Treasury move to modernise company administration is a win for corporates and shareholders

Federal Treasury’s 12-day consultation process on a draft bill that seeks to modernise company administration is a major win for corporates and their shareholders across the country.

Modernising the law in this manner means that company boards and senior management are able to avoid the delays typically present with paper documents and get business done more quickly.

What is interesting is that it has taken a pandemic to get legislators to contemplate making this a permanent fixture now.

It is absurd that it has taken this long to get the law to recognise the fact that technology can and does help companies of any kind conduct business more efficiently regardless of whether Australia faced COVID-19 lockdowns with travel restrictions.

Electronic meetings can reduce compliance costs for a company as well as make it less expensive for shareholders wanting to exercise their responsibilities as owners.

Consider the thorny issue for some public companies, such as small associations, of getting a quorum for a meeting to go ahead.

A constitution might provide for a quorum, for example, of 10 or 20 people from the membership. A constitution that requires a quorum to be based on physical attendance on a given day might find an annual meeting difficult to run without that number.

How can that occur? Member organisations have large numbers of people that are apathetic and there are times when those running meetings would need to badger their mates in the membership to attend just to make the numbers.

Some constitutions might allow for a quorum to be based on a mixture of physical attendance and proxies sent through in hard copy. This is a constitutional workaround in an environment where member apathy is notorious, but the association must hold annual meetings under law so this solution allows for meetings to go ahead.

The new regime proposed in the draft legislation creates a climate where virtual attendance makes meetings more accessible, a quorum easier to meet and boards or committees of management more accountable.

There is also something else virtual meetings do in the context of individual shareholders. Consider the possible impact on individuals that have an impairment of some description and are unable to attend meetings of companies in which they have an investment.

This change of law means those people are more able to participate in the affairs of a company in which they have shares without the need to either travel from home or appoint a proxy to engage on their behalf at a meeting.

Similar points can be made about updating the law to permit greater use of electronic signatures for official documents. The explanatory memorandum puts it best in a paragraph that is buried somewhere in the middle of the document.

“Without reforms, companies must generally execute documents in person using wet-ink on hard copies. Accordingly, company officers will have to execute documents in hard copy, with a wet-ink signature, in person,” the explanatory memorandum states.

“Companies will continue to incur the costs associated with directors having to travel locally, from interstate or overseas and the printing costs to execute a document in person. There may also be postal delays that may impose on the documents being executed in a timely manner.”

Allowing for documents to be executed more flexibly means that companies are not having to reimburse directors and other company officers to travel to sign or physically witness documents.

Running companies is expensive enough without turning directors into corporate governance tourists just to sign documents.

There was also a concern raised about the potential for fraud in permitting the greater use of electronic signatures but the explanatory memorandum notes that a fraudulent execution is invalid irrespective of whether it occurs with a physical or electronic document.

This is a typical concern expressed whenever a regime moves from something that is seen as more reliable to newer technology but often without thinking about the fact that people committed fraud using physical documents.

Companies should have proper internal controls in place to ensure that those signing documents have the appropriate authority to do so regardless of whether those documents are in paper or electronic form.

It is up to companies to make sure their information systems are robust, and that their corporate culture is one that discourages the kind of dishonest behaviour that leads to bad actors in a company stealing from their employer.

This article was first published by The Mandarin.