In April 2020 UN Deputy-Secretary-General Amina J. Mohammed said, ‘we are facing a human crisis unlike any we have experienced’ and our ‘social fabric and cohesion is under stress’. Necessity is the mother of invention, and crises often lead to innovation and productivity gains. The Australian legal industry is benefitting from these gains and will continue to benefit long after COVID-19 recedes.
COVID-19 has impacted businesses throughout the Australian economy and has imposed a need for greater flexibility on almost all of them. In the law, particularly in hardest-hit Victoria, the practice changes have been dramatic – with almost the entire profession working from home, and remarkably maintaining full productivity most of the time. The profession has been fortunate that technology was available to allow this shift to remote work, but it has had to develop new skills too. As just one example, the paperless revolution that has been forecast for many years has suddenly and completely arrived, and lawyers have had to learn to live without printing.
The legislative and regulatory framework has had to adapt rapidly, to allow commercial transactions to continue through lockdowns. Since March 2020, the federal and state governments (and key regulators) have put emergency measures in place, to accommodate and facilitate businesses and companies that are operating in what is now a very different and remote working environment.
These changes, together with radical changes to work practices, have ushered in a minor digital revolution in the legal industry. Although initially intended to be temporary, they are likely to have long-lasting effects – and in many respects bring forward changes that were long overdue.
This article focuses on temporary changes to company law that are likely to become permanent in Australia.
Temporary modifications to the Corporations Act
The Corporations Act 2001 (Cth) (Act) has been temporarily modified to accommodate the new way of remote and online operating for businesses. On 6 May 2020, changes were enacted under the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (Determination). These temporary modifications were set to expire on 6 November 2020, but have now been extended until 21 March 2021 under the Corporations (Coronavirus Economic Response) Determination (No. 3) 2020.
Virtual general meetings
One welcome modification to the Act is the ability to facilitate the holding of company general meetings via virtual technology – applying to companies’ annual general meetings and any extraordinary general meetings. Companies now have the flexibility to send notices of general meetings to shareholders electronically and hold general meetings entirely online.
Under the modifications:
- virtual participation constitutes being present at a meeting;
- the meeting must provide all those in attendance with a reasonable opportunity to speak and ask questions at the meeting, using technology that facilitates this opportunity;
- voting must be conducted through a poll rather than a show of hands; and
- members entitled to vote on resolutions put at the meeting should have ample access and opportunity to debate and consider responses to questions before doing so.
Overall, these changes affecting the way companies can conduct general meetings have been well received, because companies are now realising greater levels of shareholder attendance and participation. The changes have also increased efficiencies around timing the despatch of notices of meeting, and have reduced costs associated with printing and despatching notices.
While the changes allow companies to conduct general meetings entirely online, should they wish, companies can still hold physical meetings or adopt a ‘hybrid’ approach (where meetings can be attended both physically and online).
Electronic & split executions
Section 6 of the Determination has provided a welcome response to the difficulty many companies have experienced when requiring physical signatures to execute documents while working remotely.
Section 127(1) of the Act has been temporarily modified and now provides for two directors or a director and company secretary to execute a document (except for a deed) without a seal if they each:
- sign a copy or counterpart of the document in physical form; or
- sign using a method of ‘electronic communication’ that both identifies the signatories and indicates their intention (which is to execute the document).
The method of ‘electronic communication’ should be as reliable as appropriate for the purpose for which the company is executing the document, in light of all the circumstances, including any relevant agreement.
When relying on this relief, the copy, counterpart or electronic communication must include the entire contents of the document, but need not include the signature of another person signing the document. Essentially this means that the complete document must be provided to the person executing it electronically, rather than just the signature page.
All modifications within the Determination are consistent with the Electronic Transactions (Victoria) Act 2000 (Vic) and the Electronic Transactions Act 1999 (Cth), which specifically allow for the legal requirement of handwritten signatures to be fulfilled via electronic signature or communication.
Electronic signatures are transforming the way organisations do business. Not only do they eliminate the hassle of manually routing paper agreements, but they also dramatically speed up the signature and approval processes. E-signing platforms such as DocuSign add an extra layer of protection to the execution process, because a time-stamped certificate of completion is available to download for every executed document.
Temporary changes to the electronic signing and witnessing laws have been made under the COVID-19 Omnibus (Emergency measures) (Electronic Signing and Witnessing) Regulations 2020 (Regulations). The Regulations will be in place until they are revoked and will not affect the validity of documents executed within their operating period.
The documents that may be electronically signed and remotely witnessed include:
- Deeds and mortgages;
- Statutory declarations;
- Power of attorney documents;
- Wills, codicils and other testamentary instruments; and
The Regulations require that:
- the person electronically signing indicates in writing under the signature that the document was electronically signed in accordance with the Regulations; and
- the person witnessing a signatory to a document indicates in writing under the signature that the signing of the specific document was witnessed using an audio-visual link in accordance with the Regulations (these inclusions are referred to as statements and will need to be written into the document itself).
As the Regulations are, at this stage, temporary, this will help provide the basis for why the usual methodology for signing and witnessing documents was replaced by the electronic methodology allowed under the Regulations.
Note that additional specific witnessing requirements exist for each type of document covered by the Regulations, which can be outlined further by your legal advisor.
Email Lodgement Service
In conjunction with the Determination, the ASIC Corporations (COVID-19 Email Lodgment Service—ASIC Corporations (Wholly-owned Companies) Instrument 2016/785) Instrument 2020/612 (Instrument) was introduced to facilitate electronic lodgements of documents under the ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 via ASIC’s Email Lodgement Service (ELS).
Under this Instrument, companies not only have the benefit of lodging numerous documents electronically but are also assisted by the fact that the eligible documents can be executed electronically (consistent with the Determination mentioned above). The instrument is currently set to expire on the same day as the Determination, unless indicated otherwise closer to the expiry date.
Examples of the documents ASIC approves for ELS include:
- CF06 Deeds of cross guarantee and related documents;
- Assumption deed (Pro Forma 27);
- Notice of disposal (Pro Forma 25);
- Revocation deed (Pro Forma 26); and
- Opt-in / change of holding entity notice by wholly-owned company relieved from financial reporting obligations (Form 389).
The ELS service has been particularly helpful in the lead up to the financial year ended June 2020, as the eligible documentation for lodgement is centred on financial reporting. The service is beneficial to companies as they have the convenience associated with instant lodgement, without any concerns relating to delivery delays and imminent deadlines.
ASIC Regulatory Portal
The ASIC Regulatory Portal (Portal) is also a new mechanism provided by ASIC where companies can access ASIC’s increasing suite of digital services. Just recently, the method of ELS for a host of documents was superseded by the Portal, further expanding ASIC’s suite of digital services and providing for a permanent lodgement system. Documents that can now be lodged in the Portal include:
- Fundraising disclosure documents or statements (prospectuses, offer information statements etc);
- Takeover documents – target’s statement and notices;
- Takeover documents – bidder’s statement and notices;
- Scheme of arrangement documents – explanatory statements and court orders;
- Compulsory acquisitions and buyout notices; and
- Shareholder meeting materials – related party transactions or acquisition approvals.
Many of these temporary changes have legitimised practices that were already common. For example, for many years most commercial law practitioners have been willing to accept email scans of execution pages of documents as evidence of binding commitments, and many public companies have been migrating their shareholders to email-only notification arrangements.
Other changes resulting from the temporary measures reinforce recent practices. For example, ASX has moved to poll-only shareholder resolutions and this is reinforced by online proxy and polling arrangements.
The modifications to the Act are welcome. They result in efficiency gains and present the lingering question of whether they will remain in place as Australia approaches ‘COVID Normal’. Many critics suggest that COVID-19 has been a catalyst for changes in the legal industry that were long overdue, and that should have been implemented years ago in our prevailing digital era.
Notably, the Prime Minister and the Treasurer’s joint media release on 29 September 2020 (Announcement) flagged that, as part of the Government’s imminent ‘Digital Business Plan’, some of these ‘temporary’ COVID-19 measures may become permanent. Therefore, while the extent and permanency of these changes must still be confirmed, it is imperative that businesses and companies familiarise themselves with what has changed and identify how it can help them drive efficiencies going forward.
Despite the many challenges faced as a result of COVID-19, the legal industry has managed to adapt to remote working conditions and has helped companies operate with flexibility. The abovementioned changes have proved useful and have resulted in many companies amending their constitutions to allow for hybrid general meetings (electronic general meetings, with a physical attendance alternative) and for the execution of documents electronically.
As we approach ‘COVID Normal’, the Announcement has indicated that some of these modifications will become permanent, particularly as remote working appears to be the way forward for many companies and their employees. It is therefore essential that businesses and companies understand the changes and how they can be harnessed.
If you have any questions about this article please get in touch with the authors or a member of our Corporate & Commercial team.
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.