ASIC has announced its temporary "no-action" position for the convening and holding of virtual meetings as a consequence of the lapse of the temporary COVID-19 relief.
In May 2020 modifications to the Corporations Act 2001 (Cth) (the Act) were introduced under the Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 to facilitate the convening and holding of virtual AGMs and any other general meeting. However, this relief lapsed on 21 March 2021 and debate of the Treasury Amendment (2021 Measures No. 1) Bill 2021, which largely sought to make permanent the relief, has been deferred until August 2021. This meant that ASX listed entities, particularly those with FYs ending 31 December 2020, 31 March 2021 and 30 June 2021, need to reassess their arrangements for their upcoming AGMs.
Entities have had to remain attentive to the fluctuations in social restriction as a response to COVID-19 and now, changing regulatory requirements. ASIC has responded by providing entities with some certainty, positing that it will not prosecute for breach of the relevant sections under the Act that arguably prohibit the holding of virtual meetings.
This article discusses the implications of the ASIC no-action announcement for ASX listed entities' upcoming AGMs and any other general meetings.
ASIC's "no-action" position
It is doubtful, at least under a conventional interpretation of sections 249L and 252J of the Act, that virtual general meetings can be held in place of physical meetings.
ASIC's "no-action" position states that it will not take any action against an entity that convenes or holds a virtual meeting of its members if:
It should be noted that ASIC has also adopted a "no-action" position where entities with a financial year ending between 7 January 2021 and 7 April 2021 hold their AGM within 7 months from the end of financial year; a 2-month deferral.
The implication for entities
While this is certainly good news for many entities and provides much needed comfort to proceed with AGMs this year, entities should exercise some caution.
Generally, ASIC does not have the power to amend the Act and therefore cannot cure any deficiency in the law which might preclude the convening of virtual meetings. However, as the primary enforcement agency of the Act, ASIC can issue no-action positions, which effectively state that ASIC will not prosecute on a specific breach of the Corporations Act. This "no-action" position provides significant security for entities who may wish to proceed with a virtual AGM.
However, the courts still have jurisdiction to hear a claim made against an entity for holding a virtual meeting in breach of the Corporations Act. If entities elect to rely on the ASIC "no-action" position and not in compliance with the law, they may wish to make an application to the court to rely on section 1322 of the Corporations Act if proceedings are commenced against the entity.
Section 1322 effectively provides that a meeting is not invalidated because of any procedural irregularity unless the breach has caused a substantial injustice that cannot be remedied by the court. Although there may be some differences of opinion, the better view is that a procedural irregularity can include a deliberate contravention of procedural rules (Nenna v Australian Securities and Investments Commission (2011) 198 FCR 32  affirmed in Re Stokes  FCA 1000 -). Holding a virtual meeting in reliance of the ASIC "no-action" release may well constitute a deliberate breach of the Act. Therefore, provided that no substantial injustice occurs, the Court would likely not invalidate a meeting, particularly where COVID-19 restrictions inhibit or make it difficult for members to physically attend, all other procedural elements of the meeting are satisfied and the ASIC "no-action" position remains on foot.
The challenge faced by many entities is the uncertainty arising from government and, in particular, State governments' reactions to events that occur due to COVID-19, such as lock-downs and closing borders, that make physical attendance at general meetings extremely difficult. These responses are unpredictable and place entities in a tricky position when determining how to arrange their general meetings. Whilst the risk remains that an entity will be held liable for a breach of the Act, the ASIC "no-action" position coupled with the tumultuous social circumstances as a result of COVID-19, entities should not be deterred from holding and convening virtual meetings if they satisfy ASIC's conditions.
However, a listed entity would be wise to take specific advice with respect to their particular circumstances before embarking on a course of action.
If entities are hesitant, a hybrid meeting is a good alternative. Entities are not necessarily precluded from holding hybrid meetings if the company's or scheme's constitution permits, such that directors nominate a physical location to hold a meeting and allow members to attend virtually through technology that permits participation.
ASIC's "no-action" position provides much needed certainty for entities holding their AGMs in the near future and while a risk of liability remains, if it is impractical for an entity to hold a physical meeting these risks should not be a deterrent. Entities should be prudent in ensuring compliance with the conditions enunciated by ASIC's "no-action" announcement and continue to be attentive to further developments.