Prior to the COVID-19 pandemic, conflicting court decisions around the country had fostered uncertainty as to whether a company could safely execute documents electronically. Amidst the great upheaval created by the spread of the virus in early 2020, temporary legislative interventions were introduced to allow business to continue operating safely and effectively in a suddenly more digital world.
In light of the popularity and success enjoyed by these temporary measures, Federal Parliament has now enacted permanent legislative reforms to allow companies to electronically sign documents and use virtual meeting technology for meetings of their members and directors.
These reforms are set out in the Corporations Amendment (Meetings and Documents) Act 2022 (Act), which passed both Houses of Parliament on 10 February 2022 and received Royal Assent on 22 February 2022.
The Act makes permanent changes to the existing signing and meeting requirements under the Corporations Act 2001 (Cth) (Corporations Act).
The changes to electronic signing apply from 23 February 2022, and the changes to virtual meetings will apply from 1 April 2022.
Electronic signing
The changes introduced by the Act give company officers the option of executing documents electronically, and the ambiguity around this process that existed prior to the pandemic has been permanently resolved. Documents that can be electronically signed include deeds and meeting-related documents and resolutions.
The Act takes a technology neutral approach and does not prescribe the use of specific types of technology to sign documents. Mainstream electronic signing tools such as DocuSign meet the requirements of the Act.
Other key changes are:
- Unlike the previous temporary changes to electronic execution, a copy or counterpart of a document executed by a company does not need to include the entire contents of the document. However, care should be taken when only signing the execution page of a document that it is clear from the email chain or other correspondence which document is purported to be signed.
It has generally been a requirement in all states and territories that a deed, as distinct from an agreement or contract, needs to be witnessed. The reforms make clear that the execution of deeds by a company no longer needs to be witnessed. - Previously, section 127 of the Corporations Act allowed a sole director of a proprietary company to execute documents if they were also the sole company secretary. The Act expressly clarifies that a sole director can now execute documents if the proprietary company does not have a secretary.
- Parties are permitted to sign different copies of a document separately in counterpart. For example, one director can physically sign the document and another director can sign the document from a different location electronically; and
- ASIC will be required to accept documents that have been validly electronically signed.
Virtual meetings
Members’ meetings
From 1 April 2022, under the Corporations Act, companies will permanently be allowed to hold “hybrid” meetings of their members, in which members may either attend the meeting physically or by using “virtual meeting technology” (such as Zoom or Microsoft Teams).
The reforms will also allow companies to hold entirely “virtual” meetings of its members, with no physical meeting location, provided this is expressly required or permitted by the company’s constitution. This is a difference from the temporary changes that arose during the pandemic, whereby companies could hold entirely virtual meetings without the express requirement or permission of their constitution.
We emphasise that unless the company has the specific power or permission in its constitution to hold entirely virtual meetings of its members, it’s important for companies to offer members the option of physically attending meetings. If this does not occur, there will be a risk that the validity of resolutions passed at those meetings could be challenged.
Where a company does use virtual meeting technology in a meeting of its members, it must ensure that the technology is reasonable and allows all members using such technology the opportunity to exercise orally and in writing any rights they have to ask questions or make comments.
Directors’ meetings
The reforms further permit directors’ meetings to be called or held using any technology consented to by all the company’s directors. This consent may be given on a standing basis and can only be withdrawn within a reasonable period before the meeting. It will be interesting to see if this is used tactically, in the context of board disputes. Care should be taken to keep proper records of consents from directors (for example, this should be a standard item on the minutes of all meetings of directors).
Key takeaways
Business practices have changed significantly since the start of the COVID-19 pandemic. The changes in the Act bring certainty to companies that have transitioned over the past two years to executing documents electronically.
However, it is important to remember that these changes are facilitative in nature, and that a company may continue to execute documents with a traditional “wet ink” signature or hold in person meetings.
Further reforms in this space are likely. We will provide updates where things change.
Need more guidance?
If you would like further guidance or assistance to ensure compliance with these reforms, please contact us.
~ with Michael Timlin, Lawyer and Peter Huang, Lawyer
