In this edition of Gilbert + Tobin's Corporate Advisory Update, we focus on key legal developments over the last month which are particularly relevant to in-house counsel.
Permanent reforms to allow virtual meetings and electronic execution finally passed (and further reforms introduced into Parliament)
The Corporations Amendment (Meetings and Documents) Act 2021 (Cth) (Meetings and Documents Act) received Royal Assent on 22 February 2022. As previously reported, the Act makes permanent the temporary reforms relating to meetings and the signing and sending of electronic documents introduced last year in Schedule 1 to the Treasury Laws Amendment (2021 Measures No 1) Act 2021 (Cth).
Specifically the reforms provide greater certainty and flexibility to companies and registered schemes by:
- allowing them to hold physical and hybrid meetings, and if expressly permitted by the entity’s constitution, wholly virtual meetings;
- ensuring that technology used for virtual meetings allows members to participate in the meeting orally and in writing;
- allowing them to use technology to execute documents electronically, including corporate agreements and deeds; and
- allowing them to send documents in hard or soft copy and give members the flexibility to receive documents in their preferred format.
The provisions relating to electronic execution commenced on assent on 22 February 2022 and the provisions relating to virtual meetings and distributing meeting materials electronically will commence on 1 April 2022 (when the current temporary reforms expire). See also Treasury’s media release.
The Treasury Laws Amendment (Modernising Business Communications) Bill 2022 (Cth) (Modernising Business Communications Bill) was also introduced into Parliament on 17 February 2022 and proposes to expand the scope of the changes to be made by the Meetings and Documents Act. Schedule 1 contains the following proposed amendments:
- all documents which are required or permitted to be signed under the Corporations Act can be signed or executed electronically or in wet ink.
- certain additional categories of documents can be sent either electronically or in hard copy; and
- companies are not required to send documents to a member where the contact details for that member are known to be incorrect.
The above amendments are proposed to commence on the later of 1 April 2022 and the day after Royal Assent.
The Modernising Business Communications Bill also contains the following proposed amendments:
- Schedule 2 – amendments designed to:
- allow credit licensees to communicate with their customers and other persons under the National Consumer Credit Protection Act 2009 (Cth) electronically in a greater range of situations; and
- facilitate the greater use of electronic payments; and
Schedule 3 – replaces various provisions in Commonwealth legislation that require or permit notices to be published in newspapers with technology neutral rules that ensure the relevant notices are published in a manner which result in them being publicly available and reasonably prominent.
New corporate collective investment vehicle regime to commence from 1 July 2022
Corporate collective investment vehicles (CCIVs) are a new type of funds management vehicle that will operate via sub-funds. The Corporate Collective Investment Vehicle Framework and Other Measures Act 2021 (Cth), which gives effect to the new regime, received Royal Assent on 22 February 2022.
The Act amends:
- corporate and financial services law to establish a CCIV as a new type of a company limited by shares used for funds management; and
- taxation law to specify the tax treatment for newly established CCIVs.
The new regime will commence on 1 July 2022. See also the Treasury’s media release.
The ASX is also consulting on proposed changes to the ASX Listing Rules to facilitate ASX listing of CCIVs as well as notified foreign passport funds and New Zealand registered managed investment schemes making offers of securities. Consultation is open until 18 March 2022. See also ASX media release on 1 February 2022.
Treasury consults on further foreign investment reforms
On 14 February 2022, the Treasury released the Final report on the evaluation of the 2021 foreign investment reforms (Evaluation). The Evaluation was required under the Foreign Investment Reform (Protecting Australia’s National Security) Act 2020 (Cth) which gave effect to the most significant reforms to Australia’s foreign investment framework since 1975. Overall, the Evaluation found that the reforms had achieved the government’s aims, particularly by ensuring that investments which may raise national security considerations are assessed by the government.
In response to the Evaluation, the Commonwealth government released 2022 Foreign Investment Reforms Exposure Draft Regulations and Discussion Paper. The Exposure Draft Regulations include a package of amendments to the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) that are designed to reduce regulatory burden by clarifying certain aspects of Australia's foreign investment framework and streamlining some less sensitive types of investment. The Discussion Paper seeks written submissions from interested parties on options to improve the overall design and operation of the framework, reduce regulatory burden, refine compliance and enforcement powers, and determine if there are areas where increased scrutiny of certain types of investments may be required.
The proposed amendments include:
- clarifying changes to the moneylending exemption;
- exempting foreign persons from FIRB approval requirements where an acquisition is made for less than a 10% passive interest in an unlisted Australian land entity (currently 5%);
- specifying that a “rights issue” for FIRB purposes has the same meaning as set out in the Corporations Act; and
- inserting an exemption from FIRB approval requirements for an acquisition of interests in securities where there are reasonable grounds to believe that the person’s interest in the entity will not increase as a result of the acquisition.
Responses to the Exposure Draft Regulations are due by 25 February 2022 and responses to the Discussion Paper are due by 11 March 2022.
Restrictions on validly terminating sale of business impacted by COVID-19
Deciding to terminate a contract is a serious step, and if taken without legal basis amounts to a repudiation with consequent liability for damages. Whether a legal basis exists depends on the proper construction of the contract and what has occurred in a particular situation. The difficulty in accurately assessing whether the right to terminate exists is demonstrated by the recent decision of the NSW Court of Appeal in Dyco Hotels Pty Ltd v Laundy Hotels (Quarry) Pty Ltd  NSWCA 332.
By a 2-1 majority the New South Wales Court of Appeal allowed an appeal, finding that, on the proper construction of the contract for the sale of a hotel and its business, the seller had repudiated the contract by purporting to terminate and forfeit the deposit in circumstances where the seller was in breach of the contract by failing to carry on the business “in the usual and ordinary course” as expressly required.
The hotel business being sold was impacted following the making of public health orders because of the COVID-19 pandemic. The trial judge found that the seller had continued to operate the business in the usual and ordinary course by abiding by the health orders and preserving the goodwill of the business, even though it was limited to only serving take-away to customers for 90 days. Therefore, the seller was entitled to terminate when the purchase did not complete.
The majority of the Court of Appeal (Bathurst CJ and Brereton JA) favoured a different construction and considered that the obligation to carry on the business “in the usual and ordinary course” was “as regards its nature, scope and manner” and was not limited to conducting the business so far as was permitted by law, nor was there an implied term to that effect. This construction was preferred because otherwise the “effect would be that any legal limitations on the ability of the hotel to trade, no matter how serious or prolonged, would have no effect on the purchasers’ obligation to complete irrespective of whether the restraint could otherwise be said to frustrate the contract or deprive the purchasers of the substantial benefit of it.” (at ). Therefore, the majority concluded that the seller had repudiated the contract when it purported to terminate as it was not ready, willing and able to complete the contract. In a reasoned judgment Basten JA agreed with the trial judge.
The decision demonstrates the difficultly of questions of construction of contracts where there are different arguable positions. Careful drafting can attempt to minimise the risk of disputes.
Many thanks to Dr Elisabeth Peden SC (Consultant to G+T) for this Insight.
High Court changes direction on independent contractors
The High Court has delivered two important decisions concerning independent contractors. The Court held that where a written agreement governs the relationship between the parties, generally that agreement will determine whether a person is an employee or independent contractor. Both cases were heard together by the High Court and judgments handed down on the same day. The High Court’s approach provides greater certainty for businesses who have properly recorded their independent contractor relationships in written contracts that accurately reflect the nature of the relationship.
The decisions are a significant departure from the approach previously applied by Australian courts which involved an extensive assessment of the actual circumstances of the working relationship between the parties to determine (not just their contract) whether or not an employment relationship exists.
Public examinations open to persons considering litigation against directors
The Australian High Court has recently agreed that shareholders or creditors can be eligible to conduct compulsory examinations of former directors and officers of insolvent companies for the purpose of investigating claims against them (including class action claims). The High Court’s confirmation could materially increase the risks for directors and officers of failed corporations of being personally exposed to difficult and often arduous public examinations and material personal liability.
The decision will likely have profound implications for persons involved in failed companies as well as their insurers, auditors, and other advisers and materially adds to the arsenal of tools open to class action lawyers and funders.