House of Representatives

Explanatory Memorandum

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

Chapter 5 - Virtual meetings and electronic communications

Outline of chapter

5.1 Schedule 4 to the Bill expands the situations where documents relating to the external administration of a company may be given electronically. It also permits persons to sign documents relating to the external administration of a company electronically.

Summary of new law

5.2 Schedule 4 allows electronic communication to be used to give a document under the external administration provisions in Chapter 5 of the Corporations Act, the Insolvency Practice Schedule, Chapter 5 of the Corporations Regulations, the Insolvency Practice Rules or any other instrument made under Chapter 5.

5.3 The Schedule also allows documents relating to the external administration provisions to be signed electronically by using any reliable method to identify the signatory and indicate the signatory's intention. Signatories may sign different copies of the document, provided that the copy includes the entire contents of the original document.

Comparison of key features of new law and current law

Detailed explanation of new law

Types of documents that may be given and signed electronically

5.4 Electronic communications may be used to provide any document that is required or permitted to be given under:

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Chapter 5 of the Corporations Act (external administration);

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the Insolvency Practice Schedule in Schedule 2 to the Corporations Act;

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Chapter 5 of the Corporations Regulations (external administration);

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the Insolvency Practice Rules or any other instrument made under Chapter 5 of the Corporations Act or the Insolvency Practice Schedule; and

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a transitional provision that relates to the external administration rules in Chapter 10 of the Corporations Act or an instrument made under Chapter 10.

[Schedule 4, item 19, section 600G(1) of the Corporations Act]

5.5 If any of those documents need to be signed, the document can be signed electronically. [Schedule 4, item 19, section 600G(5) of the Corporations Act]

5.6 A new definition of document is also inserted to ensure that the reforms apply to all information, including information that is not in a paper or material form. The new definition mirrors the definition of 'document' in the current version of the Acts Interpretation Act 2001. [Schedule 4, item 1, definition of 'document' in section 9 of the Corporations Act]

5.7 Documents that are required or permitted to be given to ASIC must be lodged with ASIC in accordance with the existing requirements. [Schedule 4, item 19, section 600G(7) of the Corporations Act]

Giving documents electronically

How documents may be provided

5.8 If a person wishes to provide a document electronically, they may do so by:

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

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using an 'electronic communication' or traditional means to provide the person with details sufficient to allow them to access the document electronically (e.g., by giving them a card or sending them an email with a link to a website).

[Schedule 4, item 19, section 600G(2) and (3) of the Corporations Act]

5.9 An electronic communication is defined to mean a communication of information in the form of data, text, images or speech by means of electromagnetic energy. If the information is in the form of speech, the speech must be processed at its destination by an automated voice recognition system. This mirrors the definition in the ETA 1999. [Schedule 4 , item 1, definition of 'electronic communication' in section 9 of the Corporations Act]

5.10 These reforms are facilitative in nature. A sender may elect to give a document in the traditional way, e.g., by posting it to the recipient's postal address.

Conditions that must be satisfied before giving documents electronically

5.11 There are two conditions that need to be satisfied before a document can be given electronically.

5.12 First, the recipient must have provided a nominated electronic address. [Schedule 4, item 19, section 600G(4)(b) of the Corporations Act]

5.13 A 'nominated electronic address' is the most recent electronic address provided by the creditor, company or other person for the purposes of receiving electronic communications unless the person sending the document knows, or there are reasonable grounds to believe, that the electronic address is not the correct address. For instance, a person may know that an email address is incorrect if they attempt to email a document but receive an error message stating that the email was undeliverable. [Schedule 4, item 1, definition of 'nominated electronic address' in section 9 of the Corporations Act]

5.14 If no electronic address has been nominated or the sender knows or has reasonable grounds to believe that the nominated address is incorrect, the sender may use an electronic address that he or she believes on reasonable grounds to be the person's recent electronic address. This address is also considered to be a 'nominated electronic address' [Schedule 4, item 1, definition of 'nominated electronic address' in section 9 of the Corporations Act]

5.15 Second, a document can only be provided 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 paragraph 9(1)(a) of the ETA 1999 which relates to when electronic means can be used to give information in writing. [Schedule 4, item 19, section 600G(4) of the Corporations Act]

5.16 The person providing the document does not need to satisfy the other conditions in section 9 of the ETA 1999. Those conditions require the recipient to consent to the use of electronic means and comply with any requirements of the Commonwealth agency that is receiving the information. These conditions were not included as they would have imposed high regulatory costs on industry and been significantly more restrictive than the relief provided by the Determination.

Time of receipt and dispatch

5.17 There are also new default rules for determining when an electronic communication is sent and received. These rules can be overridden by agreement of the parties. [Schedule 4, item 2, section 105A(1) of the Corporations Act]

5.18 The time of receipt and dispatch needs to be capable of being reliably determined as many requirements in the Corporations Act need to be undertaken within a prescribed time period.

5.19 The default rule for determining when an electronic communication is sent depends on whether the communication leaves the information system that is under the control of the originator (or the party who sent it on behalf of the originator).

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If the communication leaves a person's information system (which is generally the case when correspondence is sent from a company to another company, creditor or shareholder), it is sent at the time that the communication leave the originator's information system rather than the time when it enters the recipient's information system.

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If the communication does not leave a person's information system (for example, for correspondence sent within a company), the electronic communication is sent at the time that it is received by the addressee.

[Schedule 4, item 2, section 105A(2) of the Corporations Act]

5.20 An electronic communication is received when the electronic communication becomes capable of being retrieved by the addressee at the addressee's 'nominated electronic address'. [Schedule 4, item 2, section 105A(4) and (5) of the Corporations Act]

5.21 These rules apply even if the place where the information system supporting an electronic address is located is different from the place where the electronic communication is taken to have been sent or received. [Schedule 4, item 2, section 105A(3) and (6) of the Corporations Act]

5.22 The default rules for determining the time of dispatch and receipt are closely based on the rules in section 12A of the ETA 1999. The only exception is that the ETA 1999 has a more nuanced rule for determining the time of receipt where the electronic address has not been nominated by the addressee. In these circumstances, the rule in the ETA 1999 requires the addressee to have become aware that the electronic communication has been sent. This more nuanced approach was not adopted as it would be administratively difficult for a company if notices and documents sent to multiple creditors were taken to have been received by different persons at different times and the time of receipt could not be reliably determined in advance.

Place of receipt and dispatch

5.23 The default place of dispatch depends on whether the sender has a registered office.

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If the sender is a company, it is required to have a registered officer under section 142. In this case, the place of dispatch is the registered office.

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If the sender does not have a registered office, the place of dispatch is either the most recent physical address given by the sender to the other party. If no such address has been given, it is the originator's usual residential address.

[Schedule 4, item 2, section 105B(2)(b) and (c) of the Corporations Act]

5.24 A different rule applies to correspondence sent by a member to the company or registered scheme. In that case, the place of dispatch is the place listed on the register of members (which is required to include an address under section 169). This part of the definition is more likely to apply outside of Chapter 5. It has been included as part of these reforms in order to ensure that the definition is sufficiently comprehensive to cover the broader technology neutrality reforms that the Government has announced in the context of meetings. [Schedule 4, item 2, section 105B(2)(a) of the Corporations Act]

5.25 Corresponding rules apply to the place of receipt. [Schedule 4, item 2, section 105B(3)]

5.26 The parties have the flexibility to agree an alternative electronic address. [Schedule 4, item 2, section 105B(1) of the Corporations Act]

Signing documents electronically

5.27 A document may be signed electronically if the person indicates, by means of an electronic communication, that the person has signed the document. An example of this might be sending an electronically-signed document in an email with the covering message, 'Please find attached my signed document'. [Schedule 4, item 19, section 600G(5)(c) of the Corporations Act]

5.28 The person must also use a method to identify the signatory and indicate the signatory's intention. The method must satisfy the conditions in paragraphs 10(1)(a) and (b) of the ETA 1999, that is, it must be:

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as reliable as appropriate for the purpose of the communication; and

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proven in fact to have identified the signatory and their intention (by itself or together with further evidence).

[Schedule 4, item 19, section 600G(5)(d) and (e) of the Corporations Act]

5.29 The other conditions in section 10 of the ETA 1999 relating to consent and compliance with the requirements of a Commonwealth authority do not apply to documents provided in the context of external administration. This is designed to reduce the regulatory costs on industry.

5.30 It is not necessary for all persons to sign the same document. Instead, the signatories may sign different copies or counterparts of the document, provided that the copy or counterpart includes the entire contents of the original document. [Schedule 4, item 19, section 600G(5) and (6) of the Corporations Act]

5.31 Documents that are permitted or required to be given to ASIC may also be signed electronically. In situations where ASIC is required to make the document publicly available, the person may wish to remove any personal identifiers (such as their ISPN). [Schedule 4, item 19, section 600G(8) of the Corporations Act]

Amendments facilitating virtual meetings in the Insolvency Practice Rules

5.32 When making a pooling determination under section 571 of the Corporations Act, the liquidator may determine a contact address for the pooled group in the pooling determination. This is to ensure that standard rules for the time and place of a virtual meeting may be made in forthcoming amendments to the Insolvency Practice Rules. The amendment is necessary to ensure that the new standard rules are suitable for virtual meetings concerning a pooled group under external administration. [Schedule 4, item 13, section 571(1)(ca) of the Corporations Act]

Consequential amendments

5.33 Formerly, notes were required to identify the small subset of sections where the requirements to give a document could be satisfied by using electronic means. However, the new facilitative rules that provide for the use of electronic communication are much broader in scope than the former rules and apply to all documents provided under Chapter 5 of the Corporations Act. Accordingly, the notes are no longer needed and are repealed. [Schedule 4, items 3-12, items 14-18 and items 21, 22 and 23, note to section 422B(4), notes 1 and 2 to section 436DA(3), note to section 436E(3), note to section 450A(3), note to section 450B, note to section 450C, note to section 450D, note to section 497(1), notes 1 and 2 to section 506A(2), note to section 568A(1), note to section 579J(1), notes 1 and 2 to sections 579J(2), notes 1 and 2 to section 579K(1), note to section 579K(2), notes 1 and 2 to section 579K(3) and note to section 579K(4) of the Corporations Act, and the notes to section 70-5(6), 70-6(4) and 70-6(5) of Schedule 2 to the Corporations Act]

Application and transitional provisions

5.34 The rules in the Determination for holding meetings using electronic means and alternative technology do not apply to any meetings or documents covered by the new rules. The Determination remains in place and continues to apply to meetings held under other Chapters until the date that the Determination sunsets. [Schedule 4, item 20, sections 1680 and 1680A of the Corporations Act]

5.35 The Bill also confirms the validity of things done under the Determination. [Schedule 4, item 20, section 1680B of the Corporations Act]

Commencement provisions

5.36 Schedule 4 to the Bill commences the day after Royal Assent. [Item 2 of the Bill]