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Electronic execution of deeds by companies

Electronic execution of deeds by individualsIn the context of social distancing and the ‘work-from-home’ culture COVID-19 has demanded, corporations have had to adapt their standard means of holding meetings and executing deeds. Accordingly, on 5 May 2020, Josh Frydenberg, made a determination under the new s 1362A of the Corporations Act 2001 (Cth) (‘CA’) called the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (‘Determination’). The Determination modifies the operation of certain provisions of the CA and other relevant legislative instruments to:

  • provide relief for companies who are unable to meet their obligations under the CA relating to holding meetings due to the Coronavirus restrictions; and
  • facilitate the continuation of business during the restrictions by giving certainty to electronic execution by companies.

Companies now have greater flexibility to execute documents, hold meetings and provide notices via technology rather than being limited to what is permitted by the provisions in their constitution. This temporary relief measure was initially to last for six (6) months commencing from 6 May 2020 but has now been extended for an additional 6 months and will expire on 21 March 2021.

This greater flexibility is designed to ease compliance during the key period of social isolation and distancing relating to the COVID-19 pandemic. Further, while this relief is a positive development, the detailed criteria in the Determination must be followed for reliance on technology to be effective.

This article focuses on the execution of deeds by companies (as compared to contracts and other documents). We have prepared a separate article on the execution of deeds by individuals (refer to ‘Electronic execution of deeds by individuals’ article under related articles below).

Holding meetings

Broadly, many company constitutions do not have express provisions dealing with electronic execution of documents or holding meetings via technology, etc, and those that do often have poor quality or out of date provisions.

The Determination provides temporary relief in respect of any provision of the CA and the Corporations Regulations 2001 (Cth) that requires or permits a meeting to be held or deals with calling or regulating a meeting. The operation of such provisions has been altered to allow for a meeting to be held using technology. This includes an allowance for things such as a quorum to be met where attendance is via technology, voting to be taken by a poll using technology and notice to be given using technology. An example from the Determination is:

A company has email addresses for some of its members [note that a ‘member’ under the CA is a shareholder]. Under this paragraph the company could send those members an email setting out or attaching notice of a meeting, and other material relating to the meeting, or providing a link to where the notice and other material can be viewed or downloaded. To the other members the company could send a letter or postcard setting out a URL for viewing or downloading the notice and other material.

Under the Determination a meeting may be held using one or more technologies that give all persons entitled to attend a reasonable opportunity to participate without being physically present in the same place, and provides:

  • Each person participating in the meeting is taken for all purposes (eg, a quorum requirement) to be present at the meeting while so participating. Thus, records of start and end times for each person participating should ideally be tracked and retained.
  • A vote taken at the meeting must be taken on a poll, and not on a show of hands, by using one or more technologies to give each person entitled to vote the opportunity to participate in the vote in real time and, where practicable, by recording their vote in advance of the meeting. Some software will not allow advance voting and therefore reliance on other measures in the constitution may be needed.
  • A requirement to allow an opportunity for persons attending the meeting to ‘speak’ (eg, by asking questions) may be complied with by using one or more technologies that allow that opportunity (eg, via audio connection). The term ‘speak’ suggests that a chat system or written function may not be sufficient under the Determination. While some dictionary definitions include a written form of speaking, this is not the popular meaning and thus unless the software actually allows participants the opportunity to ‘speak’ (as compared to communication via say a chat function), the criteria in the Determination may not be satisfied.
  • A proxy may be appointed using one or more technologies specified in the notice of the meeting.

The notice of meeting must include information about how those entitled to attend can participate in the meeting (including how they can participate in a vote taken at the meeting, and speak at the meeting, to the extent they are entitled to do so). Thus, more care is needed when relying on technology to ensure compliance with the criteria in the Determination. As noted above, the better option is to have an up to date constitution to provide an ongoing solution in relation to technology rather than relying on a temporary measure.

Electronic execution

Part 3 of the Determination modifies the operation of s 127 of the CA to provide that a company can validly execute a document, where the persons able to sign documents on behalf of a company:

  • sign a copy or counterpart of the document that is in a physical form; or
  • sign a document using an electronic communication method, where that method reliably identifies the person and indicates their intention in respect of the contents of the document.

It is specifically stated that any copy, counterpart or electronic document must include the entire contents of the document (ie, not simply the execution page). Advisers who seek to take short cuts by merely putting in front of a client the pages that require signing, render the document invalid. This is similar to the position in respect of deeds where for example, Seddon in Seddon on Deeds writes that:

… It is possible that an Australian court could hold that such a practice is not sufficient for proper execution. A safer practice in Australia is to send the whole deed electronically as one document, and for it to be printed out as a whole and executed …

While the Determination does not specifically deal with companies executing deeds, s 127(3) of the CA does state that a company may execute a deed if it is expressed to be a deed and executed in accordance with s 127(1) or (2).

The Determination provides temporary relief that automatically expires on 21 March 2021. At the date of writing this newsfeed, Victoria and NSW were the only two jurisdictions in Australia that have a legislative basis for individuals to execute a deed via technology (in the specific manner prescribed in each jurisdiction). Where both a company and an individual are parties to a deed, electronic execution in a jurisdiction other than in Victoria or NSW will not be effective. For more information, refer to our article ‘Electronic execution of deeds by individuals’ under related articles below. Moreover, after 21 March 2021, electronic execution by a company will not be possible unless the constitution has express power that covers technology.

A full version of the deed should be made available to each party before execution.

We therefore recommend that there are appropriate express provisions in the constitution to support electronic execution and to hold meetings, etc, via technology.

Best practice is to always follow the traditional method when executing a deed. However, execution via technology is likely to prove necessary over the next six months or so to minimise the spread of COVID-19.

We are therefore providing guidance in our document packages on what how to execute deeds via technology.

DBA Lawyers’ company constitution

The DBA Lawyers’ constitution has for some time authorised the holding of meetings, passing of resolutions (including circulating resolutions) and the giving of notices of meetings and communications via technology. Importantly, s 127(4) states that s 127 does not limit the ways in which a company may execute a document (including a deed). Accordingly, the DBA Lawyers’ constitution expressly expands the ways in which a company can execute a document. Moreover, the DBA Lawyers’ constitution:

  • Covers both shareholder and director meetings, resolutions and notices.
  • Authorises signing documents on behalf of a company via technology or electronic communication including by way of electronic signature, email or password identification.
  • Includes many other advantages that are not found in other constitutions including:
    • The ability of a director to nominate a successor director to automatically assume their office as a director immediately upon them losing capacity or their death. Refer to the related articles below for further information.
    • Where the company operates solely as a trustee of an SMSF, the relevant restrictions to obtain the substantially lower annual ASIC review fee. However, if the company takes on another role (eg, the trustee of a family trust or the company has its own activities), then there is no need to vary the constitution to take on these extra roles as required under many other suppliers’ constitutions. Refer to the related articles below for further information.

The DBA Lawyers’ SMSF deeds and other trust deeds also include express provisions authorising trustee and unitholder decisions and variations to be made via technology.

It is important to note that having a quality documentation in place that facilitates the use of technology and the latest flexibility which can continue to be relied upon indefinitely is recommended rather than seeking to rely on a temporary relief measure. In any event, banks and others who deal with companies may not wish to rely on temporary relief. Thus, many constitutions are now considerably out of date and should be updated. Given the impact of COVID-19 and social isolation, having an up to date constitution can provide significant efficiency in the current environment.

DBA Lawyers offer a constitution update service that covers technology and much more (click here for more information). Moreover, our new companies (click here for more information) also include these value added features.

Advisers should be mindful that many other document suppliers are not keeping up to date with these complex, ongoing and constant changes. Thus, we recommend that a legal opinion be obtained if execution via technology is sought to be relied on when a document is not supplied directly by a lawyer.

Related articles

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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.

Note: DBA Network Pty Ltd hold a range of SMSF CPD training online. The next live SMSF Online Update webinar is being presented on 5 June 2020. For more details or to register, visit www.dbanetwork.com.au or call Natasha on 03 9092 9400.

By Daniel Butler, Director ([email protected]) and Shaun Backhaus, Lawyer ([email protected]), DBA Lawyers

26 May 2020 and updated on 5 August 2020