Listed ASX entities must now exercise great vigilance with continuous disclosure and their AGMs following the lapse of the temporary COVID-19 relief and the deferral of Senate debate on the Bill to make that relief permanent until August 2021. In addition to their continuous disclosure, any listed ASX listed entities with FYs ending 31 December 2020, 31 March 2021 and 30 June 2021 will now have to consider their arrangements.
The Treasury Amendment (2021 Measures No. 1) Bill 2021 proposed a number of important changes, including, significantly:
- relaxing the continuous disclosure rules such that an entity and its directors will only be liable for breach where there is a knowing failure to comply or recklessness or negligence; and
- permitting electronic delivery of notices, requests and resolutions and proxies relating to general meetings of members and the ability to hold virtual general meetings as long as members attending the meeting can speak and ask questions orally at the meeting.
The Bill has passed through the House of Representatives and has now been referred to the Senate Economics References Committee, which must report by 30 June. The Senate itself is expected to debate the Bill in the first sitting in August 2021. This Alert discusses the implications that the Bill not passing and the lapsing of temporary relief has on entities and their officers.
Continuous disclosure
Schedule 2 of the Bill introduces a fault element to the continuous disclosure obligations of directors, which allows directors and officers to provide price sensitive information confidently and without the increased pressures that the unpredictable environment adds to these obligations.
Prior to the introduction of the temporary COVID-19 relief measures, entities were required to disclose to the market any information which is generally not available to the market and that a reasonable person would expect it to have a material effect on the price or value of securities.
The Bill sought to amend the continuous disclosure rules such that an entity will only be liable if it:
- fails to update the market with information which it knew was price sensitive; or
- was reckless or negligent with respect to whether that information was price sensitive.
The Bill also brings across the same standard of liability to misleading or deceptive conduct so that, unless the requisite mental element of knowledge, recklessness or negligence has been proven, an entity or officer will not be liable for misleading and deceptive conduct.
Under these changes, ASIC still retained the ability to issue infringement notices as an administrative penalty without needing to have proof of the entity's or officer's knowledge, recklessness or negligence.
However, these provisions will lapse prior to the Bill taking effect, if passed later this year. Therefore, on 23 March 2021 the continuous disclosure obligations will revert back to the rules that existed prior to the COVID-19 relief. Entities will need to remain vigilant of any circumstances that may materially affect the price or value of securities, particularly in the current climate where COVID-19 and various other societal shifts has made reporting increasingly challenging. Therefore, entities should ensure that their continuous disclosure policies and procedures reflect the reversion to a more stringent continuous disclosure regime.
It should also be noted that while there is certainly a possibility that the continuous disclosure rules will again relax following debate of the Bill in the Senate later this year, this should not be an expectation, particularly given that submissions during the second reading of the Bill have cast doubt on whether Schedule 2 will be supported.
Virtual general meetings of members and the circulation of notices of general meetings and other documents electronically
The Bill proposed a number of changes, including:
- the removal of the need for directors to consent to the use of technology for calling and holding of directors' meetings;
- notices of a general meeting and a requests relating to (including a notice of a resolution) and the appointment of proxies can be given electronically; and
- extending the ability to hold general meetings virtually until 16 September 2021, provided that the technology used allows members attending a reasonable opportunity to speak and ask questions orally and for resolutions to be decided through a poll, unless the constitution provides otherwise.
These changes would give companies and directors the ability to adapt to the unpredictability of the current environment and also reflect the increased reliance on technology in the community generally.
If passed, the Bill will not come into effect until, and at the earliest, August 2021 when it is expected to be debated in the Senate. The effect of this is that, following the lapse of the temporary provisions on March 21 2021, the previous rules will be reinstated as of 22 March 2021.
This means that it is doubtful that virtual general meetings can be held instead of physical meetings. Under sections 249L and 252J of the Corporations Act 2001, a notice of a meeting must set out the "place, date and time for the meeting (and if the meeting is to be held in 2 or more places, the technology that will be used to facilitate this)" [emphasis added].
While it may be suggested that the term "place" includes a virtual location and this may very well reflect the use of modern technology, there has been no authority to suggest that this interpretation would be accepted. The more conventional interpretation is that "place" means a physical place, and this is certainly the safer interpretation.
Likewise, section 249S of the Corporations Act states that:
"A company may hold a meeting of its members at 2 or more venues using any technology that gives the members as a whole a reasonable opportunity to participate." [emphasis added]
The conservative interpretation again seems to be that a venue is a physical venue, as opposed to an online venue, and that technology should be used to facilitate connection between the various venues.
The combination of these two provisions seems to suggest, at least on a conventional interpretation, that virtual meetings will no longer be permitted following the lapse of the temporary provisions.
However, this does not necessarily preclude the holding of hybrid meetings, such that directors nominate a physical location to hold a meeting and allow members to attend virtually through technology that permits participation. A company's constitution must permit the holding of hybrid meetings prior to this occurring.
An immediate issue arises in respect of the AGMs of ASX listed entities with Financial Years (FYs) ending 31 December 2020, 31 March 2021 and 30 June 2021.
FYs ending 31 December 2020: the AGMs must be held by the end of May 2021 and many entities prefer to hold the meetings in April. In most cases the Notice of Meeting will have been sent; these entities will need to consider whether to reschedule their AGM or to seek to hold the existing date by sending a supplementary notice specifying a location for a physical meeting and if permitted by the entity's constitution the arrangement for the meeting to be a hybrid meeting; in the latter case, a listed company may consider whether it is able to rely on section 1322 of the Corporations Act to cure any procedural irregularity. There is no ASIC relief currently available which might assist.
FYs ending 31 March 2021: the AGMs must be held by the end of August 2021 and many prefer July. These entities will not have sent out their Notice of Meetings but will need to consider whether to seek to convene a virtual meeting, a physical meeting and in the latter case arrange for the meeting to be a hybrid meeting.
FYs ending 30 June 2021: these entities will have more time and it is likely that the position will become clearer prior to the time when their Notice of Meeting must be sent out.
Conclusion
The Bill is expected to be debated in the Senate on the first sitting day in August. While it presents significant and beneficial changes to continuous disclosure rules, the nature of general meetings and issuing of notices and other documents, entities should remain cognisant of the reversion to pre-COVID-19 rules.