The Federal Government ushered in a Determination on 5 May 2020 allowing companies to hold meetings remotely via virtual meetings while public restrictions and health concerns remain in place during the COVID-19 pandemic. It also allows for a quorum, votes, notices of meeting and the asking of questions to be facilitated electronically.
The Determination has been introduced to facilitate ‘business as usual’ and to mitigate the economic impact of the virus. The Determination helpfully:
- provides clarity on how entities can hold their AGM and other meetings virtually;
- removes obstacles for companies whose constitutions contain meeting provisions that do not allow them to hold virtual meetings notwithstanding ASIC’s no-action position of 20 March 2020; and
- addresses previous doubt over whether the Corporations Act permits AGMs to be held virtually.
These new developments were introduced alongside changes that now allow companies to execute documents electronically pursuant to s 127 of the Corporations Act, as discussed here.
Outline of key changes
The Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (the Determination) was made by the Treasurer, Josh Frydenberg, using his emergency powers under section 1362A of the Corporations Act, which was a special power introduced by the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) in March. The Determination has effect for six months from 5 May 2020.
Section 5 of the Determination modifies any provision of the Corporations Act or the Corporations Regulations 2001 that requires or permits a meeting to be held, or deals with giving a notice of a meeting or the conduct of a meeting. The key changes are as follows:
- Entities that are required or permitted to hold meetings are able to hold those meetings remotely as virtual meetings, instead of in person. One or more technologies can be used to enable all persons entitled to participate without being physically present at the venue.
- All persons participating in the meeting will be taken for all purposes to be present at the meeting while participating. This means physical attendance for purposes such as achieving a quorum may be met using technology.
- Votes must be taken by a poll, and not a show of hands, to give each person entitled to vote the opportunity to vote in real time and, if practical, to record their vote in advance of the meeting.
- A requirement to allow those attending the meeting to speak (e.g. by asking a question) by using technology that allows that opportunity.
- A proxy may be appointed using the relevant technology specified in the notice of meeting.
- Notices of meeting may be sent to those entitled to attend using one or more technologies which includes the contents of the notice and any other information to be provided with the notice. Alternatively, those entitled to attend may be provided details of an online location where they can view the contents of the notice and any other information. For example, it is often the case that a company has the email addresses for some but not all of its members. It would be permissible for the company to send the notice of meeting via email where an email address is available, and to send all other members a letter or postcard setting out where the recipient could view or download the notice and other material.
- The person required to give the notice of meeting must include information about how persons entitled to attend and participate in the meeting can do so (including by proxy). The notice must explain how participants can vote and ask questions and must include any other information they need to know to participate using the technology.
- If a company has already sent out a notice of an Annual General Meeting (AGM) or other meeting before this Determination came into force, that person must issue another notice at least seven days before the meeting with information about how to participate in the meeting electronically.
How does the Determination interact with the Australian Securities and Investments’ (ASIC) no-action position on AGMs?
Before the Determination came into force, ASIC adopted a ‘no-action’ position for entities with a financial year end of 31 December 2019 that are required to hold their AGM by 31 May 2020. ASIC has since amended its ‘no-action’ position to apply to entities with financial year ends that fall between 31 December 2019 and 7 July 2020, as discussed here. This means that ASIC will not take action against entities for failing to comply with their obligations under s 250N(2) of the Corporations Act provided the entity holds the AGM within seven months (rather than five months) of their respective financial year ends.
The Determination does not alter the time within which companies must hold their AGMs and, accordingly, entities should hold their AGM by the deadline provided in the Corporations Act other than for those entities who can take advantage of ASIC’s ‘no-action’ position.
ASIC noted its ‘no-action’ position was conditional on entities using technology that would enable members to participate and outlined its view on what was acceptable. ASIC’s ‘no-action’ position reflected, in part, its lack of power to modify the Corporations Act to facilitate virtual AGMs. As such, ASIC’s ‘no-action’ position does not preclude third party legal action in relation to AGM conduct. The Determination importantly provides certainty and enables companies to hold virtual meetings without fear of regulatory action from other regulators for potential breaches of the Corporations Act.
However, entities which seek to rely on the amendment to ASIC’s ‘no-action’ position and hold their AGM after 6 November 2020 will not be able to rely on the virtual meeting changes introduced by the Determination, unless those temporary changes are extended by the Treasurer. Accordingly, entities whose constitutions do not permit virtual AGMs may be exposed to third party legal action if they hold a virtual meeting after 6 November 2020.
It would be prudent for entities (where possible) to rely on the modifications introduced by the Determination, which have legislative force, but regard should also be had to the guidance ASIC has issued in response to the Determination.
Guidance issued by ASIC in response to the Determination.
In response to the Determination, ASIC has issued updated guidance for conducting virtual meetings and hybrid meetings (a small physical meeting linked with online facilities that allow remote participation) based in part on the terms of the Determination.
The focus of this guidance is on ensuring that hybrid or virtual meetings are facilitated and conducted in a way that provides a reasonable opportunity for members to participate, to ask questions and for votes to be cast. Key aspects of its guidance are:
- Member participation: the selection of members’ questions or comments submitted in advance of, and/or at, the meeting should be balanced and representative, and the entity should be transparent about the number and nature of the questions asked and not answered, with appropriate records kept of questions, comments and responses.
- Voting: all voting at a virtual or hybrid meeting should be by poll rather than a show of hands and, where practicable, voting via online or other means should be available prior to the meeting.
- Content of the notice of meeting: the notice of meeting should clearly explain how to use the technology to observe, vote, make comments and ask questions, and how a reasonable opportunity to do those things will be provided to those participating virtually.
- Technical problems: to mitigate the risk of technology malfunctioning, entities should plan ahead of time (e.g. through a short dry run) to ensure the technology facilitates member participation, and develop backup solutions to overcome any technical issues. If any technical issues result in a number of members being unable to reasonably participate, the meeting should be adjourned until the problem is fixed. In this case, an extension to the statutory time frame may be required for entities that cannot rely on ASIC’s ‘no-action’ position.