Senate Considers Bill Regarding Continuous Disclosure Obligations and E-Signing for Corporations
On 17 February 2021, the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 (Cth) (‘the Bill’) was introduced to the House of Representatives by Assistant Treasurer Michael Sukkar. Prior to passing the lower house on 17 March 2021, the Bill was referred to the Senate Economics References Committee ('the Committee') for inquiry on 16 March. The Committee’s Report is due on 30 July 2021. The Bill is currently in the Senate.
Purpose of the Bill
The Assistant Treasurer stated in his second reading speech that the Bill proposes two suites of changes to the Corporations Act 2001 (Cth) (‘the Corporations Act’):
"Schedule 1 extends from 21 March 2021 to 15 September 2021 the expiry date of the temporary relief allowing companies to use technology to meet regulatory requirements to hold meetings, such as AGMs, distribute meeting related materials and validly execute documents; and
Schedule 2 of the bill permanently introduces a 'fault' element to our continuous disclosure laws so that companies and their officers will only be liable for civil penalty proceedings where they have acted with 'knowledge, recklessness or negligence' in failing to update the market with price sensitive information."
Virtual meetings and electronic communication of documents
During the COVID-19 pandemic, a temporary power was introduced to the Corporations Act, which provided the Minister with the power to exempt specified classes of persons from the operation of certain provisions of the Act or the Corporations Regulations 2001 (Cth) by legislative instrument. Under this power, the Treasurer determinations, which included the Corporations (Coronavirus Economic Response) Determination (No.1) 2020 (Cth) and the Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 (Cth). These determinations allowed for meetings to be held and for company documents to be executed using electronic means. However, both determinations have now expired. If assented, the Bill will effectively extend the modifications made by the determinations until 16 September 2021.
According to the Explanatory Memorandum, Schedule 1 of the Bill seeks to allow electronic means or alternative technologies to be used to meet the requirements in the Corporations Act relating to:
- "executing company documents;
- holding meetings of directors of a company, meetings of shareholders of a company (including Annual General Meetings) and meetings of members of a registered scheme;
- executing documents relating to meetings;
- recording, keeping and providing minutes; and
- providing notice of a meeting and giv[ing] other documents relating to meetings to the prospective attendees."
The Bill is intended to not only extend the the modifications made by the amendments, but also to expand the scope of these modifications. For instance, the Bill proposes to expand the use of technology relating to executing documents by allowing officers to witness the fixing of a company's common seal to a document be done electronically.
Continuous disclosure obligations
Currently companies are subject to continuous disclosure obligations under the Corporations Act. The current regime for continuous disclosure obligations was explained in the Explanatory Memorandum:
“The continuous disclosure obligations in Chapter 6CA of the Corporations Act require disclosing entities to disclose price-sensitive information on a continuous basis. If they are listed on a listing market whose rules require it, then they make those disclosures to the market operator, or if they are an unlisted disclosing entity, they must lodge that information with ASIC. An entity contravenes these obligations if the entity has information that is not generally available, the information is such that a reasonable person would expect it to have a material effect on the price or value of the entity’s enhanced disclosure securities if it were generally available, and the entity fails to notify the market operator or ASIC of the information.”
During the COVID-19 pandemic, the Corporations (Coronavirus Economic Response) Determination (No. 4) 2020 (Cth) made a temporary modification to the Corporations Act by introducing a requirement that the entity’s state of mind (or ‘mens rea’) must be considered when determining a contravention of a listed entity’s continuous disclosure obligations. In other words, to prove the contravention of these continuous disclosure obligations by a listed entity or officer, a plaintiff must prove that the entity or officer acted with ‘knowledge, recklessness or negligence’. According to the Explanatory Memorandum, the purpose of this temporary modification was to “enable companies and their officers to more confidently provide guidance to the market during the coronavirus pandemic.”
If assented, the Bill will make this temporary modification permanent. By extension, the Bill would also clarify that entities and officers are not liable for misleading and deceptive conduct in circumstances where continuous disclosure obligations have been contravened unless the mens rea requirement is satisfied. However, ASIC will still be able to issue infringement notices regardless of the state of mind of the entity. In his second reading speech the Assistant Treasurer stated that infringement notices are “used for less-serious breaches as a fast and effective regulatory response that is proportionate and proximate in time to the alleged breach.”
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Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 (Cth) and supporting information available from TimeBase's LawOne Service