Following commencement of the Bill, key changes will include:
- Any document required or permitted to be signed under the Corporations Act will be able to be signed physically or electronically.
- Most documents required or permitted to be sent under the Corporations Act will be able to be sent physically or electronically, subject to a recipient electing how to receive documents. However, the new laws will not apply to documents sent to ASIC, or documents related to corporate fundraising or financial services – many such documents can already be sent electronically under other arrangements, but in other cases physical delivery will continue to be required.
- Takeovers and compulsory acquisition procedures will be facilitated by allowing electronic delivery of relevant documents to target security holders.
Directors' meetings will be able to be called or held using any reasonable technology without the requirement for directors' consent (subject to a company's constitution).
The Treasury Laws Amendment (Modernising Business Communications and Other Measures) Bill 2022 (Cth) (Bill) will significantly extend the current regime allowing companies to sign and send documents electronically. The Bill has been referred to the Senate Economics Legislation Committee and will not be passed until Parliament receives the Committee's report and resumes sitting in February. Most of the Bill, including the items discussed below, will commence the day after Royal Assent.
This article summarises some key changes to the Corporations Act 2001 (Cth) (Corporations Act) in relation to communications, governance and transactions, but does not cover the full range of amendments under the Bill.
The Corporations Act was amended earlier this year to allow Australian companies to execute documents in electronic form using electronic signatures. Fortunately, the Bill does not impact this arrangement, and companies may continue the current practice of executing contracts and other documents electronically.
However, there are still circumstances where the Corporations Act requires companies to deliver documents physically – the ability to execute electronically does not override such requirements. There are also circumstances where the Corporations Act requires or permits a document to be signed by an individual or an entity other than a company, and does not expressly permit an electronic signature.
The earlier amendments dealt with the most commonly problematic of these circumstances, allowing documents relating to meetings and resolutions to be signed and sent electronically and annual financial reports to be sent to members electronically, but a number of gaps remain.
Electronic documents generally
The Bill will expand the current regime so that all documents under the Corporations Act can be signed electronically and additional documents can be sent electronically.
Electronic signing: Following commencement of the Bill, any document required or permitted to be signed under the Corporations Act will be able to be signed physically or electronically. This will continue to allow companies to electronically execute contracts and other documents as permitted by sections 126 and 127 of the Corporations Act. In addition, electronic signing will be expressly allowed for other documents that require a signature such as directors' annual reports and declarations and creditors' statutory demands.
Electronic signing will continue to require a method of indicating the signatory's identity and intention which is appropriately reliable in the circumstances. In most circumstances, this requirement can be readily satisfied by various methods that are already common in the market, including the use of scanned signatures or an online platform such as DocuSign.
Electronic delivery: Following commencement of the Bill, most documents that are required or permitted to be sent under the Corporations Act will be able to be sent physically or electronically (whether the Act uses the word "send" or a similar word such as "give", "serve" or "dispatch"). Notably, this does not apply to documents sent by or to ASIC or the Registrar, or documents sent under Chapter 6D (fundraising) or Chapter 7 (financial services and, for example, provisions relating to share certificates and transfers). It does apply to a wide range of documents such as directors' and secretaries' consents to act, copies of constitutions provided to members, and takeover documents sent to target security holders (see below). It is already common practice for some of these documents, such as consents to act, to be signed and/or delivered electronically, but the Bill will remove any doubt whether this is valid.
In relation to documents that can be sent electronically, the Corporations Act will maintain existing provisions that:
- a document can be sent physically or electronically or by sending the recipient sufficient information (physically or electronically, e.g. in a letter or "postcard" or by email) to allow them to access the document electronically;
- company shareholders and members of other entities may elect to receive documents physically or electronically; and
- annual financial reports can be delivered to members by making them readily available on a website.
For documents that can be signed electronically but not sent electronically, it should generally be acceptable to print the electronically signed document and send it physically.
Many documents can already be electronically lodged with ASIC (through the ASIC Regulatory Portal or under its Electronic Lodgement Protocol) and the Bill does not expand the scope of documents which can be so lodged. As noted above, the expanded regime for electronic delivery expressly excludes documents sent to ASIC. In addition, the Bill clarifies that ASIC can refuse to receive or register a document that does not comply with any lodgement requirements under the Corporations Act. However, the Act will continue to provide that, if such lodgement requirements are satisfied, ASIC cannot reject an electronically signed document on the ground that it has not been effectively signed.
The changes under the Bill are particularly welcome in the area of takeover bids and compulsory acquisition procedures, and will allow both bidders and target companies to electronically send documents to holders of securities in the target. As a result, a number of related changes will be made, including:
- Delivery timing: New provisions will specify the time when a document is taken to have been sent, depending on the method of delivery. This can be important given the strict timing requirements for some aspects of the takeover process.
- Security holder details: The existing requirement for a target to give the bidder details of relevant security holders will be extended to include their email address and any election they have made to receive relevant documents physically or electronically. Significant penalties will apply if such information is used or disclosed for unrelated purposes.
- Security holder elections: A target security holder will be able to elect to receive documents from the bidder either physically or electronically, by notifying the bidder. More practically, if a target security holder has already notified the target of an election regarding relevant documents, and the target informs the bidder of that election (as above), that election is also taken to apply to documents sent by the bidder.
In relation to schemes of arrangement, scheme booklets can already be sent to security holders electronically under the existing provisions for meeting-related documents, and this will continue to be permitted under the Bill (by reference instead to documents sent under Chapter 5 of the Corporations Act).
As noted, lodgement of takeover and scheme documents with ASIC will not be covered by the new electronic delivery regime, but such documents can continue to be lodged online through the ASIC Regulatory Portal. Lodgements with the Court will still need to comply with the relevant requirements.
The Corporations Act currently allows directors' meetings to be called or held using any technology consented to by all the directors. The Bill will amend this to allow the use of any reasonable technology, including wholly virtual directors' meetings, without the requirement for the directors' consent. However, company constitutions that reflect the current provision in the Corporations Act may continue to impose a requirement for consent, and may benefit from amendment if such provisions are inconvenient in practice.
The requirements for a special resolution of a company are currently specified in the general dictionary of the Corporations Act. The Bill proposes to move these requirements to a new provision in the relevant operative part of the Corporations Act. According to the Explanatory Memorandum, this does not alter the effect of the current definition. However, the current reference to "75% of the votes cast by members entitled to vote" (i.e. a proportion of votes actually cast) is inconsistently replaced in the Bill with "75% of the votes that may be cast by members who are entitled to vote" (i.e. a proportion of all votes held, whether cast or not), which raises the bar for passing a special resolution, potentially significantly. We assume this is inadvertent and will be amended in Parliament before the Bill is passed. It is worthwhile to watch this space.
A Final Observation
Among a range of minor legislative tidy-ups, we were amused to note that the Bill repeals the Corporations Act's definitions of to "have" and to "hold" – so, while the Bill facilitates corporate mergers, it appears that marriage is off the cards!