Modernisation of ‘outdated’ Corporations Act looming
New recommendations from a Senate committee mean that the hosting of virtual AGMs and capacity for corporations to communicate electronically will likely become permanent fixtures.
Last week, the Senate committee on financial technology and regulatory technology tabled its interim report into opportunities in the fintech and regtech spaces, barriers to uptake of new technologies, the effectiveness of current initiatives and benchmarking against comparable global regimes.
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The interim report recommended, among other things, that changes to the Corporations Act 2001 be made to permit electronic AGMs for listed companies, electronic shareholder communications and electronic signatures of legal documents, as well as changes to regulations to permit witness of documents via videoconferencing.
The recommendations were welcomed both by Governance Institute of Australia and national firm Corrs Chambers Westgarth.
Corrs partner Andrew Lumsden said his firm supports the “focus on new jobs and more choice, based on a competitive and iterative approach to policy formulation”, as such an approach will be “absolutely necessary given yesterday’s GDP numbers for the June quarter”.
“Our experience is that Australian corporates have been smart and innovative during the pandemic, for example a strong focus on shareholder equity has meant that virtual AGMs have been a great success and we agree they should be extended,” he said.
COVID-19 AGMs have provided ample opportunity for member participation, Mr Lumsden continued, noting that the firm has not seen a reduction in the process of director accountability and member engagement in the scrutiny of management and the actions they propose.
“What we have seen is an increased capacity for Australian corporates to use technology to improve accountability and efficiency. This has highlighted the advantage of modernising the outdated Corporations Act requirements,” he submitted.
“We are extremely supportive of the recommendations to amend the Corporations Act to hold electronic meetings and to allow for the electronic execution of legal documents. For a number of years, we’ve been lobbying governments to create an effective electronic signing regime. In a digital age business should not be reduced to mandated ‘wet ink’ signatures.”
Governance Institute CEO Megan Motto noted that three of the recommendations would be of particular interest to organisations during the “current unpredictable times”: allowing companies to hold their AGM or other meetings virtually, in-person, or in a hybrid format, allowing them to communicate with shareholders electronically (and by default), and allowing e-signature and electronic execution of legal documents.
“Measures allowing virtual meetings were introduced during COVID-19 but these were only temporary which had led to a great deal of uncertainty and anxiety,” she said.
“The [committee’s] recommendation that these become a permanent part of the landscape would mean companies could decide the format for their meetings that works best for them while ensuring the needs of stakeholders are met.
“While shareholders can still request paper-based communications, this step would streamline and speed up communications. It would allow for key items to be communicated quickly – an important consideration given the fast-changing times that we are in.
“There has been a significant uptake in electronic communication during COVID-19 – and it’s important we do not take a backward step to hard copy.”
“Given ongoing physical distancing requirements – which are likely to be in place until a vaccine is released – this would be a sensible and practical initiative that is a major part of reforming Australia’s digital communications.”
These three recommendations would require amendments to the Corporations Act, legislation the Governance Institute has argued is “mired in the 19th century,” she mused.
“In its current form, the Corporations Act simply does not contemplate the use of technology. These changes are long overdue and would be hugely significant for industry as it grapples with the uncharted waters of 2020 and beyond while trying to map their way to recovery,” Ms Motto concluded.
The committee’s final report will be tabled next year in April.