Electronic Execution of Documents and Virtual Meetings
Authors: Daniel Gallagher (Lawyer) and Katrecia March (Special Counsel), Corporate and M&A
As part of the Federal Government’s response to the COVID-19 pandemic, on 5 May 2020 the Treasurer issued the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (Determination). The Determination commenced on 6 May 2020 and, until 6 November 2020, allows companies to:
- execute documents electronically, instead of by physical (wet) signature; and
- hold meetings (including AGMs) virtually.
Electronic Execution of Documents
The Determination modifies section 127 of the Corporations Act to allow the use of an electronic signature to meet the requirements for a signature, and to cover the execution of a document in electronic form. Under the revised provision, two directors (or a director and a company secretary) may either:
- sign two separate copies (counterparts) of a document in a physical form; or
- sign using an electronic communication that reliably identifies the person and indicates their intention about the contents of the document.
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 either physically or electronically.
‘Electronic communication’ in this context means a communication of information in the form of data, text or images and includes electronic voice communication. In practice, officers might sign a document electronically by pasting a copy of a signature into a document; signing a PDF on a tablet, smartphone or laptop using a stylus or finger; or using cloud-based signature platform (such as DocuSign). The Explanatory Statement to the Determination explains that:
‘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 will be effective to execute a document.’
The benefit of reliance on a statutory assumption in section 129 of the Corporations Act regarding the company’s due execution (including, for example, the proper appointment of officers) has been extended to cover documents executed in accordance with the modified section 127, and anything done in accordance with the amended provision is as valid and binding as a physical signature would be.
Although the changes are welcome, the Determination is not a complete solution to the logistical issues posed by COVID-19 (social distancing requirements in particular), including because:
1. Foreign companies are not covered by the changes as they are not a ‘company’ for the purposes of the Corporations Act.
2. The changes are not retrospective, so any company documents executed electronically before the Determination came into effect are not covered and may not be binding.
3. The provisions are temporary, lasting only 6 months from commencement.
4. There is some uncertainty as to whether the Determination covers the execution of deeds. While the Explanatory Statement suggests that it may, unless and until this is certain it would be prudent for companies to avoid the electronic execution of deeds to ensure they are legally binding.
In addition to addressing the execution of documents, the Determination ensures that companies that are required or wish to hold a meeting (including a shareholders or creditors meeting) may do so using technology rather than face-to-face meetings. The Determination enables a quorum, votes, notices and the asking of questions to be facilitated electronically, and allows for information required for the meeting to be circulated and accessed electronically.
Under the revised provisions:
1. A meeting may be held using one or more technologies that give all persons entitled to attend a reasonable opportunity to participate without being physically present in the same place (provided the notice of meeting includes information about how those entitled to attend can participate);
2. All persons participating virtually are taken to be present for all purposes (including any quorum requirement);
3. A vote taken at the meeting must be taken on a poll, and not on a show of hands, by using one or more technologies to give each person entitled to vote the opportunity to participate in the vote in real time and, where practicable, by recording their vote in advance of the meeting;
4. A requirement to allow an opportunity for persons attending the meeting to speak (for example, by asking questions) may be complied with by using technology that allows that opportunity;
5. A proxy may be appointed using technology specified in the notice of meeting, and any proxy must be treated in the same way as their appointor would be treated if the appointor was attending the meeting; and
6. Notice of the meeting may be given, and any other information provided, using technology (e.g. via email, or by providing a link to where the notice and other material can be viewed or downloaded).
The changes affect the operation of company constitutions by temporarily allowing companies that do not have a relevant provision in their constitution to conduct virtual meetings and provide meeting information electronically.
The Determination is consistent with recent guidance provided by ASIC supporting the use of technology for AGMs, and provides certainty for companies that need to hold such meetings in order to move their businesses forward in these uncertain times.
Ash St. Can Help You
Our Corporate and M&A Team are able to assist with any queries that you may have in relation to this Determination. For more information please call us on +61 2 8651 8700 or email email@example.com