Senate

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon John Frydenberg MP)

Glossary

The following abbreviations and acronyms are used throughout this explanatory memorandum.

General outline and financial impact

Corporations Amendment (Meetings and Documents) Bill 2021

The Bill makes permanent changes allowing companies and registered schemes to hold hybrid meetings (which give shareholders the option of either attending in person or remotely) and use technology to execute company documents, sign meetings-related documents and provide those documents to their members.

Date of effect: The Bill applies to documents sent and meetings held on or after 1 April 2022. The Bill applies to documents executed on or after the day after Royal Assent.

Proposal announced: On 17 February 2021, the Government announced that it would conduct a 12-month opt-in review of annual general meetings held by companies, and finalise permanent changes to provide a statutory mechanism for the electronic execution of company document and communication of meeting-related documents.

Financial impact: The Bill has no financial impact.

Human rights implications: The Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 2.

Compliance savings impact: Average $450 million per year over 10 years.

Summary of regulation impact statement

Regulation impact on business

Impact: Companies, registered schemes and their officers will have the flexibility to use technology to meet their Corporations Act 2001 obligations in relation to meetings and documents. This will reduce regulatory burden as traditional means of holding meetings physically, sending documents in hard copy and executing documents physically in wet-ink no longer need to be adhered to. Instead, technology neutral laws give the option to meet obligations using technology, which makes conducting business quicker, simpler and more cost effective.

Main points:

•

On 5 May 2020, the Treasurer used his temporary instrument-making power under the Corporations Act 2001 to issue a determination that temporarily allowed companies and registered schemes to use technology to satisfy their obligations relating to meetings and document execution. This relief expired on 21 March 2021 however the Government renewed the relief through Treasury Laws Amendment (2021 Measures No. 1) Act 2021, to give companies certainty of their obligations through the Coronavirus crisis. This relief will expire on 31 March 2022.

•

The temporary relief allows for the use of technology to hold meetings such as annual general meetings virtually, provide meeting-related materials electronically and validly execute documents electronically.

•

As part of the Government's Digital Business Plan in the 2020-21 Budget, the Government consulted on making the temporary relief permanent. Following consultation, the Government announced on 17 February 2021 that it would progress making permanent reforms in relation to validly executing and signing documents and conduct a 12-month opt-in review of annual general meetings to enable a proper assessment of the benefits of using technology to engage with members.

•

As part of consultation, the Government considered three policy options. The first was to continue with the law prior to the introduction of the temporary relief; the second was to make the temporary relief permanent; and the third was to make the temporary relief permanent, with modifications to provide greater flexibility and technology neutral provisions.

•

The Government's objectives are to ensure that where substantive statutory requirements can be met using digital technology, that the law allows companies, registered schemes and their officers to do so. As option three achieves these objectives, this is the Government's chosen option.

•

A supplementary analysis on the costs, benefits and risks associated with the policy options in relation to sending and signing documents was prepared and is consistent with the Australian Government Guide to Regulatory Impact Analysis. The supplementary analysis is included at Attachment A. Further analysis on the use of technology to hold meetings will be prepared following the Government's announced 12-month opt-in review of annual general meetings.

Chapter 1 - Use of technology for meetings and execution of documents

Outline of chapter

1.1 The Bill creates a permanent statutory mechanism for the electronic execution of company documents. It also allows companies, registered schemes and disclosing entities to sign and provide meetings-related documents electronically. Companies and registered schemes may also use technology to hold meetings, including hybrid meetings on a permanent basis. Finally, other miscellaneous amendments are made to ensure that meetings are conducted effectively.

1.2 All references to the Act in this document refer to the Corporations Act 2001.

Context of amendments

1.3 Schedule 1 to the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 commenced on 14 August 2021. The Schedule allows companies and registered schemes to hold virtual meetings and electronically sign and send documents until 31 March 2022.

1.4 On 17 February 2021, the Government announced its intention to make permanent changes relating to the execution of company documents and the electronic communication of meetings-related materials. It also announced that it would conduct a 12-month review of annual general meetings of companies and registered schemes.

1.5 The Bill makes changes to the Act to give effect to that announcement. It refines the drafting approach taken in the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 by restructuring the rules so that they apply to all types of member meetings. It also moves the provisions relating to electronic communications and electronic signatures from Chapter 2G to Chapter 1 so that they can be extended in the future to include additional types of documents that do not relate to meetings.

Summary of new law

1.6 The Bill allows certain documents to be signed in flexible and technology neutral manners. This change applies to:

•

the signing of certain documents (including deeds) by or on behalf of a company; and

•

the signing of documents which relate to certain meetings or resolutions.

1.7 Amendments are also made to extend the statutory document execution mechanisms to proprietary companies with a sole director and no company secretary.

1.8 The Bill allows companies and registered schemes to hold physical and hybrid meetings. Wholly virtual meetings may also be used if they are expressly required or permitted by the constitution.

1.9 All meetings, regardless of how they are held, must give the members as a whole a reasonable opportunity to participate. This includes holding the meeting at a reasonable time and place and using reasonable technology to conduct a virtual meeting and connect different physical locations together.

1.10 Documents relating to meetings may be signed and given using electronic means, regardless of whether the meeting is a virtual, physical or hybrid meeting.

1.11 The Bill also allows a member or group of members with at least 5 per cent of the votes to require a listed company or registered scheme to appoint an independent person to observe or report on a poll.

Comparison of key features of new law and current law

Detailed explanation of new law

Signing documents

1.12 Schedule 1 to the Bill allows certain documents to be signed in flexible and technology neutral manners. This allows for business communications to be conducted with greater ease and lower costs.

Technology neutral signing

1.13 Division 1 of Part 1.2AA of the Act sets out rules for how certain documents can be signed in a technology neutral manner. These rules are in addition to sections 126 and 127 of the Act which set out the requirements for the valid execution of documents.

1.14 Division 1 applies to:

•

documents (including deeds) signed by or on behalf of a company under sections 126 and 127 of the Act;

•

documents signed under the Act which relate to certain meetings or resolutions; and

•

any document specified in the regulations.

[Schedule 1, item 1, section 110]

1.15 A person may sign documents to which Division 1 applies by signing a physical or electronic form of the document. The person may sign a physical form of the document by hand. [Schedule 1, item 1, section 110A(1)]

1.16 The person is taken to have signed a document in accordance with Division 1 if:

•

the method identifies the person and indicates the person's intention in respect of the information recorded in the document; and

•

the method used was either as reliable as appropriate for the purpose for which the information was recorded, or proven in fact to have fulfilled the functions described in the preceding point.

[Schedule 1, item 1, section 110A(2)]

1.17 These requirements mirror those in sections 10(1)(a) and (b) of the Electronic Transactions Act 1999 and ensure documents can be signed in technology neutral manners whilst preserving the integrity of signature requirements.

1.18 In establishing the person's identity, the signature method need not be a unique identifier but rather it should identify the person signing the document.

1.19 To ensure documents can be signed in flexible manners, the Bill makes clear that Division 1 does not require:

•

persons to sign the same form of the document as another person;

•

persons to sign the same page of the document as another person;

•

persons to use the same method to sign the document as another person; or

•

the document signed by a person to include all the information recorded in the document.

[Schedule 1, item 1, section 110A(4)]

1.20 The Bill takes a technology neutral approach and does not mandate the use of any particular type of technology. There are a range of different technologies that are currently in use, such as, online platforms or using stylus tools to sign PDFs. The Bill is also sufficiently flexible to allow for the use of other technologies that may be developed in the future.

1.21 Division 1 does not limit the ways in which a person may sign a document (including a deed). Similarly, nothing in the Bill prevents a document from being signed in the traditional manner or using traditional practices. For example, documents can be still be signed under section 127 by applying a wet-ink signature to the document.

1.22 A person can sign documents in different capacities. If a person is required or permitted to sign a document in more than one capacity, then they are treated as a different person in each capacity. If provided for in the document, a person may sign the document in one or more of these capacities by signing the document once. This gives signatories extra flexibility in choosing the manner in which documents are signed. [Schedule 1, item 1, section 110A(5) and notes to section 110A(5)]

1.23 Sections 127(3A), (3B) and (3C) of the Act are repealed. These sections contained rules about signatures under section 127 which have been superseded by Division 1. [Schedule 1, item 11, sections 127(3A), (3B) and (3C)]

Lodgement of documents

1.24 Documents lodged with ASIC or the Registrar can be signed in accordance with Division 1 of Part 1.2AA of the Act (concerning technology neutral signing).

1.25 If a document is required or permitted to be signed under the Act and has been signed in accordance with Division 1, then ASIC or the Registrar cannot refuse to receive or register the document on the mere basis the document has not been signed. ASIC or the Registrar can continue to refuse to accept a document if it does not comply with other lodgement requirements. [Schedule 1, item 1, section 110B]

Agents can make contracts and execute documents (including deeds)

1.26 Section 126 of the Act is amended to extend the functions of company agents and allow agents to exercise these functions more easily.

1.27 An agent may now execute a document (including a deed), as well as make, vary, ratify or discharge a contract. [Schedule 1, item 4, section 126]

1.28 The agent need not be appointed by deed. This abrogates the common law rule which requires an agent acting on behalf of a company to be appointed by deed in order for them to execute a deed on behalf of the company.^[1] [Schedule 1, item 4, section 126(4)]

1.29 If the company's power is exercised under section 126 by signing a document, then the flexible, technology neutral method for signing a document in new Division 1 of Part 1.2AA may be used. A document or deed does not need to be on paper, parchment of vellum or be witnessed or delivered to be valid. [Schedule 1, items 1 and 4, sections 110, 126(5)-(7) and 127(3A)]

1.30 Other methods of executing the document may also be used. For example, a company's constitution may set out other methods of executing and/or signing documents. [Schedule 1, item 4, section 126(8)]

1.31 If a company executes a document through an agent under section 126, people will be able to rely on the assumptions in subsection 129(3) for dealings in relation to the company.

1.32 Section 126 does not affect the operation of other laws that require a particular procedure to be complied with in relation to the contract or document, other than to the extent that the law is inconsistent with this section. [Schedule 1, item 4, section 126(2)]

Documents (including deeds) can be executed in technology neutral manners

1.33 Sections 126 and 127 of the Act are amended to make clear that documents can be executed in the new flexible and technology neutral manner established in new Division 1 of Part 1.2AA. [Schedule 1, items 6, 7, 9 and 10, notes to sections 127(1), (2A) and (3)]

1.34 The Bill also provides that, consistent with sections 126 and 127 of the current law, a document or deed does not need to be delivered to be validly executed as a deed. This will be the case even where the common law requires that a document or deed is delivered in order for it to be validly executed. Where a document is executed by signature, the signature does not need to be witnessed, or made on paper or parchment of vellum to be valid. [Schedule 1, items 1, 4, 11 and 12 sections 110A(1), 126(5) and (6) and 127(3A)-(3B)]

1.35 The fixing of a common seal to a document under section 127(2) can also be witnessed electronically, provided:

•

the person observes, by electronic means or by being physically present, the fixing of the seal; and

•

the person signs the document; and

•

a method is used to indicate that the person observed the fixing of the seal to the document.

[Schedule 1, item 9, section 127(2A)]

Sole director companies

1.36 Amendments are made to expand the statutory document execution mechanisms in section 127 of the Act to proprietary companies with a sole director and no company secretary.

1.37 For a proprietary company with a sole director and no company secretary, a document is validly executed if:

•

the sole director signs the document; or

•

the sole director witnesses the fixing of the company's common seal to the document.

[Schedule 1, items 5 and 8, sections 127(1)(c) and 127(2)(c)]

Entitlement to make assumptions and other consequential amendments

1.38 The assumptions that persons are entitled to make in relation to dealings with a company have been updated to reflect the other changes that are made to the rules relating to agents and the execution of company documents.

1.39 A person may assume that a document has been duly executed by a company if:

•

the document appears to have been signed in accordance with subsection 127(1); or

•

the company's common seal appears to have been fixed to the document in accordance with subsection 127(2) and the fixing of the common seal appears to have been witnessed in accordance with that subsection and subsection 127(2A).

[Schedule 1, items 13 and 14, sections 129(5) and (6)]

1.40 For the purposes of making the assumptions under sections 129(5) and (6) of the Act, a person may also assume that anyone who signs a document, or witnesses the fixing of the company's common seal to the document, and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices. A similar assumption may be made in circumstances where the person is the sole director (and the company has no secretary) or where the person is the sole company secretary. [Schedule 1, items 13 and 14, sections 129(5) and (6)]

1.41 Consequential amendments have also been made to:

•

update the Small Business Guide to reflect the changes to the way in which a company may execute a document or an agent may exercise a company's powers; and [Schedule 1, items 2 and 3, paragraph 7 of the Small Business Guide in Part 1.5]

•

update sections 253R and 253RD to reflect the new rules for executing documents. [Schedule 1, items 16, 17 and 18, sections 253R(b) and (c) and 253RD]

Giving documents electronically

1.42 The Bill permanently allows a company, the responsible entity of a registered scheme or a disclosing entity to give meetings-related documents to a person electronically or in physical form.

1.43 It does this by establishing a general regime that covers the electronic communication of documents in a new Part in Chapter 1 of the Act. [Schedule 2, item 2, Part 1.2AA]

Documents covered by the regime

1.44 This new regime applies to any meetings-related document that a company, responsible entity or disclosing entity is required or permitted to give, send or otherwise provide to a person under the Act. It does not apply to documents which are sent to ASIC or the Registrar. [Schedule 2, item 2, sections 110C]

1.45 Examples of such documents include (but are not limited to):

•

notices of meetings;

•

notices of a resolution or a record of a resolution;

•

notices of a statement in relation to a meeting or a matter to be considered at a meeting; and

•

minute books.

1.46 Regulation-making powers have been inserted which allows for the modification of the primary law to expand the scope of the regime to capture other entities. These powers ensure that, in the event of unintended or unforeseen circumstances, the law can be quickly and flexibly adapted to impose the obligations in relation to sending documents on appropriate persons. The powers cannot be used to impose additional obligations on entities in relation to sending documents or to alter the obligations in the primary law. [Schedule 2, item 2, sections 110C(1)(d), (5) and (6)]

1.47 The modification powers, along with the rest of the regime, will also be reviewed 2 years after the new rules take effect. If the power is used, then the Regulations would be subject to disallowance.

1.48 The power to modify the primary law also provides the flexibility to adapt the regime in response to future changes to the law. For example, the Government have announced future primary law changes to further modernise business communications and this power may be used to give effect to these reforms.

1.49 The intention is to expand the regime in the future to cover other types of documents as part of the 'Modernising Business Communications' reforms. Those proposed reforms will also allow electronic communications to be used to send documents from members to entities.

1.50 There is also a power for regulations to expand the list of documents that are covered by the regime. [Schedule 2, item 2, section 110C(2)(d)]

How a document may be sent

1.51 A document may be provided either by:

•

sending the document in physical form;

•

giving the document to the person by using electronic means (e.g., sending an email);

•

providing the person, in physical or electronic form, with details sufficient to allow them to view or download the document electronically (e.g., by giving them a card or sending them an email with a link to a website); or

•

in any other permitted way (e.g., in a way permitted by a more specific provision which deals with how a particular type of document is sent to a person or in a way which is set out in a company's constitution).

[Schedule 2, item 2, sections 110D(1) and (4)]

1.52 However, a document can only be given electronically if it is reasonable to expect that the document would be readily accessible so as to be useable for subsequent reference at the time that the document is given. This replicates the condition in the Electronic Transitions Act 1999 that applies to the electronic provision of documents. [Schedule 1, item 1, section 110D(2)]

1.53 Annual reports and documents prescribed in the regulations are taken to be sent if they are made readily available on a website. It is expected that companies and registered schemes would satisfy this by publishing the document on their website or a share registry website. This is consistent with the existing rules for sending annual reports to members. [Schedule 2, item 2, sections 110D(1)-(3)]

Elections by members

1.54 A member may elect to receive documents in physical form or electronically. Such an election may be made in respect of:

•

all documents (a standing election);

•

specified classes or types of documents (a standing election); or

•

a single specified document (an ad hoc request).

[Schedule 2, item 2, sections 110E, 110H and 110J]

1.55 The sender must take reasonable steps to provide the member with the document or class of documents in the requested form (unless ASIC exercises its emergency powers and grants relief). A failure to do so is a strict liability offence with a penalty of 30 penalty units. [Schedule 2, items 2 and 48, sections 110F(1)-(3), 110G(3) and 110J (2) and (5) and Schedule 3]

1.56 The failure to provide a document in the required form is a different offence from the outright failure to provide a document in any form. The Act already includes offences for an outright failure to provide a document in any form, and for some documents, the penalties for these existing offences are greater than 30 penalty units.

1.57 A strict liability offence for failing to provide a document in the required form is appropriate as it ensures that ASIC can efficiently and expeditiously deal with low-level offending. This bolsters the integrity of the regime and encourages compliance. The strict liability offence meets all the conditions listed in the Attorney-General's Department's A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers.

1.58 The failure to provide a document in the required form does not invalidate the giving of the document by the sender. A no invalidity clause is appropriate because there are serious consequences that attach to failing to provide some of the documents covered by the regime and these severe penalties are not appropriate in circumstances where the document was provided (but in the incorrect form). [Schedule 2, item 2, sections 110F(4) and 110G(4)]

1.59 Further detail on the process for making an election and ASIC's emergency powers is below.

Standing elections

1.60 A standing election is in place on the business day after it is received by the sender (unless the election specifies a later start date). There is also a power for regulations to be made to specify a later date. [Schedule 2, item 2, section 110E(7)]

1.61 However, the sender is not required to provide a document in hard copy if that document is required to be provided to the member within the next 30 days. This ensures that the sender has adequate time to print and post documents and allows enough time for the mail to reach the member. The delayed effect of an election also prevents a sender from being in a position where it cannot comply with its obligation to notify members of a meeting within a stipulated timeframe. [Schedule 2, item 2, section 110E(8)]

1.62 A member who has elected to receive documents in hard copy may revoke their election. Such a revocation applies from the business day after it is received by the sender. The sender may send documents to the member electronically or in physical form from the date of the revocation. [Schedule 2, item 2, section 110E(7)(b)]

Ad hoc requests

1.63 A member may make an ad hoc request to receive a particular document electronically or in physical form. This request may be made within a reasonable time before the sender's obligation to send the document arises or within a reasonable time after the document has been received. [Schedule 2, item 2, section 110J(1) and (2)]

1.64 If a member makes a request, the sender must take reasonable steps to send the document in the requested form within 3 business days after receiving the request except in two situations. [Schedule 2, item 2, sections 110F(2)(a), 110G]

1.65 The first situation is where a request is made before the document is required or permitted to be sent. In this case, the sender does not need to send the document sooner than required under the specific section in the Act that gives rise to the obligation. For example, if a member asks for their next meeting notice to be provided in physical form three months before the meeting, the company only needs to give them the notice of the meeting in physical form 21 days before the meeting as per section 252F. [Schedule 2, item 2, section 110F(2)(b), 110G]

1.66 The second situation is where ASIC exercises its existing powers to grant relief in section 1345 of the Act. [Schedule 2, item 2, section 110F(1)]

Elections not to receive documents

1.67 Members of companies and registered schemes can also elect not to be sent an annual report or any document prescribed in the regulations. This is consistent with the existing law. [Schedule 2, item 2, sections 110E(4), (5) and (6)]

1.68 A failure to take reasonable steps to avoid sending a document to a member who has made an election not to be sent a document is a strict liability offence. The penalty for this offence is 30 penalty units, which is equivalent to the penalties for other failures to comply with elections. [Schedule 2, items 2 and 48, section 110G and Schedule 3]

1.69 A strict liability offence for failing to comply with an election not to receive a document is appropriate as it ensures that ASIC can efficiently and expeditiously deal with low-level offending. This bolsters the integrity of the regime and encourages compliance. The strict liability offence meets all the conditions listed in the Attorney-General's Department's A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers.

ASIC's relief powers

1.70 The Treasury Laws Amendment (2021 Measures No. 1) Act 2021 gives ASIC a new emergency relief power in section 1345. This power allows ASIC to relieve an individual or class of entities from providing a document in physical form or extend the timeframe for providing the document. The power can only be exercised if ASIC considers that it may not be reasonable to expect the entity to comply with the law due to circumstances beyond the entity's control.

1.71 This Schedule amends this power so that ASIC can also relieve an individual or class of entities from providing a document in electronic form. [Schedule 2, items 40-42, sections 1345(3A), (5) and (6A)]

1.72 It also clarifies that the power applies to situations where the Act uses a synonym for 'give', such as 'send'. [Schedule 2, items 40, 43 and 44, sections 1345(3), (11) and (12)]

1.73 The power is designed to be used only in exceptional circumstances, such as where an IT failure makes it unreasonable to expect a sender, or a class of senders, to provide an electronic document. Unless revoked earlier, an ASIC determination is repealed at the end of 12 months after the day on which it commences.

Notification requirements

1.74 Members of public companies, disclosing entities and registered schemes must, at least once per year, be notified of their right to elect to receive a document in a specified form (physical form or electronic form), or request that a particular document be provided in a specified form. The company or registered scheme must take reasonable steps to provide this notice every time a document is sent to the member. Notice can be given in writing or by publishing a notice on the company or share registry's website. [Schedule 2, item 2, sections 110K(1)-(4)]

1.75 A failure to notify a member of their right to make an election is a strict liability offence carrying a penalty of 30 penalty units. This is the same as the penalty that applies if a company, responsible entity or disclosing entity does not notify its members of their right to receive an electronic or hard copy of the annual report. [Schedule 2, items 2, 38, 45 and 48, sections 110K(5), 1311(1A)(a) and Schedule 3]

1.76 A strict liability offence is appropriate in this circumstance as it is necessary to strongly deter companies or registered schemes from failing to advise members of their right to elect to receive a hard copy. The imposition of a strict liability offence reduces non-compliance by ensuring that ASIC can efficiently and expeditiously deal with low-level offending, thereby bolstering the integrity of the regime.

1.77 This strict liability offence meets all the conditions listed in the Attorney-General's Department's A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers. It does not exceed 300 penalty units for a body corporate and preserves the defence of honest and reasonable mistake of fact to be proved by the accused on the balance of probabilities.

Elections made before commencement

1.78 If a member has notified a company or responsible entity that they wish to receive documents in physical or electronic form, or that they do not want to be sent a copy of an annual report, prior to the commencement of the Schedule then that member will be taken to have made an election for the purposes of the new law and will not need to re-make the election. If a member made a request to receive a full financial report prior to commencement then that request will continue to have effect after commencement This effectively converts any elections made under a contract in a statutory election under the Act. [Schedule 2, item 47, sections 1687D, 1687E, 1687F, 1687G and 1687H]

Other consequential amendments

1.79 The Bill also makes the following consequential amendments to facilitate the giving and signing of documents electronically:

•

section 249J is amended to ensure that members can be notified of meetings electronically; [Schedule 2, items 7-10, section 249J]

•

the rules in relation to the receipt of proxy documents by companies and responsible entities for registered schemes are amended to ensure that they continue to operate effectively; [Schedule 2, items 12, 23 and 24, sections 250B(3) and 252Z(3A) and (4)]

•

the rules relating to when notices of meetings are taken to be received are updated to state that electronic notices are taken to be received on the business day after they are sent; [Schedule 2, items 18-21, sections 252G(3)(c) and 252G(4)]

•

the heading of Part 2G.5 is updated to more accurately reflect the contents of the Part; and [Schedule 2, item 27, heading to Part 2G.5]

•

Divisions 1, 2 and 3 of Part 2G.5 is repealed. [Schedule 2, item 28, Divisions 1, 2 and 3 of Part 2G.5]

1.80 Amendments are also made to sections 314, 315 and 316 and Schedule 3 to ensure that the rules in relation to sending annual reports operate consistently with the new rules for giving documents electronically. [Schedule 2, items 30-37 and 50, sections 314, 315 and 316 and Schedule 3]

Hybrid meetings of shareholders of a company or registered scheme

1.81 The Bill also makes permanent changes to clarify that companies and registered schemes can use technology to hold meetings.

How meetings may be held

1.82 Companies may hold a meeting at:

•

one or more physical locations (a physical meeting);

•

one or more physical locations and using technology to allow persons to attend virtually (a hybrid meeting); or

•

using technology to allow members to attend virtually if this is expressly permitted or required by the constitution (a wholly virtual meeting).

[Schedule 2, items 11 and 22, sections 249R and 252P]

1.83 The Bill also clarifies that companies registered as bodies corporate under the Australian Charities and Not-for-profits Commission Act 2012 may hold physical, hybrid or wholly virtual meetings. [Schedule 2, item 3, subsection 111L(1)(table item 9, column 1)]

1.84 The new law is not prescriptive about how a meeting should be conducted. It does not mandate a particular format for a meeting or a particular way in which a show of hands or a vote on a poll is to be conducted. It recognises that the meeting rules apply to a broad range of companies, from small not-for-profit companies to large, publicly listed companies, and allows each company to select the format for the meeting that is most appropriate for that company.

1.85 All persons participating in the meeting (whether by being physically present or using electronic means) are taken to be 'present'. This means that all persons attending virtually at the time that the quorum is called must be counted for the purposes of determining whether there is a quorum. [Schedule 2, items 11 and 22, sections 249RA(3) and 252PA(3)]

1.86 The Bill also sets out the place and time of a meeting. These rules are summarised below:

Table 1.1 : Place and deemed time of different types of meetings

[Schedule 2, items 11 and 22, sections 249RA(1)-(2) and 252PA(1)-(2)]

Reasonable opportunity to participate

1.87 Regardless of how a meeting is conducted, the members as a whole must be given a reasonable opportunity to participate. [Schedule 2, items 11 and 22, sections 249S(1) and 252Q(1)]

1.88 This requirement has several components.

1.89 First, for a physical meeting or a hybrid meeting, the physical venue for the meeting must be reasonable. If there is more than one physical venue, only the main physical venue (as set out in the meeting notice) needs to be reasonable. [Schedule 2, items 11 and 22, sections 249S(4)-(5) and 252Q(4)-(5)]

1.90 The reasonableness of a physical venue could be determined by considering where the company or registered scheme is registered, where the members reside or where the directors are located.

1.91 Second, the meeting must be held at a reasonable time. The reasonableness of the time for a physical or hybrid meeting is determined by having regard to the place at which the meeting is held (that is, it may not be the same as the time that the meeting is deemed to be held as per Table 1.1). A wholly virtual meeting is held at a reasonable time if that time would have been reasonable at any physical venue where it would have been appropriate to hold the meeting. [Schedule 2, items 11 and 22, sections 249S(3) and 252Q(3)]

1.92 Third, reasonable technology must be used to connect more than one physical venue or facilitate virtual attendance. For instance, the technology used to facilitate virtual attendance would need to be sufficient to allow members to vote. The directors should also consider whether the technology needs to give members as a whole the right to observe the directors or the main proceedings. [Schedule 2, items 11 and 22, sections 249S(6)-(7) and 252Q(6)-(7)]

1.93 The new law also makes explicit that the technology used to facilitate virtual attendance must allow members to exercise any pre-existing right that they may have to ask questions or make comments (such as under sections 250S and 250T) both verbally and in writing. For example, the company could satisfy this requirement by offering members both the opportunity to ask questions orally by dialling into a phone hook-up and the opportunity to type their questions into a chat function. To avoid doubt, this provision does not create any new right for members to ask questions or comments, but simply relates to the manner in which any pre-existing rights can be exercised. [Schedule 2, items 11 and 22, sections 249S(7) and 252Q(7)]

1.94 Prior to these amendments, sections 249R, 249S, 252P and 252Q included a requirement for meetings to be held at a reasonable time and place, and for reasonable technology to be used to connect more than one physical venue. The new law clarifies that these rights are part of the general right to give the members as a whole a reasonable opportunity to participate.

1.95 These requirements are not an exhaustive list of what is involved in giving the members as a whole a reasonable opportunity to participate. [Schedule 2, items 11 and 22, sections 249S(2) and 252Q(2)]

1.96 A Court may declare that a meeting is invalid if the members as a whole do not have a reasonable opportunity to participate and the Court is of the opinion that a substantial injustice has occurred and cannot be remedied by a Court order. [Schedule 2, item 39, section 1322(3A)]

1.97 Consequential amendments have also been made to ensure that there are no ongoing changes to the requirements relating to using technology in directors' meetings. [Schedule 2, item 6, section 248D]

Review

1.98 The provisions relating to meetings and electronic communication must be reviewed no later than the earliest practicable day after the end of two years after this Bill commences. The review of different provisions can be conducted at different times. [Schedule 2, item 47, sections 1687J(1)-(2) and (4)]

1.99 The review of sections 249R(c) and 252P(c), which allow for companies and registered schemes to hold wholly virtual meetings, must be conducted by an independent panel, with at least one panel member who has experience representing the interests of shareholders, advocating for corporate social responsibility, and in corporate governance and the role of company directors. This aims to ensure that the review takes into account the views of companies, registered schemes, and their members. [Schedule 2, item 47, sections 1687J(2A)]

1.100 A written report must be prepared and tabled in Parliament within 15 sitting days after the report is given to the Treasurer. [Schedule 2, item 47, sections 1687J(3) and (5)]

1.101 If a report on the operation of sections 249R(c) and 252P(c) is not tabled in parliament before the end of a period of 30 months after the Bill commences then the amendments to those provisions will cease to have effect. If the provisions cease to have effect, any meetings held during that 30 month period will be valid but meetings cannot continue to be held in accordance with the new provisions that facilitate the use of virtual meeting technology. [Schedule 2, item 47, section 1687K and note to section 1687J(2)]

1.102 The Government must prepare a response to the report and table it in each House of Parliament no later than the first sitting day of that house after the end of a 3 month period beginning on the day that the report is first tabled in either House of Parliament. [Schedule 2, item 47, section 1687J(6)]

Requests for independent reports on polls

1.103 The Bill provides that certain members of listed companies and registered schemes may request that the company or responsible entity appoint an independent person to observe and/or scrutinise and prepare a report on the outcome of the polls at the meeting of the members. [Schedule 1, item 29 section 253UB(1), 253UC(1), 253UD(1) and 253UE(1)]

1.104 A member or group of members with at least 5 per cent of the votes may request that an independent person be appointed. The request must be made in writing and specify the meeting to which it relates. If the request relates to the observation of a poll then the request must be made no later than five business days before the meeting. If the request relates to a report on the outcome of a poll then the request can be made up to five business days after the meeting. [Schedule 2, item 29, sections 253UB(1)-(2), 253UC(1)-(2), 253UD(1)-(2) and 253UE(1)-(2)]

1.105 The company or responsible entity of a registered scheme must take reasonable steps to appoint an independent person after receiving the request. If the request is in relation to the observance of a poll then the company or responsible entity should take reasonable steps to ensure that the independent person observes the poll. If the request is in relation to the observation of a poll, and the independent person notifies the company of any matters in relation to the outcome of the poll, then the company must take reasonable steps to notify members of those matters .[Schedule 2, item 29, sections 253UB(3), 253UC(4) and (5), 253UD(3) and 253UE(4)]

1.106 The person appointed to observe and/or scrutinise prepare the report must be independent of the company or the registered scheme. There is a presumption that the auditor or registry service provider of the company or registered scheme is an independent person. However, this presumption would be rebutted if the poll was in respect of an issue that related to the auditor or registry service provider, such as a vote to remove the person. [Schedule 2, item 29, sections 253UA, 253UB(6), 253UC (7), 253UD(6) and 253UE(7)]

1.107 The company or responsible entity of the registered scheme is responsible for paying any fees associated with appointing the independent person. [Schedule 2, item 29, sections 253UB(5), 253UC(6), 253UD(5) and 253UE(6)]

1.108 It is expected that where a company or registered scheme has an independent person observe and/or scrutinise and prepare a report on polls as part of their standard meeting practices this will satisfy these requirements and there will be no additional burden on these entities. Similarly, if a scrutineer is appointed under Chapter 14 of the ASX Listing Rules and a request is made by a member or group of members it is expected that the scrutineer and the independent person would be the same person and only one report would need to be prepared.

1.109 An independent person may request information from the company or responsible entity if they reasonably believe that the information is necessary for the scrutiny of a poll, preparation of the report or observation of a poll. The company or registered scheme must provide the independent person with the information that the independent person requests. A company or responsible entity will not be required to provide the independent person with the information if the document is privileged or would incriminate its directors as the Bill does not alter any fundamental common law rights. [Schedule 2, item 29, section 253UF]

1.110 After the report has been completed the company or responsible entity must make the report available to the members within a reasonable time. In line with the requirements for keeping a record of meeting minutes, the company or responsible entity must keep a record of the report. [Schedule 2, item 29, sections, 253UC(4), 253UE(4) and 253UG]

1.111 A company or responsible entity commits a strict liability offence if it breaches its obligations in relation to taking reasonable steps to appoint an independent person, providing access to information, publishing the report, keeping a record of the report or failing to report to members any irregularities observed by an independent person. The maximum penalty for these offences is 40 penalty units. Strict liability offences are appropriate in this circumstance, as it is necessary to strongly deter misconduct that can have serious detriment for members. [Schedule 2, items 29 and 49, sections 253UB(4), 253UC(5) 253UD(4), 253UE(4) and (5), 253UF(3) and (4) and Schedule 3]

1.112 Strict liability offences reduce non-compliance, which bolsters the integrity of the regulatory regime enforced by ASIC. Strict liability is particularly beneficial to regulators as they need to deal with offences expeditiously to maintain public confidence in the regulatory regime.

1.113 The strict liability offences in this Schedule meet all the conditions listed in the Attorney-General's Department's A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers. For example, the fines for the offences do not exceed 60 penalty units for persons other than a body corporate or 300 penalty units for a body corporate. The application of strict liability, as opposed to absolute liability, preserves the defence of honest and reasonable mistake of fact to be proved by the accused on the balance of probabilities. This defence maintains adequate checks and balances for persons who may be accused of such offences.

Voting on substantive resolutions

1.114 The Bill also provides that votes on resolutions which are set out in a meeting notice paper for a meeting of a listed entity's members must be conducted by way of a poll. These resolutions are usually substantive in nature and polls are more accurate, reliable and better reflects the voting power of all shareholders than votes which are conducted by a show of hands. A resolution will not be on a meeting notice paper if it is procedural in nature. [Schedule 2, items 15, 16, 17 and 25, sections 250J(1), 250JA, 250M and 253J(1A)]

1.115 This requirement is not a replaceable rule and will need to be complied with even if there is a contrary clause in the company's constitution.

1.116 The default method for conducting votes at a meeting has been removed. The replaceable rule now provides that a resolution may be decided on a show of hands if a poll has not been demanded. This is no longer a mandatory requirement that applies for all companies that have adopted the replaceable rule and for all ordinary resolutions put to vote at a meeting of a scheme's members. [Schedule 2, items 15 and 26, sections 250J(1) and 253J(2)-(2A)]

1.117 These changes implement recommendation 6.4 of the 4th edition of the ASX Corporate Governance Principles and Recommendations. This recommendation was made on the basis that a poll is the only way that the chair of a meeting can ascertain the true will of all security holders. The ASX recommendation also notes that votes which are determined by a show of hands fail to uphold the 'one security, one value' principle.

1.118 Consequential amendments have also been made to:

•

extend the obligation on companies to record the details of members and proxies voting on polls to all polls which are required, whether demanded or on a meeting notice paper; [Schedule 2, items 4-5, sections 201R and 225(2)]

•

ensure that proxies with 2 or more appointments who have received conflicting instructions on how to vote from appointees do not vote by show of hands; and [Schedule 2, item 13, section 250BB(1)(b)]

•

preserve the rules for when a chair is deemed to have been appointed as a proxy for a resolution. [Schedule 2, item 14, sections 250BC(c)]

Application and transitional provisions

1.119 The amendments in Schedule 1 which apply to signing and executing documents apply to documents which are signed or executed on or after the day that the Schedule commences. [Schedule 1, item 18, sections 1687 and 1687A]

1.120 The amendments in Schedule 2 apply to meetings of members or directors which are held and documents sent on or after 1 April 2022. [Schedule 2, item 47, section 1687B]

1.121 Schedule 2 makes the changes in the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 permanent by repealing the sunsetting provision and then making the necessary consequential amendments. [Schedule 2, items 45 and 46, note to section 1679A and sections 1679E and 1679F]

Chapter 2 - Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the

Human Rights (Parliamentary Scrutiny) Act 2011

Corporations Amendment (Meetings and Documents) Bill 2021

2.1 The Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

2.2 The Bill allows companies and registered schemes to hold hybrid meetings (which give shareholders the option of either attending in person or remotely), to sign and execute certain corporate documents in flexible and technology neutral manners, and provide meetings related documents to members electronically or in hard copy on a permanent basis.

Human rights implications

2.3 The Bill does not engage any of the applicable rights or freedoms.

Conclusion

2.4 The Bill is compatible with human rights as it does not raise any human rights issues.

Attachment A Regulation Impact Statement -Electronic document execution and meeting materials

BACKGROUND

On 5 May 2020, the Treasurer used his temporary instrument-making power under the Corporations Act 2001 (the Act) to issue a determination that temporarily allowed companies to use technology to satisfy their legal obligations concerning meetings and document execution. The temporary instrument-making power allowed the Treasurer to provide short-term regulatory relief to those who are unable to meet their obligations under the Act due to the Coronavirus crisis. This determination supported companies so they could continue to operate while still meeting social distancing requirements brought about by the Coronavirus crisis. The temporary reforms allowed companies and their officers to:

•

validly execute documents electronically;

•

provide meeting-related materials electronically; and

•

hold wholly virtual meetings.

Due to the ongoing challenges posed by the Coronavirus crisis, the Treasurer subsequently remade the determination to extend the relief until 21 March 2021. On 10 August 2021, the Government renewed the temporary measures through the Treasury Laws Amendment (2021 Measures No. 1) Act 2021. This temporary relief will expire on 31 March 2022.

In the meantime, the Government announced as part of the Digital Business Plan in the 2020-21 Budget, that it would consult on making the reforms permanent. Following consultation, the Government announced on 17 February 2021, that it would progress:

•

permanent reforms that will facilitate companies and their officers to validly execute documents and send meeting-related materials electronically; and

•

conduct a 12-month opt-in review of annual general meetings to enable a proper assessment of the benefits of using technology to engage with members.

The permanent reforms in respect of document execution and sending meeting-related materials are the subject of this Regulation Impact Statement. The reforms clearly articulate that the law clarifies that physical, hybrid or virtual meetings (if expressly permitted by constitutions) can be held. Following the abovementioned review of annual general meetings, a separate Regulation Impact Statement will be drafted for meetings, covering the rules that are being consulted on as part of the Corporations Amendment (Meetings and Documents) Bill 2021, drawing on the information obtained as part of the review.

What is the policy problem you are trying to solve?

Prior to the temporary determination, companies were restricted in their ability to use different technologies to comply with the requirements related to document execution and meeting documents, respectively found under section 127 and Chapter 2G of the Corporations Act 2001.

Valid document execution requirements

Section 127 of the Act sets out a process for companies to validly execute a document containing legal rights and/or obligations, such as a contract or a deed. It provides that a company will have validly executed the document if two directors of a company, a director and secretary of a company or a sole director for a proprietary company sign the document or witness the affixation of the common seal of the company to the document.

The purpose of prescribing this process is to provide certainty for counterparties transacting with companies of their legal rights and obligations in respect of a company and to set expectations that companies set up internal corporate governance mechanisms to ensure that documents are only executed when a company intends to be bound by legal rights and obligations. The current process, legislated in 2001, does not align with the Government's plans to enable businesses to take advantage of existing and emerging digital technologies. To be able to rely on section 127 of the Act to validly execute documents, it is generally taken that the physical presence of company officers to sign a paper document using wet-ink or to witness the affixation of the common seal is required. This requires company officers to physically meet or for companies to pay for the document to be transported in hard copy. These costs are incurred unnecessarily, because there is technology now available that allows company officers to sign or witness documents without meeting or transporting a hard copy document, and it is well within the capabilities of any company to ensure that these technologies are used effectively where a company intends for rights and obligations to be legally binding. Recently released consultation on Modernising Document Execution by the Department of the Prime Minister and Cabinet indicates that over 4.5 million deeds and more than 3.8 million statutory declarations are made each year by small and medium enterprises and consumers and reforms to the execution of these documents are estimated to save over $400 million in direct costs and time wasted each year.^[2]

Meeting-related documents requirements

Chapter 2G of the Act requires companies to provide a series of documents to members that are related to meetings. These include notices of the meeting, resolutions and member statements, proxy forms and when requested, minute books. The purpose of these requirements is to enable and encourage member engagement with the operations of the companies in which they are invested.

Again, these requirements do not align with the Government's plans to enable businesses to take advantage of existing and emerging digital technologies. If a company must provide notice of meetings and other meeting-related material via post, unless a member has nominated an electronic address, they cannot take advantage of modern technologies that could be more cost efficient for sending meeting notices than postal services.

This means that companies are unnecessarily incurring significant costs, given how widely accepted the use of technology is:

•

In its 2018-19 Communication Report, the Australian Communications and Media Authority highlighted the widespread use and growth of electronic communication, stating that approximately 91 per cent of Australians adults have a home internet connection and over 83 per cent of Australian adults own a smart phone^[3].

•

This is reflected among the shareholding population - during public consultation, one major share registry indicated that over 90 per cent of their interactions with members are via digital channels, not telephone or mail, and other industry data^[4] suggests that voting in respect of companies in the ASX50 and ASX300 is primarily executed digitally (54 per cent and 60 per cent respectively).

In previous consultations undertaken by Treasury for the temporary and permanent reforms to allow the use of technology to send and sign documents, industry provided the following examples to illustrate this point:

•

An ASX10 company that sent 600,000 notifications to advise members that meeting materials (including proxy forms) were available online, and only received 100 requests to send proxy forms via post;

•

Link Group indicated that the average return rate of proxy forms sent by post in 2019 was 3.87 per cent, despite the inclusion of business reply envelopes;

•

An ASX20 company with a 35 per cent retail member base reported that out of 60,880 hard copy forms that were posted, only 2,381 proxy forms were returned by mail; and

•

At least 20,000 notices of meeting and other documents are being posted to addresses that are incorrect, and therefore are incurring these costs even though members are not reading this material.

This indicates that companies are incurring costs associated with posting hard copy materials due to legislative constraints which limit the extent to which companies can adopt new technology options.

Why is government action needed?

The social distancing requirements arising out of the Coronavirus crisis has caused companies to invest in their technological capabilities. The public has mirrored this investment in digital literacy, to stay in touch with their family, friends, and workplaces - and the companies in which they have an interest, as facilitated by the temporary reforms in response to the Coronavirus crisis.

The main objective of the Government's reforms is to ensure that where substantive statutory requirements can be met using digital technologies, the law allows companies and their officers to choose to do so. As the conditions of validly executing documents and obligations to send meeting-related materials are articulated in statute, they can only be amended through Government action to amend legislation.

What policy options are you considering?

The Government sought informal feedback on the temporary reforms from industry groups, companies, share registries, the legal profession and investor representatives. This feedback informed the development of the draft law for the permanent reforms. Consultation on the permanent reforms was conducted on 19 October 2020 to 6 November 2020; 25 June 2021 to 16 July 2021; and 30 August 2021 to 16 September 2021. The consultations involved both face-to-face (and virtual) meetings with stakeholders and provided an opportunity for the public to provide submissions.

This consultation process has informed the identification of the following options:

1.

Continue with the law as it stood prior to the introduction of temporary reforms (status quo).

2.

Make permanent the temporary reforms as is, which will allow the use of technology to meet legal requirements in respect of document execution and sending meeting-related materials.

3.

Make permanent the measures in the temporary reforms with some modifications to improve their operation.

Option 1 - Maintain the status quo

Option 1 involves companies adhering to the provisions under the Act that were in place prior to the temporary determinations and legislated relief in response to the Coronavirus crisis.

Document execution

In relation to document execution, this means that following the expiration of the temporary relief on 31 March 2022, counterparties to a transaction may not be able to legally rely on the rights and obligations contained in a document if a company has used technology to execute it. Section 127 of the Act only provides a mechanism for valid document execution if:

•

the same document is physically signed (wet-ink signature) by either two directors of a company, a director and secretary of a company or a sole director for a proprietary company: or

•

the common seal of the company is fixed to the document and the fixing of the seal is physically witnessed (wet-ink signature) by either two directors of a company, a director and secretary of a company or a sole director for a proprietary company.

Meeting-related materials

In relation to meeting-related materials, this means that unless a member has consented to receiving documents (such as meeting notices, and certain resolutions and statements) electronically, a company can only satisfy regulatory requirements by posting hard copies. Where required, they must sign a hard copy of these documents using wet-ink. and must keep, retain, and provide minute books in hard copy.

Option 2 - Make permanent the temporary reforms

Option 2 involves permanently implementing the temporary reforms introduced by the Treasury Laws Amendment (2021 Measures No. 1) Act 2021, in respect of sending meeting materials and document execution.

Document execution

These temporary reforms allow company officers to validly execute a document, by signing it or a copy of the document electronically. It allows company officers to use technology to validly execute a document, by using electronic means to witness the affixing of the common seal of the company.

Meeting-related materials

These temporary reforms allow companies and their officers to satisfy statutory requirements to send meeting-related materials electronically, regardless of whether members previously provided consent. The temporary reforms allow meeting minutes to be kept, retained and provided electronically.

Option 3 - Make permanent the temporary reforms with modifications to improve the operation of the reforms

Option 3 has been developed following feedback from three rounds of consultation with stakeholders currently making use of the temporary reforms. As with Option 2, it involves modifying the requirements in the Act, in respect of the execution of company documents and meeting-related materials.

Option 3 incorporates drafting techniques which will enable the Government to more easily expand the scope of these reforms to apply more broadly to requirements to sign and send documents across the Act. These further changes are being considered and Treasury will consult on them as part of the Modernising Business Communications project. This project seeks to reduce regulatory burden and increase the technology neutrality of all legislation across the Treasury portfolio. It has the potential to build on these permanent reforms to further reduce regulatory burden on companies.

This option legislates a review clause which requires the Government to review the effectiveness of the proposed legislation as soon as practicable, two years after its commencement.

Document execution

In respect of execution of company documents, reforms will be expanded explicitly to:

•

clarify that companies and their officers (including company agents) will be able to create and sign deeds, as well as other documents, electronically;

•

allow documents to be validly executed in technology neutral and flexible manners by permitting persons to sign documents using a mixture of electronic and wet-ink methods and not requiring all signatories to sign the same copy of a document;

•

allow a person who is signing a document in multiple different capacities to sign once in multiple different capacities;

•

allow the use of technology to execute documents with a common seal electronically, including by allowing witnesses to validly witness the fixing of a company seal electronically;

•

ensure that deeds do not need to be signed on paper, parchment or vellum to be executed and remove the common law requirement of formal delivery; and

•

ensure that the Australian Securities and Investments Commission (ASIC) or a Registrar (any Commonwealth Body appointed under the Act to carry out registry functions and powers) cannot refuse to receive or register a document that is signed in accordance with the technology neutral signature provisions.

The reforms will allow company agents to execute a deed without a witness. Traditionally witnessing the execution of a deed in this way would require physical signing and witnessing of the document. The requirement has been removed to facilitate technology-neutral signing and was informed by consultation with stakeholders. Stakeholders stated that the witnessing requirement provided little, if any, certainty about the execution of the document as any person may be a witness (they do not have to be known to the party) and there are no requirements for the witness to know the signer or satisfy themselves as to the signer's identity.

The proposed legislation includes reforms that expand the statutory validation for the execution of company documents to cover circumstances where these documents are executed by directors and company secretaries, as well as sole directors who are also the company secretary.

Meeting-related materials

In relation to the requirements in respect of meetings, the measures differ from the temporary reforms introduced by the Treasury Laws Amendment (2021 Measures No. 1) Act 2021, in that they:

•

allow companies to choose whether to satisfy their obligations to provide documents to recipients by providing hard copy documents or by using electronic means unless a member makes an election to receive documents in a certain manner;

•

allow companies to send documents in five ways: in hard copy; electronically; physically with access to information electronically (e.g., physical postcard); electronically, with access to information electronically (e.g., electronic postcard); or by posting the information on a website, if the document is an annual report or otherwise permitted by the regulations;

•

expand the scope of documents which a company may send in one of those five ways to include all documents sent by a company related to meetings to anyone, not just to members;

•

provide companies with a period of 30 days to comply with a new member election to receive documents in hard copy;

•

allow members the flexibility to elect to receive documents in a particular format on a once off basis;

•

require public companies and registered schemes to notify members of their election rights by either providing them with a notice once a year, or by publishing that information on a website; and

•

consistent with members' current rights to elect not to receive annual reports, provide members with the option to elect not to receive annual reports or certain other documents that are prescribed by the regulations.

These provisions will come into effect on 1 April 2022, after the temporary relief expires. This will give companies clarity and certainty on their ability to rely on the temporary reforms until 31 March 2022 and sufficient time to prepare for the new provisions.

What is the likely net benefit for each option?

Option 1 - Maintain the status quo

This option does not achieve the Government's objectives of ensuring that where substantive statutory requirements can be met using digital technologies, the law allows companies and their officers to do so.

Document execution

Without reforms, companies must generally execute documents in person using wet-ink on hard copies. Accordingly, company officers will have to execute documents in hard copy, with a wet-ink signature, in person. Companies will continue to incur the costs associated with directors having to travel locally, from interstate or overseas and the printing costs to execute a document in person. There may be postal delays that may impose on the documents being executed in a timely manner.

Meeting-related materials

Companies must post meeting-related materials where members have not consented to receiving documents electronically; keep, retain, and provide meeting minutes in hard copy; and sign meeting-related documents using wet-ink on hard copies.

The costs of posting meeting materials are significant. According to industry estimates, around 50 per cent of a company's member base have actively elected to receive notices of meeting via email. For the remaining portion of shareholders, companies are required to send a paper notice of meeting, and meeting materials by post. This requirement is costly and unnecessary for companies.

For example, of the 600,000 notifications that were sent to members from an ASX10 company advising the availability of the notice of meeting and proxy form online, only 100 requested hard copies. Industry estimates suggest that the costs could range between $250,000 and $1,000,000 per meeting. One industry source suggested that the ASX20 alone spends around $13 million on mail-outs per AGM season. For example, Telstra printed and posted approximately 650,000 hard copy notices of meetings for its 2019 AGM, which was estimated to cost between $800,000 and $1,000,000. AMP Limited estimated the cost in printing and posting notices of meeting is approximately $400,000 per year. These costs do not include labour costs.

Smaller companies, including not-for-profits, incur significant costs. An estimate from one club suggested that they spent approximately $70,000 on posting paper notices to its 41,000 members per year. As post becomes less common in society overall, in turn, printing and postage costs are increasing.

Option 2 - Make permanent the temporary reforms

Stakeholders have unanimously welcomed the temporary reforms in the context of the Coronavirus crisis. However, as a permanent measure, stakeholders suggested that this option may not fully achieve the Government's objectives of ensuring that where substantive statutory requirements can be met using digital technologies, the law allows companies and their officers to do so.

Document execution

This option permits a more effective use of technology, particularly if the trend of working from outside the office continues. As a result of the Coronavirus crisis and social distancing measures, companies have invested significantly in their IT infrastructure to facilitate their staff to work from home. Making permanent changes to allow valid document execution to occur electronically will not require staff to travel to work or between offices to execute documents.

However, further flexibility could be provided for companies to use technology. Stakeholders suggested that clarification as to whether the legislative reforms supported the technical requirements for the execution of deeds, would further support companies to use technology. Stakeholders provided feedback in support of clarifying that an authorised agent may execute a deed on behalf of the company.

Some stakeholders raised concerns about fraud in using electronic means to execute documents. In theory, a person may execute a document without appropriate authority. However, whether this is done electronically or physically, such an execution will not be valid and could entail criminal consequences depending on the circumstances. However, initial stakeholder feedback has indicated that the same methods used to confirm that a company officer has in fact physically signed or witnessed the application of a seal to a document under current law, can be used to confirm that a company officer has done so electronically. Furthermore, the use of electronic technologies is more likely to leave an audit trail, if required.

Meeting-related materials

This option permits companies to electronically satisfy requirements to provide meeting-related materials, without members having positively elected to receive electronic documents. This reduces regulatory costs, as the costs of sending electronic notices is much cheaper than by post. One estimate suggested that it costs approximately $0.045 per electronic notice, compared to $2.20 per posted notice.

Overall, Option 2 results in an average saving of $412 million per year. This is a result of combining the savings associated with electronically sending meeting-related materials ($20 million) and electronic document Regulatory burden estimate (RBE) table

Option 3 - Making permanent the temporary reforms with modifications to improve the operation of the reforms

This option goes further to achieve the Government's objectives of ensuring that where substantive statutory requirements can be met using digital technologies, the law allows companies and their officers to do so.

Document execution

In relation to document execution, companies and members will continue to have the advantages of the measures related to document execution outlined under Option 2.

However, Option 3 provides further flexibility and clarity as to the methods that companies may use to execute documents, which will further reduce regulatory burden. This option clarifies that deeds can be validly executed in technologically neutral and flexible ways, and deem documents as validly executed even if the witnessing of a common seal of the company occurred via electronic means. After receiving stakeholder feedback, this option further clarifies the practical assumptions and guidance as to how documents can be signed.

This provides companies a greater range of choices to validly execute documents, so that they can choose the most efficient one for their circumstances, and whatever they chose, counterparties can rely on the rights and obligations in the executed document.

Meeting-related materials

The differences between this option and Options 1 and 2, is that Option 3 allows members to opt-in to receiving meeting materials electronically or in hard copy. This option ensures that members are notified of their ability to make an election, while giving companies the flexibility to provide this notification in one of five ways: in hard copy; electronically; physically with access to information electronically (e.g., physical postcard); electronically, with access to information electronically (e.g., electronic postcard); or by posting the information on a website, if the document is an annual report or otherwise permitted by the regulations. This option provides a means to allow companies to choose the default method of satisfying their obligations to provide documents in the manner that best suits them. It allows members to make elections about receiving documents in a particular manner, or not receiving permitted classes of documents to suit their preferences.

This option allows companies 30 days to comply with new elections by members to receive documents in hard copy. Stakeholder feedback provided that this would allow companies the opportunity to reduce costs by better planning the number of documents which they will be required to print and potentially reducing the number of 'overs' that a company would be required to allow.

This option provides additional opportunities for companies to use technology because it:

•

allows companies to choose whether to satisfy their obligations to provide documents to recipients by providing hard copy documents or by using electronic means unless a member makes an election to receive documents in a certain manner;

•

allows companies to send documents in five ways: in hard copy; electronically; physically with access to information electronically (e.g., physical postcard); electronically, with access to information electronically (e.g., electronic postcard); or by posting the information on a website, if the document is an annual report or otherwise permitted by the regulations;

•

expands the scope of documents that a company may send in one of those five ways to include all documents sent by a company related to meetings to anyone, not just to members;

•

provides companies with a period of 30 days to comply with a new member election to receive documents in hard copy;

•

allows members the flexibility to elect to receive documents in a particular format on a once off basis;

•

requires public companies and registered schemes to notify members of their election rights by either providing them with a notice once a year, or by publishing that information on a website; and

•

consistent with members' current rights to elect not to receive annual reports, provides members with the option to elect not to receive annual reports or certain other documents that are prescribed by the regulations.

These provisions will allow companies greater flexibility to use technology to satisfy regulatory requirements and save associated costs. This option requires a post-implementation review in two years. This will provide the opportunity to assess the effectiveness of these reforms and to determine whether they are operating as intended.

Overall, Option 3 results in an average saving of $450 million per year. This is a result of combining the savings associated with electronically sending meeting-related materials ($20 million) and electronic document execution ($430 million).^[6]

Regulatory burden estimate (RBE) table

Who did you consult and how did you incorporate their feedback?

Prior to the Coronavirus crisis, the Government committed to improving the technological neutrality of regulation. In July 2019, the Prime Minister tasked the Assistant Minister to the Prime Minister and Cabinet with establishing the Deregulation Taskforce and invigorating the Government's New Deregulation Agenda. On 15 June 2020, the Government announced the next priority areas for the Deregulation Taskforce which included modernising business communications. This served as an impetus for stakeholders to provide feedback on priority reforms to make legislation technology neutral - including making permanent changes to regulatory requirements in respect of meeting-related materials and document execution.

As a result of the Treasurer using the temporary power to introduce temporary reforms during the Coronavirus crisis, on 5 May 2020, stakeholders have had an unprecedented opportunity to test the operation of legislative amendments. Companies and members alike have been taking advantage of these reforms, sending and receiving meeting materials and executing documents electronically.

As a result of companies and members taking advantage of the temporary reforms, the Government has used this opportunity to receive feedback through a range of avenues, including three public consultations on the exposure draft legislation.

Treasury consultation on the substantive effect of the temporary reforms

The first avenue involved Treasury obtaining data and information on the substantive effect of the temporary reforms from stakeholders and analysing confidential and public communications from industry and investor stakeholders. As a part of this process, Treasury analysed 17 submissions and reports from different stakeholders, and spoke with a range of stakeholders as part of a targeted consultation to understand the virtual AGM experience, how the law works practically and identify areas of the law that could be improved.

Drawing on submissions from the Senate Select Committee on Financial Technology and Regulatory Technology

The second avenue involved Treasury drawing on submissions and testimonies from industry and investor stakeholders from the Senate Select Committee on Financial Technology and Regulatory Technology.^[7] The Committee sought feedback on removing regulatory barriers arising from a lack of technology neutrality. Some submitters to the inquiry used the opportunity to comment on the effectiveness of the temporary measures and the possibility of them being made permanent. Comments relevant to the permanent reforms made in the submissions were considered by Treasury in developing the permanent reforms.

There were six relevant submissions^[8], and eight witnesses at hearings^[9], which provided relevant testimonies in respect of these reforms. The Committee released its first interim report in September 2020 which included three relevant recommendations: (1) that companies communicate with members electronically by default with members to receive paper-based communication on an opt-in basis; (2) electronic execution and (3) witnessing of documents be allowed.

Treasury consultation on exposure draft legislation

The third avenue was through public consultation on exposure draft legislation from 19 October to 6 November 2020. Treasury received over 65 submissions, as well as a large number of correspondence from retail investors. Treasury met with a range of industry and investor representative bodies. Subsequent public consultations on the exposure draft legislation were held from 25 June to 16 July 2021, during which Treasury received 34 submissions and from 30 August to 16 September 2021, during which Treasury received 27 submissions. Through each of these processes, Treasury undertook targeted consultation with a range of stakeholders on the draft legislation, and discussed other potential options for reform, including clarifying proposed savings and costs to companies.

Treasury consultation on improving technology neutrality

The fourth avenue was through public consultation on the Improving the Technology Neutrality of Treasury Portfolio Laws as part of the Deregulation Taskforce's modernising business communications agenda. As part of this consultation process, Treasury held targeted meetings to seek stakeholder views on areas of business communication requiring reforms and to raise awareness of the Government's technology neutral reform agenda and public consultation process. On 18 December 2020, the Government released a public consultation paper, which was open for 10 weeks and closed on 28 February 2021. On 21 April 2021, the Government announced other reforms following this consultation, that will be progressed through a separate legislative progress.

This experience simultaneously allowed the Government to obtain feedback on the reforms both by having an unprecedented opportunity to observe the actual operation of reforms, as well as through stakeholder feedback. This feedback, from industry and investor representative groups, has helped the Government determine the permanent reforms that should be made with respect to document execution and meeting-related materials.

Summary of feedback

There was overwhelming support from industry representatives, including listed companies, share registries, business associations and legal professionals to make the temporary reforms permanent. Relevant stakeholders included the Australian Institute of Company Directors (AICD), Australian Banking Association (ABA), the Law Council of Australia, the Governance Institute of Australia (GIA), Business Council of Australia (BCA) and Australasian Investor Relations Association (AIRA).

In their submissions to the consultation on the exposure draft legislation, industry continued to express their support for permanent reforms. They noted that there were substantial savings and greater engagement with members. Their primary comments suggested where reforms could further reduce regulatory burden in respect of both document execution and meeting-related materials.

While the document execution reforms were not relevant to members, members were generally supportive of the reforms with respect to meeting-related materials. However, consistent with the recommendations of the first interim report of the Senate Select Committee on Financial Technology and Regulatory Technology, they sought amendments which would require companies to provide hard copies, rather than electronic communications, where members have elected to receive hard copies.

Incorporation of feedback into Option 3

Option 3 takes on board stakeholder feedback to make modifications to the temporary reforms. In respect of document execution, Option 3 took on board suggestions from industry that the final legislation:

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clarify that companies and their officers (including company agents) will be able to create and sign deeds, as well as other documents, electronically;

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allow documents to be validly executed in technology neutral and flexible manners by permitting persons to sign documents using a mixture of electronic and wet-ink methods and not requiring all signatories to sign the same copy of a document;

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allow a person who is signing a document in multiple different capacities to sign once in multiple different capacities;

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allow the use of technology to execute documents with a common seal electronically, including by allowing witnesses to validly witness the fixing of a company seal electronically;

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ensure that deeds do not need to be signed on paper, parchment or vellum to be executed and remove the common law requirement of formal delivery; and

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ensure that ASIC or a Registrar cannot refuse to receive or register a document that is signed in accordance with the technology neutral signing provisions.

The reforms will allow company agents to execute a deed without a witness. Traditionally witnessing the execution of a deed in this way would require physical signing and witnessing of the document. The requirement has been removed to facilitate technology neutral signing and was informed by consultation with stakeholders. Stakeholders stated that the witnessing requirement provided little, if any, certainty about the execution of the document as any person may be a witness (they do not have to be known to the party) and there are no requirements for the witness to know the signer or satisfy themselves as to the signer's identity.

The legislation includes reforms that expands the statutory validation for the execution of company documents to cover circumstances where these documents are executed by directors and company secretaries, as well as sole directors who are also the company secretary.

Following feedback through consultation, various technical drafting changes were made to ensure that the legislation operated as intended.

With respect to meeting-related materials, Option 3 incorporated feedback to:

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allow companies to choose whether to satisfy their obligations to provide documents to recipients by providing hard copy documents or by using electronic means unless a member makes an election to receive documents in a certain manner;

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allow companies to send documents in five ways: in hard copy; electronically; physically with access to information electronically (e.g., physical postcard); electronically, with access to information electronically (e.g., electronic postcard); or by posting the information on a website, if the document is an annual report or otherwise permitted by the regulations;

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expand the scope of documents that companies may send in one of those five ways to include all documents sent by a company related to meetings to anyone, not just to members;

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provide companies with a period of 30 days to comply with a new member election to receive documents in hard copy;

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allow members the flexibility to elect to receive documents in a particular format on a once off basis;

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require public companies and registered schemes to notify members of their election rights by either providing a notice once a year, or by publishing that information on a website; and

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consistent with members' current rights to elect not to receive annual reports, provide members with the option to elect not to receive annual reports or certain other documents that are prescribed by the regulations.

Option 3 includes a provision requiring a review to be undertaken that examines the effectiveness of the legislative reforms, as soon as practicable, two years after its commencement. This was reduced from five years, following consultation on the exposure draft legislation.

What is the best option from those you have considered?

Option 3 is the best option as it goes furthest of the three options, to achieve the Government's objectives of ensuring that where substantive statutory requirements can be met using digital technologies, the law allows companies and their officers to do so.

Option 3 incorporates drafting techniques which will enable the Government to more easily expand the scope of these reforms to apply more broadly to requirements to sign and send documents across the Act. These further changes are changes being considered and consulted on as part of the Modernising Business Communications project and has the potential to further reduce regulatory burden on companies.

Document execution

Option 3 goes the furthest in terms of ensuring that substantive statutory requirements that companies must meet for counterparties to rely on the statutory presumption, can be met electronically. It provides greater flexibility and surety that documents can be executed in a technology neutral manner and expands the scope as to who can execute and what documents can be executed. The scope and flexibility to execute documents is limited under Options 1 and 2. Specifically, the main differences between Options 2 and 3 are as follows:

Meeting-related materials

In terms of meeting-related materials, Option 3 goes the furthest in terms of ensuring that the same substantive statutory requirements are met, while providing companies and members as much flexibility to use technology as possible. The comparison between Options 2 and 3 are as follows:

Overall regulatory savings

Overall, Option 3 has the highest regulatory saving of $450 million on average per year over 10 years. The regulatory costs of requiring companies to provide hard copies of meeting-related materials to members who ask for this information are relatively small, with the regulatory saving attributable to being able to keep, retain, provide and sign meeting-related materials under Options 2 and 3 both being $20 million. The small additional costs from providing access to hard copies on request should be considered against the benefits of improving access to meeting materials for people with limited access to technology. Overall, these provisions will allow companies greater flexibility to use technology to satisfy regulatory requirements and save associated costs.

How will you implement and evaluate your chosen option?

The proposed legislation makes permanent changes to the Act to implement these reforms. The legislation includes a review clause, which requires the Government to evaluate the operation of the legislation as soon as practicable, two years after it commences, to determine whether the reforms are operating as intended.

Option 3 includes a legislative review that will provide the opportunity to assess the effectiveness of these reforms and to determine whether they are operating as intended.

Regulatory burden estimate (RBE) table