The COVID-19 pandemic has caused widespread disruption in social and business life on a worldwide basis. Amongst what many regard as positive ramifications, it has instigated significant corporate reform in Australia to try and accommodate its effects on businesses and the economy. These corporate law reforms affect all companies, ranging from small businesses to large publicly listed companies. In this article, we provide an overview of these reforms at both the NSW and Commonwealth level. These include the following:
These are discussed further below at high level.
The position under the Corporations Act 2001 (Cth) (‘Corporations Act’) regarding virtual AGMs has been clarified by the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (‘Omnibus Act’), which facilitates the holding of shareholder meetings without the physical presence of attendees. These provisions override the articles of the relevant company’s constitution. ASIC has also given its support for the holding of AGMs using appropriate technology and on 20 March 2020 provided a no-action position on virtual AGMs. These measures are currently valid until November 2020.
For listed and unlisted public companies with 31 December balance dates that were required to hold an AGM by 31 May 2020, ASIC will take no action if the AGMs were postponed for two months (i.e. until the end of July). ASIC’s no-action policy also applies where an AGM is held up to February 2021 where a public company would otherwise breach the requirement to hold an AGM once every calendar year. It remains to be seen whether further no action dates will be issued.
ASIC also announced that it will extend deadline for both listed and unlisted entities to lodge financial reports under Chapters 2M and 7 of the Corporations Act (the Act) by one month for certain balance dates up to and including 7 July 2020 balance dates. The purpose of this extension is to assist entities whose reporting processes take additional time due to current remote work arrangements, travel restrictions and other impacts of COVID-19.
The Corporations (Coronavirus Economic Response) Determination (No 1) 2020 (Cth) (‘Determination’) modifies s 127(1) of the Corporations Act to permit remote and electronic execution of documents by companies. It provides that, in addition to methods currently permitted under s 127(1), a company may execute a document without a common seal if two directors, a director and a secretary or the sole director and secretary either:
The Electronic Transactions Act 2000 (NSW) permits signature by electronic means in substantially the same terms as its Commonwealth counterpart.
Under the Electronic Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020 (NSW), a person may now witness the signing of a document in real time by audio visual link (via Zoom or Microsoft Teams, for example). However, this process is accompanied by a number of requirements:
Under s 1362A of the Corporations Act, ASX-listed entities’ decisions on continuous disclosure should not attract liability under s 647(2) unless they knew or were reckless or negligent with respect to whether the information would, if it were generally available, have a material effect on the price or value of their securities.
Subsections 674(2), 674(2A), 675(2) and 675(2A) of the Corporations Act have been modified to establish a temporary test which raises the bar on when certain information will have a material effect on the price or value of securities and therefore should be disclosed under section 674 or 675 of the Act. Under the temporary test, non-public information need only be disclosed if the entity knows or is reckless or negligent with respect to whether that information would have a material effect on the price or value of the entity’s securities if it were generally available.
In response to COVID-19, the Australian government has introduced temporary changes to insolvency laws effective for six months from 25 March 2020. The Omnibus Act inserts a new section 588GAAA into the Corporations Act that effectively grants temporary relief for directors from personal liability for trading while insolvent. To rely on this new safe harbour, the debt must be incurred:
It remains to be seen whether this will be extended past the current sunset date of 25 September 2020.
On 24 March 2020, the Omnibus Act increased the threshold at which creditors can issue a statutory demand or bankruptcy notice from $2,000 to $20,000. This measure will allow companies 6 months rather than 21 days to respond to statutory demands. The Government has also increased the threshold at which a creditor can initiative bankruptcy proceedings from $5,000 to $20,000.
Again, it remains to be seen whether this relief will be extended past the current sunset date of 24 September 2020.
In a Federal Government move designed to prevent international raids on struggling companies hit by the coronavirus pandemic, all foreign investment in Australia now requires approval. This is unless another threshold applies to the relevant action (e.g. 20% interest acquisition).
Under the Foreign Acquisitions and Takeovers Amendment (Threshold Test) Regulations 2020 (Cth), the monetary screening threshold has been reduced to $0, meaning that every purchase application from foreign investors will now be scrutinised. However, as an example of the continued effect of an existing threshold, private foreign investors may not require approval for acquisitions of less than 20% in a publicly-listed entity.
Foreign investment applications which would previously have taken between 30 and 90 days to be processed may now take up to 6 months, particularly where applications are not deemed urgent. However, anecdotally, it seems that typically, FIRB is processing applications much more quickly than within 6 months.
To provide relief to entities facing challenges due to COVID-19, the ASX Compliance Update no 05/20 has stated that annual listing fees for the 2021 financial year will be spread out over six months and payable by all listed entities in two equal instalments instead of one. The first instalment was due at the end of July 2020 and the second is due at the end of January 2021.
In March 2020, the Australian Banking Association (‘ABA’) announced the Small Business Relief Package. Under this package, Australian banks will defer loan repayments for small businesses affected by COVID-19 for 6 months from 20 March 2020.
It remains to be seen whether this relief will be extended past the current sunset date of 20 September 2020.
These reforms are part of a number of measures the Federal and State governments have introduced in response to the COVID-19 pandemic. If you require corporate legal advice in the time of corona, please contact us below. We can quickly assess your situation and make immediate and cost-effective recommendations to ensure you are taking advantage of the new measures.
