Pandemic and anti-phoenixing developments

Overview

There have been several important developments relating to regulation of companies and directors. These have occurred during a time where the economy is beginning to emerge from the COVID-19 crisis. They are interesting and timely because these changes can perhaps be seen as a shift in the policy lever towards the compliance end of the corporate spectrum. These changes are important because they directly affect some key aspects of corporate life and company directors.

Specifically, the changes introduced during the COVID-19 pandemic regarding continuous disclosure obligations, electronic signing and virtual meetings have expired.

Additionally, there are some important director-related anti-phoenixing developments, including:

• Director resignation; and
• The introduction of a director identification number (DIN) regime.

What is changing?

Execution of documents and meeting requirements

In May 2020, the Treasurer gave temporary relief to:

• Facilitate the electronic signing of documents; and
• Enable a company’s legal obligations in relation to holding meetings and distributing meeting-related materials to be satisfied through the use of technology.[1]

This relief expired on 23 March 2021. Although the government introduced an Amendment Bill to extend the temporary electronic signing and meeting provisions,[2] it was not passed by the Senate due to resistance from Labor and Greens Senators to permanent changes to continuous disclosure obligations. The Amendment Bill has been referred back to the Economics References Committee for inquiry and report, and senate debate is expected to take place in August 2021.

Continuous disclosure requirements

Continuous disclosure obligations were also modified as part of the temporary relief measures. These also amended the associated civil penalty provisions relating to market disclosure from an objective to a subjective test of whether the entity or its officers “knows or is reckless or negligent” as to whether the relevant information would have a material impact on the price or value of securities.[3] The provisions expired on 23 March 2021.

The legislation has reverted to the objective test of whether the “reasonable person would expect” information to have a material impact on the price or value of securities if it were generally available.[4] As above, these requirements will also be subject to the Amendment Bill (if passed).

Resignation provisions

New provisions regarding the resignation of directors came into effect on 18 February 2021. They aim to heighten accountability by preventing directors from avoiding liability by leaving a debt-ridden companies, which is a form of illegal phoenix activity. Principally they state that:

• Directors are now required to give notice of resignation to ASIC for their resignation to take effect.[5] Notice must be given in the prescribed form.[6]
• If notice is given within 28 days of the resignation, the resignation takes effect on the day of resignation.[7]
• In any other case, the day the written notice is lodged with ASIC is considered the day of resignation.[8]
• The court or ASIC can fix a resignation day.[9]
• The resignation of a director will have no effect if there are no directors remaining at the company, unless the resignation is taking effect on, or the day after, the company has commenced winding up.[10]
• The resolution of members to remove a director is void if the company is left without a director.[11]

DIN measure

As part of the Modernising Business Registers Program, the DIN regime will function as an anti-phoenixing measure, requiring directors to apply for a unique identifier which remains attached to the individual even if they cease to be a director.

The authorising legislation,[12] which has received Royal Assent but has not yet commenced, permits protected information such as director identification information to be disclosed to government entities and other related bodies such as courts, tribunals, performance and accountability bodies.

The Treasury is consulting on a draft data standard, which will outline information on how to apply for a DIN, and how the information will be provided, used and stored. It is also consulting on a disclosure framework which outlines when the Registrar may disclose DIN information to bodies that are not ‘government entities’. The early release of these drafts is with view to allowing new and existing directors to apply for a DIN as soon as the scheme begins to operate.

Takeaways

Execution of documents

• Companies should revert to executing “wet-ink” signature where required under the pre-May 2020 law.[13]
• Companies should clarify whether counterparties will accept electronic execution and printouts.[14]
• Companies can consider alternative options, such as executing under power of attorney.[15]

Meeting requirements

• Wholly virtual meetings are not permitted, so companies can hold meetings in person, and can hold hybrid meetings if the company constitution expressly allows for. The use of technology is allowed to connect people are or more other locations.[16]
• Note that ASIC has stated it will adopt a no-action position soon in terms of virtual meetings, so companies will be able to utilise them without liability.
• Meeting notices are permitted to be sent electronically only if the member has opted to receive electronic communications.[17]
• Meeting documentation is permitted to be sent by post to members, unless they have agreed to other means such as fax or email, and the requirements under the Act have been met.[18] Note that there are certain types of meeting documentation that may only be posted.

Disclosure requirements

• Disclosing entities will need to take a more proactive approach to notifying the public of price-impacting information.

Resignation provisions

• In order to avoid further potential liability, directors must be diligent in informing ASIC of their resignation. This notification can be sent personally or by their company.

 

Keypoint Law advises many corporations and businesses in relation to compliance and regulatory matters.  For more information please contact James Halliday.

 

[1] Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (Cth).

[2] Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 (Cth) (‘Amendment Bill’).

[3] Corporations (Coronavirus Economic Response) Determination (No. 4) 2020 (Cth).

[4] Corporations Act 2001 (Cth) ss 674, 675, 677.

[5] Corporations Act 2001 (Cth) s 203A.

[6] Corporations Act 2001 (Cth) s 205A, s 205B(5).

[7] Corporations Act 2001 (Cth) s 203AA(1)(a).

[8] Corporations Act 2001 (Cth) s 203AA(1)(b).

[9] Corporations Act 2001 (Cth) s 203AA(2)-(5).

[10] Corporations Act 2001 (Cth) s 203AB.

[11] Corporations Act 2001 (Cth) s 203CA.

[12] Sch 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 (Cth) will amend the Corporations Act 2001 (Cth) and Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth).

[13] Corporations Act 2001 (Cth) s 127. Companies should pay particular consideration to deeds.

[14] Corporations Act 2001 (Cth) s 127.

[15] Corporations Act 2001 (Cth) s 126. Companies should also consider state-based which may afford some flexibility. For example, deeds can be executed electronically by individuals in NSW under Conveyancing Act 1919 (NSW) s 38A.

[16] Corporations Act 2001 (Cth) s 249R.

[17] Corporations Act 2001 (Cth) s 249J(3A).

[18] Corporations Act 2001 (Cth) s 249J.