Moves by the federal government to allow the electronic execution of documents for companies will also deal with the inability for people to meet in person when holding meetings, an SMSF legal firm has noted.
Townsends principal Peter Townsend said the recent release of exposure draft legislation to support companies and their officers using technology to satisfy Corporations Act 2001 requirements was important as it would remove uncertainties for directors of companies.
Townsend said the draft legislation would reintroduce, and make permanent, temporary changes that were put in place during the 2020 COVID-19 lockdown periods related to the electronic execution of company documents and meeting notifications. These changes also applied to SMSFs using a corporate trustee.
“At the start of the pandemic in early 2020 the federal government issued emergency proclamations permitting the electronic signing of documents by company directors on behalf of the company,” Townsend said.
“Those proclamations expired and we then went back to the old way of doing things. There was such an outcry in the business community that the government has now moved to reintroduce the changes permanently.”
He noted the use of technology in meetings was not a recent development and company constitutions allow attendance by phone or video, but the changes would also provide legal recognition that a company can hold hybrid meetings with people attending personally or via technology.
The legislative change would also require that people are given a reasonable opportunity to participate in a meeting of any format – physical, hybrid or virtual – and a show of hands will be the default method for voting at physical and hybrid meetings.
Townsend said that even with the changes it was important to ensure meetings remained legitimate when some or all parties participate via technology.
“What happens if the technology drops out at a particular moment? Will the chairman know that one of the attendees has suddenly left the meeting? And what will happen when they come back online or if they can’t come back online for a material time?” he said.
“Then there is the issue of voting. Will that be done by a physical ‘hands up’ seen by video or by the use of a virtual ‘hands up’ using a facility of the specific meeting application being used? And who will count the votes and how?”
Townsend also noted the importance of the permanent change in electronic execution as recent course cases were still highlighting issues with the process.
He pointed to the case of Bendigo and Adelaide Bank Limited & Ors v Kenneth Ross Pickard & Anor [2019] heard in the South Australian Supreme Court, which ruled that a loan deed executed electronically by the company’s directors was invalid because of the faulty execution.
Despite the fact the two company officers signed the document, the court ruled “there is good reason to consider there must be a single, static document rather than a situation where two electronic signatures are sequentially applied to an electronic document”.
The court added it was insufficient the two signatures appeared on different copies of the same document because no one copy would be properly executed by the company under section 127(1) of the Corporations Act.
Changes to meetings are likely to benefit SMSFs, particularly those with members overseas and with the introduction of six-member funds where members may not live in the same location.
