Yesterday the Treasurer made a determination permitting directors and secretaries of companies to sign agreements under section 127 of the Corporations Act on separate paper or electronic copies (ie. counterparts).
Section 127 of the Corporations Act permits companies to execute documents by two directors or a director and a company secretary.
The Corporations (Coronavirus Economic Response) Determination (No 1) 2020 was made as a response to the COVID 19 pandemic and applies on a temporary basis until 6 November 2020. It also allows online shareholder meetings to be held.
Electronic execution of documents
The determination removes any doubt, to the extent it existed, that there can be electronic execution under section 127, at least on a temporary basis. It also removes the requirement that company officers must execute the same document in order for there to be a valid execution under section 127. In other words, execution by a company under section 127 using multiple counterparts is now permitted on a temporary basis. This therefore removes the doubt expressed in a recent case as to whether there can ever be a valid electronic execution under section 127 where two company officers are signing.
The determination adopts the first two limbs of the Electronic Transactions Act position on electronic signatures but does not adopt the third limb. This means that, in order to rely upon the determination for electronic execution, care must be taken to ensure the method used for electronic signing identifies the person, indicates their intention to be bound and is as reliable as appropriate. However, consent of the other party to a transaction will not strictly be required.
The determination can only be relied upon if the document in full is signed. It will not be sufficient merely to sign a counterpart of the execution page.
We think it advisable, if split execution under section 127 in accordance with the determination is to take place, for there to be a clause in the agreement enabling execution by a party in multiple counterparts.
Our initial view is that it is not clear whether the determination removes the paper parchment and vellum rule for deeds, which effectively precludes the making of deeds in an electronic form. For that reason we suggest that the determination should only safely be used to execute deeds under section 127 using multiple paper counterparts. It should only be relied upon as the sole basis to support the electronic execution of deeds as a last resort, when parties are cognisant of the risks involved.
Online shareholder meetings
The Treasurer also announced changes which will enable companies to convene shareholder meetings entirely online, rather than face to face.
Under the changes:
- notices of meeting can be provided via email and must include details as to how to attend and participate in the meeting virtually;
- a quorum can be achieved with shareholders attending online; and
- meetings can be held online.
Shareholders must still be given an opportunity to participate, speak and put questions to the board members.
Companies will also need to find a way to enable shareholders to vote virtually and to participate in the usual manner and in real time. Votes must be taken on a poll (and not a show of hands).
These changes will be in effect until 6 November 2020.
We have already seen a number of companies hold AGMs virtually during the last two months relying on the ASIC's advice of no-action with respect to meeting procedures and recommending shareholders appoint proxy representatives rather than attending. These changes provide a clearer path for companies to hold their shareholder meetings over the next six months while COVID-19 restrictions remain in place.