As discussed in the June edition of Acting for You, COVID-19 has exposed many shortcomings of the current legislative environment and acted as a ‘step change’ in how organisations are conducting business. Governance Institute considers government should make the most of this valuable opportunity for reform.
Governance Institute was invited by the Senate Select Committee on financial technology and regulatory technology to provide a submission on technological solutions enabling Australian businesses to survive and operate during the COVID 19 crisis period and beyond. We will appear before the Committee on 30 June 2020 to give evidence.
In our submission, lodged on 1 June 2020, we outlined our views on the recent government reforms of the Corporations Act 2001 (Corporations Act) resulting from the Corporations (Coronavirus Economic Response) Determination (No 1) 2020 (the Determination) as well as further initiatives we consider should be implemented to assist Australia’s recovery.
We argued that while the Treasurer’s Determination (discussed in detail in the June edition of Acting for You) assists companies address some of the challenges created by COVID-19, they are only temporary, and will expire on 6 November 2020. We consider that these changes should form the basis for more permanent reforms that apply after the pandemic restrictions are lifted as they address longstanding issues that impact the ability of companies to operate effectively and efficiently having regard to the wide use of technology across the business and private sectors.
As a first step, we have recommended that the government amend the Corporations Act to bring about the following important reforms:
- provide companies with the option to use technology to hold virtual or hybrid meetings
- allow companies to digitally engage with their shareholders by providing that shareholders who fail to opt in to receive their notices of meeting by either mail or email are deemed to receive them if the company makes them universally available on their website
- enable companies to execute documents electronically.
We consider that amending the Corporations Act to ‘hardwire’ the ability to hold virtual or hybrid meetings is a timely and long-overdue reform.
Virtual and hybrid AGMs
Various listed companies have relied on the Determination to hold virtual or hybrid AGMs.
The feedback we have received from members who have conducted their AGMs online has been positive and it appears that practices concerning virtual AGMs have developed over the May mini-AGM season.
A recent poll conducted by the Australasian Investor Relations Association on 22 May 2020 of approximately 100 ASX listed companies with a March, June or September year end found that when asked about what format they were proposing for their 2020 AGM:
- 0 per cent were proposing to hold a physical AGM
- 22 per cent were proposing to hold a hybrid AGM
- 35 per cent were proposing to hold a virtual AGM
- 43 per cent were undecided.
The poll demonstrates the increased appetite of companies to use technology to facilitate their AGMs as well as the uncertainty that exists over the ability to use technology once the Determination expires.
We consider that amending the Corporations Act to ‘hardwire’ the ability to hold virtual or hybrid meetings is a timely and long-overdue reform. It will clarify the law and provide certainty for companies wanting to use technology to hold a meeting.
We do not recommend that the amendment require companies to hold a virtual or hybrid meeting. Some companies may still prefer to hold a physical meeting of shareholders. However, the option should be available to those companies that want shareholders to be able to attend meetings virtually to be able to do so without concerns about the validity of the meeting and the resolutions passed.
Communicating digitally with shareholders
Companies required to hold an AGM impacted by the COVID-19 restrictions have had to communicate changes to their meeting arrangements to their shareholders at short notice. Companies have had to change their AGM arrangements to enable shareholders to use technology to ‘attend’ meetings — in some cases after their notices of meeting had been issued — to respond to the increased level of restrictions.
Shareholders must currently notify companies if they wish to receive their notices of meeting and meeting materials by email. If they fail to make that notification, companies are required to send the notices of meeting by post. Despite many campaigns over a number of years, listed companies only hold email addresses for about 50 per cent of their shareholders. Each year these companies spend millions of dollars printing and posting meeting packs to their shareholders. Much of this material ends up in landfill.
The Treasurer’s Determination allows companies to send notices of meeting using one or more technologies. Importantly, where a company does not hold an email address for a shareholder, the Determination allows a company to satisfy its notice requirements by sending a letter or postcard setting out where a shareholder can view the notice of meeting information online and download it.
As with virtual and hybrid meetings, this is a temporary reform that expires on 6 November 2020.
Governance Institute has been advocating for a change to the Corporations Act to enable companies to communicate digitally with their shareholders for some time.
We still support the rights of shareholders to ‘opt in’ to receive hard copy meeting materials. However, companies are ‘hitting a wall’ when it comes to collecting email addresses from shareholders and regulatory change is required in order to move to the next step.
Electronic execution of documents
Executing documents when people are working remotely is one of the many challenges thrown up by COVID-19. People working remotely are not available to apply a ‘wet ink’ signature. There are also issues with people not being able to print, execute, scan and return documents from home.
There is also uncertainty about the legality of companies executing documents electronically under the Corporations Act.
The Treasurer’s Determination enabling the companies to execute documents electronically is a welcome and long overdue development. It provides certainty that where company officers sign a document electronically (including an electronic document), the document has been validly executed under the Corporations Act.
Again, this modification of the Corporations Act will expire on 6 November 2020 and companies will be forced to revert to applying ‘wet ink’ signatures to documents thereafter.
We recommend that the Government make a permanent change to the Corporations Act to enable companies to execute documents electronically.
We are interested in our members’ views on what other reforms should be considered. If you have ideas you would like to share please email me at email@example.com.
Director IDs are on their way
An important milestone has been reached on the project to modernise Australia’s business registers.
The suite of legislation creating Australia’s Modern Business Register and the Director ID has been passed by both houses of Parliament and received Royal Assent.
As a result of the passage of this legislation:
- there is a new Commonwealth business registry regime and registry functions will be appointed to one Registrar — with the existing 31 ASIC registers and Australian Business Register the first in scope
- the Registrar will have regulatory responsibility for Director Identification.
The new Director ID regime will commence on the later of a day to be fixed by proclamation or by 12 June 2022. All directors will be required to verify their identity and apply for a Director ID. The Director ID will be a unique identifier that a director will keep forever. It will prevent the appointment of fictitious directors, and facilitate traceability of a director’s profile and relationships with companies over time. It will also allow directors to be identified by a number rather than by other more personally identifiable information such as their address or date of birth.
As soon as the regime becomes operational, a grace period will apply to allow existing directors to apply for a Director ID.
Additionally, during the first 12 months of the operation of the new requirement, a person who is appointed as a director will have 28 days in which to apply for a Director ID. After this transitional period ends however, a director will be required to apply for a Director ID before they are appointed as a director
We will continue to provide updates on the progress of the implementation of the Director ID and the new business register.
Recent advocacy activity