27/03/2020

The effects of COVID-19 are likely to have many ramifications on organisations throughout Australia, including how an organisation complies with its governance obligations.  These obligations differ depending on how an organisation is incorporated, under which law it was established and which regulatory body it has to report to.  Each organisation's internal governance framework will also differ in its requirements.

The information below is relevant to organisations which are indigenous corporations governed by the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act).

This update is current as at today but as you are aware, the responses to COVID-19 are evolving so there may be further changes to regulatory requirements as time goes on.

What rules apply to my organisation?

If your indigenous corporation has been registered under the CATSI Act, the governance of the organisation primarily depends on the provisions of the CATSI Act and Regulations and the rules of its internal constitution or rule book.  The regulator under the CATSI Act is the Office of the Registrar of Indigenous Corporations (ORIC).

The rules under the CATSI Act will not apply where the indigenous corporation is incorporated under the Corporations Act 2001 (Cth) or under various state and territory laws.  However, common practices under the Corporations Act and guidance from its regulator (ASIC) will be useful for indigenous corporations while navigating the COVID-19 crisis as its common for the provisions of the CATSI Act to be interpreted in line with the parallel provisions in the Corporations Act.

An indigenous corporation may also apply to be registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC).  If your corporation is registered with the ACNC, additional obligations may apply.

In addition to the above and in response to the COVID-19 crisis, ORIC has developed a set of special rules relating to the holding of meetings and the making of decisions designed to help corporations in this situation respond to the impacts of COVID-19 (ORIC Special Rules).  To the extent certain provisions of a corporation’s rule book or constitution become unworkable in light of the impact of COVID-19 (i.e. restrictions on gatherings), a corporation may request the Registrar exercise its power to change a corporation’s rule book or constitution to include these special rules, without needing to first pass a special resolution.  The ORIC Special Rules will only operate until 30 November 2020 (unless extended) so if your organisation takes up this opportunity, it will need to be prepared to go back to its previous practices (or amend its rule book or constitution to permanently include these special rules) after this date.

If your corporation would like to adopt the ORIC Special Rules a corporation must:

  1. First consult its rule book or constitution to see if it’s necessary to adopt the ORIC Special Rules;

  2. If adopting the Special Rules is necessary, a majority of directors must agree to adoption.  We recommend that this is implemented by having a majority of directors physically sign a statement saying that they are in favour of adopting the Special Rules.  A corporation will need to keep evidence of this decision;

  3. Consider what measures the corporation will implement to ensure transparency with its members (e.g. distributing directors’ reports and annual financial statements or implementing procedures for members to ask, and directors answer, questions); and

  4. Then formally request the Registrar exercise its power to amend the corporation’s rule book or constitution to apply the ORIC Special Rules.  The request must include evidence of points 2 and 3.

Note, the ORIC Special Rules do not apply to native title meetings for registered native title bodies corporate under the Native Title (Prescribed Body Corporate) Regulations 1999.

Are indigenous corporations required to hold an annual general meeting (AGM)?

The short answer is yes.

Under the CATSI Act, a new corporation is required to hold its initial general meeting within three months of registration with subsequent annual general meetings to be held within five months of the end of its financial year (i.e. usually before November each year).  Your corporation should consult its rule book or constitution which may set out additional requirements for the holding and conduct of these meetings and to confirm its financial year.  

As holding AGMs might be problematic where meeting numbers are limited or a full lockdown eventuates, you may want to consider if it is possible for meetings to be postponed or held using technology (discussed further below). 

ORIC has determined that all new corporations registered from 1 January 2020 will be granted an extension of six months to hold its first general meeting (i.e. the first meeting must be held within 9 months of registration instead of 3 months).  Corporations should regularly check ORIC’s website as it will review this extension in July 2020.

For all other corporations, ORIC recommends contacting them before 31 May 2020 if you think your corporation will need more time to hold its general meeting.

Can corporations which have already called meetings postpone them?

Normally the answer would depend on what your corporation’s constitution or rule book requires, however in light of the COVID-19 crisis, corporations will be able to access temporary relief from ORIC allowing it to postpone a meeting.

If a general meeting has already been called, you can postpone or cancel if the corporation’s rule book or constitution expressly gives this power. In normal circumstances, if there is no express power, then a corporation would not be able postpone or cancel a meeting once called.  However, the ORIC Special Rules includes the power to postpone or cancel a general meeting if agreed by a majority of directors.  If your rule book or constitution does not expressly provide a meeting may be postponed, then you may request the Registrar exercise its power to change your corporations rule book or constitution to include ORIC Special Rule 5.

If you are unsure if your corporation needs to seek this relief from ORIC or need guidance on the provisions of your rule book or constitution, we recommend you seek legal advice early.

Can corporations postpone a planned meeting if it hasn’t been called it yet? Can corporations request an extension of time to call a meeting?

If your corporation has planned but hasn’t called an annual general meeting then subject to its rule book or constitution, you may be able to reschedule the meeting to a later date (provided the rescheduled date is within 5 months after the end of financial year, in most circumstances this is the end of November 2020).  If you do not think your corporation will be able to hold your meeting by then, your corporation may request an extension from ORIC to extend the period in which it may hold a general meeting.  This application may be made online via the ORIC website.  The application must be lodged before the end of the period the corporation would otherwise have had to hold the general meeting.  This means for most corporations your application for an extension must be made prior to the end of November this year.  It is important to apply for an extension if you require one as it is an offence if a corporation fails to hold its AGM within the specified or extended period.  ORIC recommends contacting them before 31 May 2020 if you think your corporation will need more time to hold its general meeting.

As outlined above, if your corporation was registered from 1 January 2020 and haven’t yet held your initial general meeting then ORIC has granted an extension of six months for your corporation to hold its first general meeting (i.e. the first meeting must be held within 9 months of registration instead of 3 months). Corporations should regularly check ORIC’s website as it will review this extension in July 2020.

Are we even able to hold an in-person meeting?

The response to COVID-19 is rapidly evolving.  The Australian Government has introduced strict measures relating to non-essential gatherings.  which may impact a corporation’s ability to hold an AGM.  Non-essential gatherings (both indoor and outdoor) are highly discouraged, and any indoor premises must provide a minimum of four square metres of space per person.  Practically speaking, it may be difficult for a corporation to hold a meeting under these directions.  Corporations should also consider the typical location of AGMs and whether they are typically held or planned to be held in any of the venues which have been closed or restricted by the Government (i.e. indoor recreation facilities, places of public worship, and pubs and registered clubs). 

Further, the Government has limited visits to remote Aboriginal and Torres Strait Islander communities to essential visits only. Indigenous corporations which typically hold meetings in these communities should consider whether members or other persons (i.e. auditors or observers) are required to attend their AGM and if they will be able to attend given the restrictions.  There is every chance this will quickly change, and corporations should regularly be monitoring updates to current guidance.

As a practical matter, a corporation considering holding a physical meeting should also consider whether enough members would attend to form a quorum in these times given the Government’s directive for all people to stay home other than for essential activities.  As you would know, a corporation’s constitution will specify the minimum number of members required to attend a meeting (i.e. a quorum) to hold a valid meeting.

What if we have urgent business to conduct? 

If your corporation has urgent business to conduct you may wish to consider holding a virtual meeting via technology (see below).

Otherwise, the CATSI Act provides that resolutions may be passed without a general meeting if all the members entitled to vote sign a resolution.  There are certain restrictions on what can be decided via a circulating resolution (i.e. an auditor cannot be removed this way) and this power is subject to a corporations’ rule book or constitution. If your rule book or constitution makes this unworkable you may request the Registrar exercise its power to change your rule book or constitution to include ORIC Special Rule 7 which provides a corporation may pass a circulating resolution without a meeting if members are given at least 21 days’ notice of the resolution and within 28 days of the notice a majority of members entitled to vote approve the resolution in writing. Each members’ approval must be in a form which allows their identity to be reasonably verified. This rule does not apply to special resolutions and resolutions to remove directors and any passed resolution will need to be minuted.

Before circulating a resolution, each corporation should consider whether its members can practically access and sign the resolution.  The Government has flagged 'shut downs' of particular areas / suburbs may occur and while postal and delivery services are currently deemed as 'essential services' which will continue to operate, this may change in the future.  Corporations should consider if its members will have access to email and print services given the shutdown of non-essential services, including public libraries.

Does a meeting have to be face-to-face?

Once again, the answer to this generally depends on what an organisation’s constitution or rule book requires, however in light of the COVID-19 crisis, corporations will be able to access temporary relief from ORIC allowing it hold wholly virtual meetings via technology.

Under normal circumstances, a general meeting may be held under the CATSI Act at two or more venues using technology provided it gives the members (as a whole) a reasonable opportunity to participate but this is subject to the provisions in your constitution or rule book, and isn’t clear if a meeting can be held wholly virtually.  If your rule book or constitution does not adequately provide for the holding of meetings via technology, you may request the Registrar change your rule book or constitution to include ORIC Special Rules 9-11 which permits a wholly virtual meeting to be held via technology / an electronic platform.  The electronic platform must give members as a whole a reasonable opportunity to participate.  Examples of electronic platforms include teleconferencing, videoconferencing, social media platforms, online platforms or mobile applications.  If your corporation wishes to hold a virtual meeting under this special rule then you may give notice of the meeting to members electronically.  If a physical meeting has already been called (and provided members have had at least 21 days’ notice) your corporation may still hold a virtual meeting provided members are sent instructions on how to participate in the meeting at least 2 days before it is due to be held.  If it is not possible for members to vote via a show of hands, then under ORIC Special Rule 13 a vote at a virtual meeting may be decided by any other method as determined by the chair of the meeting.

Before holding a virtual meeting, your corporation should consider which technology is best suited to give members a reasonable opportunity to participate.  This may include considering whether all members have fair access to that technology, whether members can actively engage or not in the meeting via technology and if members will be able to effectively raise their concerns.

What about reporting obligations?

Where corporations have a financial year ending on 31 December 2019, ORIC has granted an extension of time to lodge any reports (i.e. general, financial, audit or directors’ reports) until 31 August 2020. If your organisation had previously been granted an extension due to the effects of the recent bushfires, then your time to lodge has been further extended to 31 August 2020.

For all other corporations, to the extent your corporation is required to lodge reports with ORIC but lodging will be unavoidably delayed (i.e. due to COVID-19), your corporation may apply for an extension from ORIC.  This application may also be made online via the ORIC website.

Are there any indications about how the regulator might act where an organisation cannot meet its governance obligations due to the impact of COVID-19?

ORIC has released extensive guidance relating to the COVID-19 pandemic.  For further details on the issues raised in this update please check ORIC’s website.   Corporations should regularly check ORIC’s website as its COVID-19 guidance may change.

If your corporation has any questions about governance during the COVID-19 crises or how to hold a meeting, call or email ORIC at 1800 622 431 or info@oric.gov.au. ORIC is open to suggestions of other measures or actions it can take to assist corporations during this time and if your corporation has any ideas you can contact ORIC via email.

What about meetings of directors?

Your corporation should consult its rule book for specific guidance on how often directors’ meetings are required to be held, ORIC recommends meetings are held at least every three months.  Subject to your constitution, under the CATSI Act, a directors meeting may be held using technology which the directors have consented to.  If your corporation’s rule book or constitution does not provide for this, then you may request the Registrar exercise its power to change your rule book or constitution to incorporate ORIC Special Rule 12 which permits the holding of wholly virtual directors’ meetings. If your rule book or constitution doesn’t provide for directors’ meeting to be cancelled, then your corporation may look to incorporate ORIC Special Rule 6 which permits cancellation or postponement if a majority of directors agree.

As with members meetings, the CATSI Act provides directors may pass resolutions without a meeting via a circulating resolution. However, this is a 'replaceable rule' which can be replaced by provisions in a corporation's rule book or constitution, therefore each corporation should consult its rule book or constitution before attempting to pass a circulating resolution. If your corporation’s rule book or constitution does not provide for this power, you may request the Registrar exercise its power to change your rule book or constitution to incorporate ORIC Special Rule 8 which permits the passing a director’s resolutions without holding a meeting. Such a resolution will be passed provided the directors are given at least 7 days’ notice of the proposed resolution and within 14 days of receiving notice at least 75% of the directors agree to the resolution in writing. The passed resolution must be minuted.

What about the duties of directors?

Directors of corporations registered under the CATSI Act have numerous duties, including:

  • of care and diligence;
  • not to improperly use their position or information;
  • not to trade while insolvent;
  • of good faith; and
  • to disclose conflicts of interest.

These duties require directors / responsible persons to keep themselves up-to-date with the latest COVID-19 advice and regulator guidance and continue to observe their duties. Given the current market and supply volatility, directors should take care to limit their company’s exposure to insolvency. Insolvency occurs where a company cannot meet its debts when they become due and payable. 

In normal circumstances, directors are personally liable if a company is insolvent and continues to incur debts without entering an insolvency procedure.  However, the Government has recognised that the COVID-19 situation may lead to increased risk of insolvency.  Consequently, to ensure companies have confidence to trade through the COVID-19 health crisis with the aim of returning to viability when the crisis has passed, the Government is intending to introduce legislation which means directors will be temporarily relieved of their duty to prevent insolvent trading with respect to any debts incurred in the ordinary course of the company’s business.  At this stage, it is not clear whether CATSI organisations are included, however, subject to the final terms of the legislation, this will relieve the director of personal liability that would otherwise be associated with insolvent trading. It is intended to apply for six months.  

What other legal obligations might arise due to the COVID-19 situation?  

It is likely that indigenous corporations will be affected in multiple ways by the COVID-19 situation.  For example, the situation may affect the company’s ability to meet its contractual obligations (such its obligation to supply services or pay for goods) or even its ability to pay its rent.  Whether or not the law can provide any relief for indigenous corporations in these situations will depend on the terms of the relevant contract or lease.  Some contracts may include a clause which reduces liability if a party cannot perform the contract due to circumstances beyond its control (a force majeure clause).  However, whether COVID-19 meets this standard will depend on the terms and context of the contract.  Similarly, the extent to which you may be covered by insurance for any losses incurred as a result of COVID-19, will depend very much on the terms of your insurance policy.  

If you have concerns about your legal obligations which may arise due to the COVID-19 situation, please contact us for further assistance.  Gilbert + Tobin have released a separate publication on options open to employers, available here.

What government relief is available to an organisation? 

The Commonwealth Government has announced that it will provide assistance to small and medium sized business entities (including not for profits) who employ people and have an aggregated annual turnover under $50 million.  Eligible businesses will receive a payment amount based on the amount of salary and wages they pay.  These payments will be delivered by the ATO as an automatic credit from 28 April 2020 upon businesses lodging eligible upcoming activity statements.  
The Government has also increased the thresholds at which creditors can issue statutory demands and allowed companies more time to pay their debts.  

Further details of these reforms and other taxable concessions are available from the Treasury.  Gilbert + Tobin have also prepared a more detailed analysis of the proposed tax concessions, available here.
 

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