COVID-19 response – Electronic execution and virtual meetings for companies
One of the many effects of the coronavirus pandemic is the need to explore alternative means for the execution of documents and the holding of meetings by companies to enable transactions to continue in lockdown.
Prior to the introduction of the current isolation measures a number of court decisions had cast doubt on the ability of companies to execute documents electronically under section 127 of the Corporations Act 2001 (Cth) (Act).
Further, a number of company constitutions did not contain the machinery necessary to hold effective virtual meetings.
In response to the these uncertainties and shortcomings, the Treasurer has issued the Corporations (Coronavirus Economic Response) Determination (No 1) 2020 (Determination). The Determination is effective from 6 May 2020 and will expire on 6 November 2020.
The Determination and the execution of documents
The Determination clarifies the operation of section 127 of the Act to put beyond doubt the electronic execution of both agreements and deeds by companies regulated by the Act.
Specifically, the Determination allows a company to execute a document under section 127(1) of the Act by either:
- having a director sign one copy of the document and another director or the secretary sign another copy (often referred to as ‘split execution’); or
- allowing a company to execute a document by way of ‘electronic execution’ if:
- a method is used to identify the person in the electronic communication and to indicate the person’s intention in relation to the document; and
- the method is as reliable as appropriate in light of the circumstances and is in fact proven to have fulfilled the function of identifying the person in the electronic communication, either by itself or together with further evidence.
Electronic execution may be by, but not limited to, pasting a copy of a signature into a document, signing a PDF on a computer or using electronic signing platforms.
The Determination also makes it clear that a person receiving a document executed in accordance with the Determination can take advantage of the assumptions about due execution which are contained in section 129(5) and (6) of the Act.
What does this mean for companies executing documents?
Practically, the Determination provides for flexibility in relation to the execution of a document in circumstances where directors or a director and secretary are not physically in the same room.
A company may execute an agreement by:
- split execution (as described above) where separate documents are signed with a wet ink signature by each of the officers of the company who are authorised to sign;
- having an agreement wet-ink signed by a director and scanned through to another director/secretary who then wet-ink signs a print out of the scanned document (this method is referred to as ‘hybrid split execution’); or
- another means of electronic signature, for example pasting a copy of a signature into the document.
Companies should assume that counterparties will only accept documents signed by means of an electronic signature if they are provided with further confirmation in relation to the binding nature of the signature – this is likely to include Board minutes authorising the execution and confirmation direct from the signatories that they intended to bind the company.
The Determination also makes it clear that companies may validly execute deeds using the hybrid split execution method or electronic signatures. Although under the Determination a company can also validly execute a deed using split execution, it is likely that some counterparties may not accept this form of execution for deeds given previous cases.
In particular, despite the operation of the Electronic Transactions Act 1999 (Cth), financiers have previously shown a strong reluctance to embrace execution of finance documents by the use of electronic signatures. It is unlikely that the Determination will change their minds.
Given this, borrowers seeking to rely on the Determination should consider hybrid split execution as the means of executing finance documents which is most likely to be accepted during these uncertain times. However, to avoid any risk at financial or contractual close, borrowers, and indeed parties generally, should enquire with counterparties early concerning the acceptability of any of the means of execution available under the Determination.
Should you have any queries about execution generally or should you have any queries about or need any assistance to establish an appropriate electronic execution platform such as DocuSign, please do not hesitate to contact us.
The Determination and meetings
The Determination also modifies provisions of the Act, the Corporation Regulations, the Insolvency Practice rules and the Passport Rules that require or permit meetings to be held or which otherwise deal with giving a notice of meeting or the conduct of a meeting.
The key changes effected by the Determination are as follows:
- Meetings may be held remotely with the use of technology that gives all people entitled to attend a reasonable opportunity to participate (including a right to speak), dispensing with the requirement that all persons entitled to attend be physically present in the same place.
- Votes taken at meetings must be taken by a poll using technology which allows for voting in real time and not by show of hands. The Determination also explicitly provides for (and encourages) people entitled to attend the meeting to record their vote in advance of the meeting.
- A proxy may be appointed by a person entitled to attend the relevant meeting by using technology specified in the notice of the meeting.
- The notice of meeting and any related information may be provided to those entitled to receive the notice of meeting using one or more technologies. Either a copy of the notice of meeting and related materials can be provided electronically or else details of how this material can be viewed online or downloaded can be provided in a communication to people entitled to attend the meeting.
- The notice of meeting must explain how members can vote and ask questions. It must also include any other information they need to know to participate in the meeting using technology.
The Determination allows the new procedures to be used in relation to meetings that have already been convened if a fresh notice of meeting is given at least 7 days prior to the date of the meeting. This notice will need to set out how people entitled to attend the meeting can participate in the meeting if it is to be conducted in accordance with the Determination.
Again, should you have any queries or should you require any assistance in relation to the preparation of notices of meeting for virtual meetings under the Determination please do not hesitate to contact us.
Maddocks has produced guides on legal issues raised by the coronavirus which may be of interest, and we encourage you to share these with colleagues who may also find them useful.
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