The Corporations (Coronavirus Economic Response) Determination (No.1) 2020 (Cth) (the "Instrument") is a pragmatic approach by giving:
- directors, responsible entities and external administrators clarity on how to satisfy their respective legal obligations; and
- shareholders and creditors the continued right to participate in meetings, in light of current social distancing restrictions.
The Instrument also temporarily allows companies to validly execute documents electronically and permits the "split execution" of documents by company officers – that is, company officers do not need to sign the same physical document to validly execute pursuant to section 127(1) of the Corporations Act. Further information regarding these changes can be found in our separate alert here.
In response to these modifications, the Australian Securities and Investments Commission (ASIC) yesterday provided guidance on the use of virtual technologies with respect to public company AGMs and any other company or scheme members ("ASIC Guidelines"). ASIC considers that virtual technology is a valuable tool to ensure continued investor engagement in meetings given the challenges presented by COVID-19.
While social distancing restrictions remain in place, ASIC strongly encourages companies and responsible entities to hold either:
- virtual meetings (a meeting where all members participate via an online platform); or
- hybrid meetings (where circumstances permit - a small physical meeting linked with online platforms that allow remote participation).
We have set out below the key takeaways from both the Instrument and the ASIC Guidelines.
How long will the changes be effective for?
The Instrument is effective for six months from 6 May 2020. This means the changes (as summarised below) will remain in force until 6 November 2020, unless extended by a further determination or legislation.
As the Instrument is currently due to expire midway through the Australian AGM season, entities which typically have their AGMs later in November may wish to consider advancing the timing of their AGM to before the proposed the expiry date.
Who will the changes apply to?
All meetings, such as AGMs, undertaken by companies and registered schemes will be subject to the changes. The Instrument therefore potentially effects a number of stakeholders, including directors, company secretaries, responsible entities, external administrators, shareholders in respect of AGMs, creditors in respect of creditors' meetings and proxies.
Why did the Corporations Act need to be amended?
Although not expressly defined, it is generally understood that a "meeting", when used in the Corporations Act, requires a physical meeting. The Instrument amends the Corporations Act by permitting meetings being conducted entirely virtually with no physical location (with participants taking part through a virtual online platform) provided that certain conditions are satisfied.
Entities affected by the Instrument may still hold a physical meeting or a "hybrid meeting" (where there is a physical location and virtual online platform) if they choose to do so and comply with social distancing requirements.
How does the Instrument affect Constitutional requirements?
Affected entities should now interpret their constitutions as permitting virtual meetings. The scope of Instrument affects the operation of a constitution of a company or registered scheme, or any other arrangement that requires or permits a meeting to be held, or deals with the notice or conduct of a meeting.
Can meeting materials be distributed electronically?
Many meetings that are ordinarily governed by the Corporations Act require a notice of meeting and any supporting materials to be sent in hard copy where a member has not provided their email address. The Instrument modifies these requirements by permitting notices and supporting materials to be sent to recipients by using "one or more technologies", including where a recipient has not provided their email address.
Therefore, if a company has email addresses for some its members, it may now send an email to those members attaching a notice of meeting and any supporting materials, or provide a link to such information where it can be viewed and downloaded. For members that have not disclosed their email address, a letter in hard copy form can now be sent by the company that provides the relevant URL to enable those members to view or download the notice of meeting and any supporting materials. Distributing all meeting materials in hard copy form is no longer required.
What information needs to be included in the notice of meeting?
Importantly, the Instrument and the ASIC Guidelines require that the notice of meeting must include information confirming how:
- those entitled to attend can participate in the meeting, including how such persons are to observe, vote, make comments and/or speak;
- and a proxy may be appointed. This would include specifying an email address (or other online submission facility) in the notice of meeting for the service of proxy appointments and proxy appointment authorities.
These explanations should be clear, concise and effective.
What if an entity has already sent a notice of meeting?
If an entity has already sent a notice of meeting prior to the Instrument coming into effect and now wishes to hold a meeting virtually, it can still do so by providing a subsequent notice of meeting at least 7 days before the meeting is held that includes information as to how those entitled to attend can participate.
How is quorum determined?
All persons participating virtually at the meeting will be deemed present at the meeting and will therefore be taken into consideration when determining any applicable quorum requirements.
How do members participate and vote?
As noted above, the Instrument seeks to facilitate virtual meetings provided that those entitled to attend are given a "reasonable opportunity" to participate.
Entities proposing to undertake a virtual meeting must therefore satisfy the following requirements:
- Voting: any votes at the meeting must be decided by a poll and not a show of hands. The technology used at the meeting must be able to undertake the poll in real time and, where practicable, by recording the votes of those entitled to vote in advance of the meeting;
- Treatment of proxies: validly appointed proxies who are attending the virtual meeting must be treated in the same way as if the appointer of that proxy attended the meeting; and
- Speaking: the virtual meeting must allow those entitled to attend the meeting to speak (for example, shareholders having the opportunity to ask questions to the board of directors and be heard by other members). One or more technologies can be used to satisfy this requirement.
The ASIC Guidelines provide that members attending a hybrid or virtual meeting should be given an opportunity to participate in the meeting that is equivalent to the one they would have had if attending in person. To ensure adequate member participation, the ASIC Guidelines require (among other things) that:
- the technology to be used should enable those participating to virtually follow the meeting uninterrupted;
- any changes to the way that the meeting is conducted to account for it being held virtually should be tailored, as far as possible, to preserve and promote the interaction between members and the board or responsible entity;
- those attending should be given a reasonable opportunity to ask questions live during the course of the meeting, regardless of whether they are participating in person or virtually;
- if the virtual technology adopted enables a company or responsible entity to review and select members' questions or comments submitted, the selection process should be balanced and representative. There should also be transparency about the number and nature of the questions asked and not answered; and
- to support members make a fully informed decision, those entitled to vote on resolutions put at the meeting should have the opportunity to consider responses to question and debate doing so. Members should therefore have the right to cast a vote live during the meeting via virtual technology in the same way that they would if they attended in person.
The Instrument and the ASIC Guidelines can be accessed here and here, respectively.
If you would like to draw from other global resources developed by Baker McKenzie on COVID-19, please visit our Coronavirus Resource Centre.