICD will continue to engage with Government and crossbench offices in relation to these important reforms, and will keep members updated as the bill comes before Senate again in May.