Australia’s corporate sector faces uncertainty and increased risk this week after the federal government failed to pass amendments that would confirm companies’ right to hold virtual-only meetings and to execute documents electronically.
Temporary relief through determinations made at the outbreak of the coronavirus pandemic and extended midway through last year allowed companies to use alternative technologies like eSignatures and virtual meetings in situations that had previously required ‘wet ink’ or face to face meetings to fully satisfy corporate laws.
While some companies were engaging in the practices before the pandemic, the determination provided certainty around the rules and the validity of the virtual meetings and electronic documents.
But that relief expired on Sunday after the government could not get its planned extension through the Senate, which does not plan to debate the Bill until August. And the government’s permanent reforms will come no earlier than September, according to the current schedule.
InnovationAus understands the government will now need to work closely with the Australian Securities and Investment Commission on relief the corporate regulator may implement in the interim.
The delay and uncertainty comes despite widespread support for the public health measure now seen as a way of improving efficiency and removing regulatory burdens. Technology vendors also see permanent reforms as potential greenfields for their software applications.
According to legal experts, the failure to either extend or permanently legislate the changes means that as of Monday, any reading of the Corporations Act can no longer consider the temporary rules that allow the use of virtual meetings and electronic document execution.
Law firms are now advising corporate clients to revert to “pre-COVID” practice. Typically, that means meetings can no longer be held only virtually and physical signatures are a safer option for executing contracts due to pre-existing uncertainty about the validity of electronic execution under the Corporations Act.
“Because of that uncertainty people typically require signings to be done in physical form,” Gilbert + Tobin partner Andrew Hii told InnovationAus.
“Now that all changed during COVID, and the government introduced emergency legislation which gave the Treasurer the power to make determinations. And one of the determinations the Treasurer made was to expressly allow for electronic execution,” he said.
“Because that’s now lapsed we moved back into this pre-COVID uncertain world. Which means that in practice a lot of entities will be moving back towards physical signing.”
Mr Hii, a partner in the law firm’s technology and digital group, said in the absence of legislated reform or temporary relief there is potential that some contracts signed will not be enforceable but notes electronic execution is not necessarily invalid.
Corporations can also rely on other laws to structure contracts in a way that allows electronic execution. But doing so removes the protections afforded by the Corporations act.
“The question I ask is why would you risk it? And particularly for high value transactions. Are you willing to risk it on the fact that someone hasn’t signed properly?”
Mr Hii said COVID-19 accelerated the already underway move to electronic document execution and it was disappointing the government could not extend its relief even with bipartisan support.
“Both sides [of politics] are in support of it, it’s just unfortunate that the bill wasn’t able to be passed last week for other reasons.”
Plans to permanently reform the laws are also underway.
In last year’s federal budget, the government proposed to make the temporary changes permanent by legislating amendments to the Corporations Act. Treasury distributed an exposure draft for review in October and the consultation process concluded in early November.
But the department has not published any of the submissions.
A spokesperson for Treasury declined to say how many submissions had been received and said non-confidential submissions “will be made available in due course”.
Several organisations have self-published their submissions, mostly in support of permanently reform. Government MPs have also told the parliament there has been “positive feedback” on the consultation and they are committed to permanent reforms.
On Wednesday, Amendments to Treasury Laws that extend the temporary measures and make small changes passed the House of Representatives, to push back the deadline for using alternative technology to run meetings and execute documents.
The temporary measures had already been extended once before and the goal was to do so again, creating a new deadline in September and allowing more time to introduce permanent reforms.
Labor and the Greens opposed the amendments because they were bundled with what Labor says is a watering down of continuous disclosure laws for companies. The changes passed the House but remain before the Senate.
Assistant Treasurer Michael Sukkar told Parliament last week permanent changes would be in place by the time the temporary extension ends in September when an opt-in pilot will also run to test hybrid AGMs.
“The government will continue to work to ensure that regulatory settings are fit-for-purpose as we continue to deal with, and emerge from, the COVID-19 pandemic as part of Australia’s Economic Recovery Plan to create jobs, rebuild our economy and secure Australia’s future,” Mr Sukkar said.