In May last year, with the coronavirus pandemic having placed Australia and the rest of the world into lockdown, the Federal Government introduced a suite of temporary COVID-19 relief measures to alter the operation of the Corporations Act. Among other things, these measures permitted companies to hold wholly-virtual meetings and electronically dispatch notices of meetings to shareholders. They also provided for the electronic and split execution of documents.
However, with the government having failed to pass legislation through the Senate to extend the operation of these relief measures, they officially lapsed on 21 March 2021.
The immediate reaction among company directors was that, from that point in time, the requirements of the Corporations Act had to be observed in their pre-COVID form. That is, meetings would need to be held in a physical location (albeit shareholders could elect to connect to meetings via technology), and that notices of meetings could only be sent electronically to shareholders who had opted in to electronic communications.
ASIC adopts a ‘no action’ position
However, with numerous company AGM’s already scheduled to occur online-only beyond the 21 March expiry date, and Australian state premiers continually showing their willingness to swiftly place cities into total lockdown at the first sign of a community outbreak, the Australian Securities & Investment Commission (ASIC) quickly adopted a temporary ‘no action’ position in relation to the convening and holding of virtual meetings.
In an update from ASIC released on 23 March 2021, the corporate regulator indicated that they would not elect to take regulatory action against companies that continued to conduct their meetings virtually, or who provided notices of meetings electronically to shareholders. This no action position is set to apply to meetings held between 21 March 2021, and the earlier of 31 October 2021 and the date that Parliament passes any measure relevant to the matter.
At the time of the ASIC release, Commissioner Cathie Armour said, ‘It is important that business has certainty in the current environment. ASIC’s position is intended to facilitate businesses to hold their meetings effectively during the ongoing pandemic where there is still uncertainty around restrictions on gatherings and travel’.
For a company to rely on this no action position they must comply with numerous conditions outlined by ASIC in a reissue of guidelines that were previously released to the market following the initial introduction of the special relief measures.
Further, ASIC has noted that, since their no action position is merely a ‘statement of regulatory intent’, it does not necessarily preclude third parties (for example, shareholders and the Office of Director of Public Prosecutions) from taking legal action in relation to a company’s conduct. Nor does it prevent courts from declaring that a company’s conduct has infringed the Corporations Act.
Continued uncertainty surrounding legality of relevant conduct
The relief measures were initially introduced by the government to address legal uncertainty surrounding wholly-virtual meetings and the electronic execution of documents. ASIC’s position has been that hybrid meetings (involving a physical meeting with virtual participation) is permitted under the Corporations Act, although advises companies to check whether their constitution restricts meetings being held in this way.
However, the regulator doubts whether wholly-virtual AGMs are permitted under the Act in the absence of these relief measures. As a corollary, this casts doubt over the validity of resolutions passed at such meetings. In any case, ASIC suggests that, if such conduct is not permitted by the Corporations Act, it would likely constitute an ‘irregularity’ under the Act, and thus only be invalidated by a court declaration to that effect.
Finally, it should be noted that ASIC elected not to extend its no action position to the electronic and split execution of documents. This is on the basis that electronic signatures primarily concern companies entering into agreements with third parties, rather than the administration and enforcement of Corporations Act obligations by ASIC. In such case, a no action position would offer little protection from third parties seeking to enforce the relevant provisions.
This again gives rise to the previous legal uncertainty concerning the validity of company officers executing documents electronically, and by split execution. As corporate lawyers have suggested, it is likely the case that directors will revert to physically signing the same document to avoid any consequences that may arise from a possible contravention of the Corporations Act.
As can be observed, whilst ASIC’s no action position offers companies with a degree of comfort in convening and holding shareholder meetings, much uncertainty remains in the absence of special governance relief measures. It may be the case that directors are hoping for the government to make permanent amendments to the Corporations Act to offer a clearer picture as to what is permissible under the Act.