Important continuous disclosure reform, virtual AGM relief

New laws passed by the Senate this week extend temporary relief for virtual AGMs and electronic documents to early 2022, and make welcome changes to continuous disclosure breach provisions.

The changes to the Corporations Act, included in the Treasury Laws Amendment (2021 Measures No. 1) Bill, have been welcomed by the AICD as important and overdue modernisation of Australia’s corporate law and re-balancing of thresholds for launching securities class actions. 

Relief extended for virtual AGMs, electronic communications and signatures

In welcome news, temporary relief has been extended until 31 March 2022 allowing companies to:

• hold virtual AGMs (regardless of any constitution requirements for in-person AGMs);
• distribute meeting related materials to shareholders and members electronically; and
• validly execute documents electronically.

An additional reform, sought by the AICD and others, is a new permanent emergency power for ASIC to issue individual and class order relief in respect of holding virtual meetings, extending the timeframe for holding an AGM, and electronic execution in exceptional circumstances such as those caused by the COVID-19 pandemic.

The extension of this relief will provide welcome certainty for those entities planning to hold their AGMs in coming months while still navigating restrictions on large gatherings with continued lockdowns in parts of the country.

What does this mean for NFPs and charities?

The proposed changes to the Corporations Act to enable virtual AGMs applies to public companies, including companies limited by guarantee. This will also capture NFPs structured as companies limited by guarantee.  

Registered charities that are companies limited by guarantee are not required to comply with the requirement to hold AGMs under the Corporations Act. Instead, they must comply with ACNC Governance Standards, which require charities to be accountable to members (with AGMs being one of the most common methods of meeting this obligation). Charities may also be required to hold in-person meetings because of their individual constitutions or rules. Incorporated associations must meet requirements set out in each State and Territory.

Refer to this AICD tool for further guidance for NFPs on virtual member meetings.

Permanent reform flagged

The ongoing disruption caused by the COVID-19 pandemic continues to highlight the need to permanently modernise Australia’s Corporations Act requirements.

The AICD strongly supports permanent reforms to enable the holding of virtual meetings and electronic distribution of meeting requirements. We believe that organisations should have the flexibility to choose the best format for meetings – in-person, hybrid or virtual – without the current legal complexity and uncertainty.

Treasury recently consulted on permanent reform. Importantly, the exposure draft would require that organisations have the right to hold virtual or hybrid meetings included in their constitutions. Many organisations will therefore need to seek shareholder approval to amend their constitutions to realise the full effect of these permanent changes.

The AICD made a submission to Treasury in support of the permanent reforms. We expect progress through the August sittings of Parliament and will keep members updated.

Permanent reforms to continuous disclosure laws

The new reforms also make welcome changes to the thresholds for civil breaches of continuous disclosure laws.

Over recent years, the negative impact of securities class actions has been widely felt, particularly on the cost and availability of directors and officers’ insurance. The AICD has been an active participant in public debate on the need for securities class action reform in Australia.

Under the reforms, the permanent re-introduction of a fault element in respect to director liability means that corporations and their officers will only be liable for breaches of continuous disclosure laws where material information is “negligently, recklessly or intentionally” withheld from the market. The reforms extend to misleading and deceptive provisions applying to listed company disclosures.

The introduction of a fault-based approach is an important step for the Australian market and will bring us closer into line with jurisdictions such as the United Kingdom and United States.

These changes will improve the effectiveness of the current securities class action regime whilst discouraging opportunistic or speculative shareholder class action claims.

Critically, the nature of disclosure obligations remain untouched and the reforms do not in any way change what needs to be disclosed, or by when.  

Under the reforms, those who seek to mislead the market or are reckless or negligent in meeting these obligations will face the full force of the law, as they should.

Taken together, these important reforms will help modernise our corporations law settings and place them on a more sensible and sustainable footing.