TEMPORARY COVID MEASURES TO BECOME A PERMANENT FIXTURE
As a rule, technological change tends to outpace legal reform. Every now and then, however, a crisis can compel the law to make great strides to close the gap.
So it has been in 2020, as temporary Covid measures have allowed companies to comply with a number of their formal meeting and procedural obligations using technology not otherwise authorised by the Corporations Act 2001.
On 19 October, Treasury released draft explanatory materials proposing that a number of temporary Covid measures be adopted permanently. In short, these measures include:
Execution of Documents
- Company documents may be executed electronically. Where a document is executed by affixing a company seal, this may be witnessed electronically.
- Director and shareholder meetings may be conducted using electronic means, provided all persons have a reasonable opportunity to participate. Notice of that meeting must provide sufficient information detailing how parties may attend the meeting, and how votes are to be taken.
- Where necessary, documents relating to that meeting may be sent in advance to a recipient’s email address (provided the sender has reasonable grounds to believe that they are sending to the recipient’s correct email address).
- Documents relating to a meeting may be signed electronically, and minutes may be taken electronically. Minutes for an electronic meeting must include any questions or comments submitted by a shareholder before or during the meeting.
As the explanatory material is a draft only, it should be noted that the precise form and content of the amendments may change.
Replaceable Rules and Company Constitutions
The proposed amendments will become part of the Corporations Act, but will not be replaceable rules. This means that they will apply regardless of the terms of a company’s constitution.
Using Zoom for the AGM of a listed company may be challenging, but the measures should prove a welcome change for smaller private companies. Companies with older constitutions – which often do not anticipate any form of electronic communication more advanced than a telegraph – will suddenly be dragged into the twentieth century.
Deeds and Superannuation
The proposed amendments will also have significant implications for how a company can execute a deed, overturning common law rules that are centuries old.
A deed is a document under which parties unilaterally assume obligations, even though there is no quid pro quo (as there is in a contract). The formalities to create a valid, enforceable deed date to a time when lawyers wrote on sheepskin and sealed their documents with wax. Failure to adhere to these (admittedly old-timey) formalities can render a deed unenforceable.
Electronic execution of deeds has been a vexed issue. Until recently, the better position had been that deeds should be executed by putting pen to paper, and not electronically (see the recent authoritative text on this point, Seddon On Deeds, if you’re looking for some light weekend reading).
The temporary Covid measures in the Corporations Act do not address deeds. Some, but not all, States have provided their own temporary solutions. The Victorian solution specifically allows electronic execution of deeds and was recently extended until 26 April 2021 (it had been due to expire in October 2020).
If adopted, the proposed amendments to the Corporations Act will be of lasting significance for companies that act as trustees. For self-managed superannuation funds in particular, the question of electronically executed deeds has always presented a number of risks.
Importantly, once Victoria’s temporary Covid measures lapse and only the amended Corporations Act remains, there will likely no longer be any law permitting an individual trustee to execute a deed electronically. This could be one more entry to add to the list of reasons to prefer corporate trustees over individuals.
KIN Partners will be happy to help you understand how these changes may apply to you. Please contact Christian Chenu, Senior Associate, on (03) 7035 1300 or by email at email@example.com to discuss.