2.1
This chapter considers the views received by the Senate Economics Legislation Committee (the committee) on the Corporations Amendment (Meetings and Documents) Bill 2021 (the bill) and concludes with the committee's view and recommendations.
2.2
As noted in Chapter 1 of this report, the committee received 21 submissions to the inquiry. The committee did not undertake any hearings into the bill.
2.3
The inquiry also received 40 form letters of which an example has been published on the committee website. The form letters advocate support for a hybrid approach for shareholders to participate in Annual General Meetings (AGMs) and seek to ensure shareholders can ask questions both in person and online; and that companies are not given the ability to undertake only virtual meetings effectively excluding the hybrid option.
Senate Standing Committee on Economics reports
2.4
This is the third report from the Senate Economics Committees on this suite of amendments, as noted under Consultation in Chapter 1.
2.5
On 18 February 2021 the Senate referred the provisions of the Treasury Laws Amendment (2021 Measures No.1) Bill 2021 to the Senate Economics Legislation Committee for inquiry. The committee tabled its report into the bill on 12 March 2021.
2.6
On 25 February 2021, the Senate extended the reporting date to 30 June 2021. The inquiry held no public hearings and received no submissions from any government department or agency, the Legislation Committee reported on the inquiry on 12 March 2021.
2.7
On 16 March 2021, the Senate referred the provisions of the bill to the Senate Economics References Committee for inquiry and report by 30 June 2021 to enable meaningful public consultation. The Senate adjourned debate on the bill until the first sitting day in August 2021.
Overview of the bill
2.8
The majority of submissions supported the amendments to the Corporations Act 2001 (the Corporations Act) to embed permanently the temporary relief measures that were brought into force through the Treasury Laws Amendment (2021 Measures No.1) Act 2021.
2.9
Submitters agreed that the provisions would generally benefit the sector and allow greater flexibility and efficiency in managing the flow of documents and the undertaking of meetings while delivering savings through the greater use of electronic communications.
Views on the bill
2.10
Many of the submitters supported the move to make permanent the temporary relief measures introduced by the government during the pandemic. In particular, the Business Council of Australia (BCA) stated that, 'the amendments were strongly welcomed by Australian businesses'.
2.11
The Governance Institute of Australia (GIA) stated that it supported the prompt passage of the bill and considered it essential to finalise the legislation before the current temporary relief expires in March 2022, specifically they noted that:
The bill contains a number of non-controversial, broadly supported measures which will assist in bringing the Corporations Act into the 21st century and enhance shareholder participation and engagement. These long overdue reforms should not be further delayed.
2.12
Likewise, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) expressed its support for embedding the changes permanently noting:
Our Office supports these permanent amendments to the Corporations Act 2001 to permit the technologically neutral holding of meetings and execution of documents. We believe the legislation contains appropriate safeguards to protect against intentional misuses of technology.
…This legislation will allow critical business processes to be undertaken despite significant distances or other issues that would otherwise delay or complicate the holding of meetings. These productivity gains will be welcomed by small businesses, and particularly those in rural and/or regional communities, who are less able absorb the costs of travelling for business.
2.13
The Australian Banking Association (ABA) expressed strong support for the bill as did Australasian Investor Relations Association (AIRA) noting the impact on the sector of implementing the amendments permanently:
The bill advances Australia's corporate law into the digital age. It provides a clear and comprehensive framework for companies to use digital technology to execute and send documents to their members and shareholders and hold meetings in a hybrid and virtual format. The bill's adoption of a technology neutral approach will be core to its long-term success and will ensure innovation in investor engagement can continue to evolve to meet the behaviours and demands of shareholders. AIRA has long advocated for permanent changes to the Corporations Act to allow companies to leverage technology as part of our broader shift to the digital economy. Our position is the culmination of extensive engagement with our members and the Australian Government.
2.14
The Association of Corporate Counsel and General Counsels (ACC GC100) states that it supports the changes to enable permanent and consistent application of documents across Australian jurisdictions.
The ACC GC100 supports changes to enable electronic execution and witnessing of legal documents to be made permanent and consistent across Australian jurisdictions. This is particularly important for deeds, both clearly enabling electronic execution and permitting witnessing via technology.
The ACC GC100 supports the bill making permanent changes allowing companies and registered schemes to hold meetings in person, virtually, or as hybrid meetings, in the circumstances set out in 249R.
2.15
The Walrus Committee, 'a committee of senior lawyers from five large Australian law firms' stated that they strongly support the amendments:
We strongly support the amendments. They deal with issues that our firms and others in commercial and corporate practice encounter on an almost daily basis, and that have bedevilled transactions and retarded Australia's embrace of a digital economy (and not just during the COVID pandemic, although that certainly exposed the issues).
2.16
The Government's Digital Transformation Agency (DTA) wrote to the committee stating that it 'supports this draft legislation to enable companies and their officers to use technology to execute company documents and sign meetings-related documents'. Specifically, DTA provided the committee with background regarding the government's Digital Identity Program and how it could support the use of technology to allow e-signatures and electronic execution of company documents. DTA explained that:
Digital Identity could assist companies to meet the requirements to identify a person and capture their intention to sign a document and has strong privacy safeguards which include a design that does not rely on a unique identifier.
2.17
Similarly, DocuSign, encouraged the members and senators to make permanent reform a high priority, stating:
Permanent reform is extremely important to many Australian businesses as they are currently waiting to update their existing digital platforms to allow for the full electronic execution of documents.
As these updates take time and can be complex, businesses need to be certain that relevant laws are permanent before committing to major digital platform upgrades.
Timely and permanent changes to the Corporations Act 2001 (Cth) that allow for the electronic execution of documents will not only create certainty for these businesses but also allow:
Documents to be executed more securely and reliably.
Documents to be signed electronically in minutes, rather than days – documents can be immediately sent back to each of the signers from a computer, tablet or mobile device.
The removal of manual tasks such as meeting face to face, printing, scanning, posting or couriering documents.
Significant financial savings on hard costs such as paper, printing, photocopying, scanning and storing documents. Such considerable paper reduction also has a positive environmental impact.
Documents to be completed from nearly anywhere, at any time and by anyone. This is meaningful for people living in rural and remote areas, small businesses and people with disabilities.
Automatic storage and a robust court-admissible audit trail for every document they sign.
Concerns with elements of the Bill
2.18
Of the submitters to the inquiry, many advocated their support for making the amendments permanent but hastened to add caution in relation to parts of the bill. The main concern raised was in relation to virtual-only meetings, in particular the ability of stakeholders to engage effectively with Boards of companies.
2.19
For example, the Property Council of Australia (PCA) stated that while they support the bill, they remain concerned with certain aspects in the bill related to holding virtual meetings and providing options for members to ask questions both orally and in writing.
While we support the overall intent of the bill, we remain concerned with aspects in the bill related to the holding of virtual meetings and providing options for members to ask questions both orally and in writing, detailed below.
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.
We suggest wholly virtual meetings be included in the Corporations Act, rather than through company constitutions.
Allowing wholly virtual meetings will modernise business in line with the available technology, allow wide access for shareholders, and give companies the flexibility to determine the most appropriate approach for their circumstances.
The bill 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.
We suggest companies should not be required to provide both options.
Providing both options is burdensome and often one is unused, which is ultimately detrimental to shareholders.
2.20
The Australian Institute of Company Directors (AICD) also strongly supports the bill, in particular it notes its agreement with 'adopt[ing] the best meeting format for their circumstances'; the safeguards for shareholder participation in meetings; it also notes the requirement to allow shareholders and members the opportunity to ask questions or make comments. However, it would welcome changes to the legislation to allow more flexibility to distinguish the preferred method of communication with shareholders and members noting that—'this should not mandate that both oral and written channels be provided'—instead suggesting that Australian Securities and Investments Commission (ASIC) could provide advice 'as to better practice and minimum standards'. It noted its support for the 'flexibility to decide whether votes are to be conducted via a show of hands or a poll', though considers there 'should not be a separate legislative requirement for listed entities to conduct votes on resolutions by way of a poll'.
2.21
Clubs Australia also supports the bill and comments on the cost of sending paper notices, stating that 'there are significant monetary and environmental costs of sending paper notices'. Clubs Australia suggest that:
These transition costs can be minimised, while retaining member control of their preference, by simply prohibiting companies from sending documents electronically if the recipient:
has not nominated an electronic address, and
was not sent an s 253RA notice.
2.22
CPA Australia and Chartered Accountants Australia and New Zealand ('the Major Accounting Bodies') noted their support for the bill reiterating their previous position that all these amendments need to be considered 'as part of the overarching digital strategy, a roadmap that clearly outlines and connects the dots to other existing and future projects being carried out by government, such as, Director ID, MyGovID, modernising business communications and modernising document execution'.
2.23
While the Law Council's Business Law Section notes its support for the range of amendments put forward in the bill, it also provided the committee with some 'comments, concerns or reservations in relation to the bill'. Specifically, it noted the following key issues:
we would strongly support the extension of electronic document delivery reforms to takeover documents under Chapter 6 of the Corporations Act;
we have a concern about the drafting of proposed subsection 110E(8) in relation to when elections to be sent documents will operate when there is a 'voluntary' general meeting of members, and it is at least arguable that the Corporations Act does not 'require' a document to be sent by any given date because the company or scheme can choose when the meeting is to be held; and
while we do not have a fundamental objection in principle, we are concerned that the new requirement for all listed entity substantive resolutions to be voted on by poll (proposed sections 250JA and 253J(1A)) is not based on evidence of abuse under the current law that warrants a new prescriptive requirement.
2.24
While strongly supporting the bill, AIRA suggested that 'there are a small number of changes to the provisions that will ensure the legislation is
fit-for-purpose' for all companies and flexible enough to adapt to the digital preferences increasingly adopted by companies and their members and shareholders'. ARIA contends that:
249R(c) should be amended to remove the requirement that a company must permit virtual meetings by its constitution. Companies should have the choice to determine what the most appropriate format is for their company meeting and AGM.
The bill should be amended to require members and shareholders to proactively opt-in to receive physical copies of documents outlined in the bill, as is currently the case with receiving physical copies of annual reports. The default should apply to all members and shareholders and in the circumstance where the company has a member's email address or not.
…s110K should be amended to allow companies to comply with their notice obligations by placing a standard notice on their company website that is readily available alerting members and shareholders of the option to receive documents electronically, in hard copy or not at all. The obligation to provide this notice every time a document is sent to the member is costly and unnecessary given current adoption rates of digital technology and the government's own digital reform agenda.
2.25
Alternatively, Professor Peter Dart stated that that 'I am making a plea for the Amendment to be not adopted'. Professor Dart argues that:
[I]t is a fundamental right of shareholders to meet those who manage the company in which they hold the shares and to ask questions of the Board at AGMs about the conduct of the company. After all the shares are investments of my money providing a component of the ownership of the company and hence its business is my business. I have attended many AGMs and asked questions of the Board, e.g. CBA, Suncorp, Senex, AACO, ANZ, Aurizon, Stanmore Coal, Central Petroleum, ERM Power. At these AGMs I have also taken the opportunity to follow up after the meeting and meet the Board Members and those running the companies such as the CEOs as well as the auditors. This has given me an insight into the personalities running the company as well as establish a personal relationship and invitations to follow up with contact directly to the company management. These are invaluable options for me as a shareholder with interest in how my knowledge can be used in support of my company's and the community's interest.
…
I strongly advocate against the AGMs only being online and in future continue to be hybrid meetings where online and in person attendance operates.
2.26
In a similar vein, Ms Caroline Le Couteur states that:
First off, I think that electronic meetings are potentially great ways of moving company governance into the 21st century. Potentially they are ways of letting more shareholders participate.
If these reforms are to be permanent and enhance corporate democracy, then it is essential that shareholder rights are respected and safeguarded. As far as possible shareholders should have equal rights at an AGM regardless of whether they attend in person or virtually. So this means shareholders should be able to:
Attend virtually, by phone, or in person
Ask questions in their own word
Ask follow up questions where the answers are unclear or incomplete.
2.27
Ms Le Couteur questions how the legislation can ensure stakeholder participation adequately:
I am not sure how legislation can ensure that all shareholders have a chance to question the management of their company. One option could be the requirement for question to be logged electronically with the name of the questioner and the topic. This log would have to be displayed as part of the electronic and physical AGM. This would mean it was obvious if questions are ignored and enable similar questions to be grouped and discussed together.
An easier change would be to require a hybrid AGM where shareholders can participate in AGMs both in person and online. Companies should not have the option to provide virtual-only meetings without changes to ensure that shareholder questions cannot be ignored. Virtual-only meetings have assisted companies to ignore and/or avoid properly answering questions, including those of people waiting on the telephone line.
2.28
Ms Le Couteur also raised an issue regarding the treatment of appointing proxies to meetings:
Another issue is companies making it harder to appoint proxies. It may not be possible for shareholders to attend a meeting, virtual or physical, and so the long held right to appoint proxies should be respected.
2.29
The Australian Shareholders' Association (ASA) outlined its chief concerns as:
(a)
AGMs should be held as hybrid meetings, a combination of physical and virtual, not exclusively virtual.
(b)
Electronic communications should be the default with an 'opt in' for mailed communications.
(c)
Electronic execution of company documents is welcomed.
2.30
ASA also highlights a range of issues that have become evident during the use of virtual-only meetings through the pandemic. Specifically, ASA highlights issues with technology, adequate internet stability preventing full participation with virtual AGMs, shareholders frequently joining virtual meetings as 'guests' rather than as shareholders. ASA states that this is often a 'reaction to experience in the difficulties of logging in to virtual meetings'. Those with more experience, referred to as 'digital natives' are often perceived to gain more access to ask questions of Boards, crowding out those with less experience.
2.31
ASA recounts the experience of a number of companies that have attempted to incorporate virtual-only meetings into their constitutions only to have these resolutions pulled from AGM agendas at the last minute due to stakeholder dissent. ASA notes that there are two central issues in relation to virtual meetings:
There are two elements to the reservation expressed about companies holding virtual-only meetings; technology and trust.
2.32
Finally, ASA states that it 'advocates for hybrid (physical and virtual) whenever it is safe to do so (e.g. outside pandemics) and for retail shareholders to have the option to receive hard copy company communications. We will continue to recommend retail shareholders vote against virtual only meeting constitutional change'.
2.33
The Australian Centre for Corporate Responsibility (ACCR) concurs with many of the ASA's comments on the bill. ACCR notes that 'we believe that the provisions of the Bill relating to electronic service and execution of documents make practical sense, provided that adequate safeguards are in place'.
2.34
ACCR argues the ability for companies to adopt into their constitution virtual-only meetings is not in the interests of the shareholder stating:
The proposed bill would permit companies to adopt virtual-only proceedings where their constitution allows for it, thereby avoiding any in-person, transparent interactions with shareholders. This is not in the interests of shareholders of public companies, and is not supported by ACCR. We believe there is no obvious case to justify allowing companies to do away with physical meetings (like AGMs) altogether.
2.35
ACCR also has concerns regarding stakeholder questions to boards at AGMs and assuring that they are recorded and answered.
The proposed bill does not address shareholders' and proxies' loss of opportunity in a virtual meeting to interact with a board in real time and to ask a follow up question when they feel a question has not been adequately addressed.
…
Virtual meetings should operate a phone line to allow participants to ask a question in their own voice and to allow them to follow up if they feel their question requires further response. All questions submitted in writing should be read in full and properly attributed.
2.36
The Australian Council of Superannuation Investors (ACSI) reiterates much of what ASA and ACCR have put forward. However, ACSI has identified the following additional issues:
We have the following concerns about the proposed legislation:
Retrospective approval for 'virtual only' meetings: While investors are not likely to support constitutional amendments moving forward, concerns remain about companies that have already amended their constitutions in 2020. Many shareholders supported these amendments at the time on the basis that they would prevent the relevant company from inadvertently contravening its constitution or the law during the pandemic, but that virtual-only meetings would not become ongoing standard practice. Many companies provided public assurances to this effect at the time, however, where those constitutions now expressly allow virtual-only meetings, there is a risk that these companies could seek to rely on such provisions to hold virtual-only meetings indefinitely.
IPOs present an issue: While shareholders have an opportunity to vote on a proposed change for existing companies, this is not the case for Initial Public Offerings (IPOs). Ahead of listing, companies can include provisions allowing for permanent virtual-only meetings in their constitution without any shareholder vote. This could create uneven standards across the market, whereby some companies have a lower level of accountability and face less shareholder scrutiny than others. It could also mean that investors will be faced with a trade-off between a potentially good investment opportunity and the downside of reduced engagement and transparency. Such a trade-off is unnecessary, and it reduces the overall integrity of the Australian listed market.
Constitutional change is unnecessary with new ASIC powers: It is important to note that there is no longer any need for listed companies to change their constitutions to allow for virtual-only meetings as a response to extraordinary circumstances like the pandemic. With ASIC's newly established power to grant temporary relief when necessary, the risk of well-meaning companies inadvertently breaching their constitutions in situations such as a pandemic appears minimal.
2.37
ACSI argues that the solution to the issues with listed companies and the need for shareholders to provide their views and access to company information is to provide a carve-out for listed companies.
The most efficient solution would be specific provision in the legislation that applies only to listed companies and removes the option for virtual-only meetings. The legislation should allow listed companies to hold hybrid or physical meetings only.
…
A carve-out would establish consistency across all listed companies, instead of a patchwork whereby some companies change (or have already changed) their constitutions and others do not.
Further suggested amendments
2.38
A few submitters, while supporting the bill's provisions, provided additional suggested amendments.
2.39
The BCA suggested a few additional amendments to the bill:
We recommend the following amendments to the Bill:
1. A new assumption should be added in section 129 to allow parties dealing with agents to assume their signatures comply with s110A. This will bring it closer to the position applying in relation to signatures under s127(1), which have the benefit of the assumption in s129(5). There is no reason to not adopt a similar approach in all cases.
2. Extend the reforms to other types of corporations. The provisions of the Bill deal with companies. They do not extend to foreign and statutory corporations. Such corporations are very active in Australian commerce and should be also able to sign documents (including deeds) in the same way. We do not see any policy reason why such corporations should be denied the benefits of the Bill.
2.40
Similarly, the Walrus Committee suggested further reforms for government consideration:
We suggest that at the earliest opportunity Parliament should extend the reforms to include the following:
Foreign and statutory corporations
The reforms should extend the ability to execute documents electronically (including deeds) to foreign corporations and statutory corporations. Major corporate players in the Australian economy include foreign corporations and statutory corporations that are not Corporations Act companies. Deeds are particularly problematic for some foreign corporations that are resident in jurisdictions that do not recognise the concepts of deeds or seals.
Extend s126 to corporate agents as well as individual agents
Section 126 applies where an individual is appointed as an agent for a company. It does not deal with the common situation where another corporation is signing as agent for the company. Section 126 should allow for the appointment of a corporation as an agent.
Committee view
2.41
The committee notes the sector's comments regarding the efficiencies gained through the adoption of the temporary relief measures brought in by the Treasurer during the height of the pandemic and the subsequent continuation of them under Treasury Laws Amendment (2021 Measures No.1) Act 2021.
2.42
The committee commends the government in having the foresight to implement these measures to assist businesses during such difficult times.
2.43
The committee considers that the measures have been successful in assisting the sector continue business through this period and welcomes the opportunity to embed these measures permanently in the Corporations Act. The committee considers that this move would appear, on balance, to be a sensible move to enable the sector to move into the digital age. This will enable the realisation of efficiencies.
2.44
Some submitters, while supporting the intent of the bill, have also raised their concerns with the committee regarding the ability of shareholders to participate in meetings and provide comments and put questions to boards. The committee is cognisant of these concerns and notes that companies will continue to have face-to-face meetings or hybrid meetings (a combination of face-to-face and virtual) unless the constitution of the company provides otherwise. Hence, members (and peak organisations representing them) would be able to engage in a debate regarding whether the constitution should be amended to provide for solely virtual meetings. Accordingly, the shareholders of a particular company will be able to determine the meeting arrangements appropriate for that company subject to the safeguard discussed below.
2.45
The committee notes that the bill stipulates that for any virtual meeting the technology must be reasonable and allow members, as a whole, to exercise their rights to ask questions and make comments either in writing or orally. This is an important safeguard to ensure that shareholders as a whole have an opportunity to participate in a solely virtual meeting.
2.46
The committee recommends that the bill be passed.
Senator Paul Scarr
Chair
Liberal Senator for Queensland