08 April 2020

COVID-19 NFP Guidance – The CATSI Act and COVID-19

This article was written by Rebecca Williams, Will Heath, Sarah Lethlean and Pei Xuan Liu.

The spread of COVID-19 poses a range of very practical issues for organisations across Australia, both due to the risks posed by COVID-19 itself and because of the new restrictions that Australian, State and Territory Governments have implemented to respond to the crisis. 

Both factors will in turn affect how organisations are able to comply with their governance obligations over the coming months.  For example, organisations are likely to encounter practical issues such as:

  • difficulties in convening shareholders’ meetings and directors’ meetings;
  • continuing to trade despite cash flow and liquidity issues, including directors’ duties to avoid insolvent trading; and
  • finalising financial reports, and complying with other reporting requirements.

Companies registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (“CATSI Act”) have been granted specific relief to help them manage some of these issues, by the regulator, the Office of the Registrar of Indigenous Corporations (“ORIC”). This includes:

  • specific relief from certain CATSI Act requirements; and
  • a new package of “special rules” relating to how meetings can be held and decisions made – which can apply to the corporation if it applies to ORIC.

This note outlines that relief and the key implications for corporations that are registered under the CATSI Act (described as “corporations” in this note). ORIC published an update on this relief on 26 March 2020, and is continuing to update its website as more information becomes available.[1]

Our summary of other relief available for not-for-profit organisations, including companies registered under the CATSI Act, is available online here.

Practical issue

Current options

ORIC relief

Corporations may not be able to hold directors’ meetings in person, or pass resolutions.

Concerns about COVID-19, as well as new social distancing laws and restrictions on travel (including to remote areas), can make it difficult for directors to meet in person.

Indeed, holding a meeting could actually breach new social distancing laws.

This can make it difficult to pass resolutions. It could also place your corporation in breach of its constitution (or rules) if it prescribes how often directors’ meetings must be held.

Your constitution (or rule book) may already provide a way through this, by permitting directors’ meetings to be held by phone or videoconferencing technology.

Your constitution / rule requirements should be checked carefully, and any consent or procedural requirements should be complied with.

If your constitution does not refer to technology then, under the CATSI Act, directors’ meetings may be held using technology if all directors have consented.

You should also check your constitution to confirm whether (and how) directors may pass “circulating resolutions”, i.e. without convening a meeting.

ORIC has published a set of “special rules” relating to meetings and decision-making, designed to help corporations respond to this situation. The corporation will need to apply to ORIC to request that the Special Rules apply to it (the process is described below).

If the ORIC Special Rules are applied, then:

·      ORIC Special Rule 6 will permit the meeting to be cancelled or postponed if a majority of directors agree.

·      ORIC Special Rule 8 will permit directors to pass resolutions without holding a meeting.

·      ORIC Special Rule 12 will allow directors to hold virtual meetings, using a suitable electronic platform.

Corporations may not be able to hold their general meetings due to COVID-19 concerns

Corporations working to a 31 December year end would ordinarily be required to hold a general meeting by 31 May. 

New corporations (ie, registered after 1 January 2020) would have been required to hold a general meeting by 20 April 2020.

Your constitution (or rules) may already provide a way through this by:

  • Allowing you to hold a general meeting by using technology (phones and video conferencing).  Corporations should check their constitutions / rule books carefully, as any procedural requirements will need to be complied with. In particular, care should be taken to ensure quorum requirements are met and that members have a proper, reasonable opportunity to participate in the meeting – we are happy to provide guidance with this.
  • Allowing you to postpone a meeting, if you have already called one. Again, procedural requirements in the constitution / rule book should be checked carefully. If your constitution does not allow this, then generally at common law there is no power to postpone.

Corporations which anticipate they will need more time to hold their annual general meeting are advised to contact ORIC by 31 May 2020 to apply for an exemption or extension of time.

For new corporations, ORIC has granted a six month extension and they will have until 20 October 2020 to hold the first meeting. ORIC will review the extension period in July 2020.

If the ORIC Special Rules are applied, then:

  • ORIC Special Rule 5 will allow directors to cancel or postpone a meeting that has already been called.
  • ORIC Special Rule 7 will allow members to pass a resolution without holding a meeting, if certain notice requirements are complied with. This does not apply to special resolutions or removing directors.
  • ORIC Special Rule 9 will allow virtual meetings to be held via suitable electronic platforms.

Corporations may struggle to prepare annual financial reports – eg, travel restrictions may prevent auditors from attending the premises.

This will particularly affect corporations with a financial year ending on 31 December 2019, who would ordinarily be required to lodge their reports by 30 June 2020. 

All corporations are required to lodge a general report, with larger corporations also required to file a financial report, audit report and/or directors’ report (depending on their size).

Other COVID-19 law reforms have not addressed this issue yet. Corporations should consider whether / how COVID-19 affects the contents of their financial reports.

 

Corporations with a financial year ending on 31 December 2019 now have an extension until 31 August 2020.

In addition, corporations affected by bushfires that had previously been granted an extension for lodging reports receive a further extension of time to 31 August 2020.

Despite headwinds, directors to continue to discharge fiduciary duties to corporation.

Directors continue to be subject to their usual duties, including to act in good faith in the best interests of the company, and for proper purposes.

Corporations may face significant cash flow and liquidity issues due to COVID-19.  Ordinarily, a director will be personally liable for debts incurred by a corporation if it is insolvent and continues to incur debts without entering an insolvency procedure. 

Directors should continue to discharge the duties they owe to the company, and in particular should monitor solvency very carefully. 

The Australian Government has passed emergency legislation that will temporarily suspend the directors’ duty to prevent insolvent trading. This relief will apply for six months (or longer if the Government extends this).

However, this relief will not suspend the ‘best interests’ duty or other duties. 

 

ORIC has not provided any specific relief or guidance to directors at this time.

ORIC Special Rule process

Many corporations’ constitutions or rulebooks will contain rules about meetings, resolutions and decision-making that are not practically workable in current circumstances.  They may also be subject to CATSI Act requirements that are similarly unworkable. While a corporation could in theory change its constitution to amend those requirements, doing so would typically require the passage of a special resolution – which is likely to be impractical if not impossible.

The ORIC Special Rules have been developed specifically to address this and have been published online.[2] In short:

  • Corporations should first review their rule books and the special rules, and consider if adopting the ORIC Special Rules is helpful and/or necessary.
  • If the corporation considers that the ORIC Special Rules would be helpful, a majority of directors should request the ORIC Registrar to exercise its power under the CATSI Act to change the corporation’s constitution without a special resolution, so that the constitution includes the ORIC Special Rules. ORIC has provided corporations with the suggested wording to make the request, which the directors can fill in and sign, or copy and paste into an email.[3]
  • The request must include examples of the measures the corporation will take to ensure it maintains transparency of corporate governance and performance whilst the special rules are in place.
  • For corporations that adopt the Special Rules, the ORIC Registrar will make determinations to exempt them from incompatible requirements under the Act.
  • The ORIC Registrar will send the corporation a confirmation once the rules have been applied.
  • The rules will operate until 30 November 2020 unless extended.

These rules do not apply for native title meetings for native title bodies corporate registered under the Native Title (Prescribed Body Corporate) Regulations 1999.


[1] https://www.oric.gov.au/training/COVID-19

[2] https://www.oric.gov.au/sites/default/files/RESOURCE_Special%20rules%20for%20COVID-19_2020-03-26.docx

[3] https://www.oric.gov.au/sites/default/files/ORICresources_Example-statement-directors-adopt-special-rules-COVID19.docx

COVID-19: Implications for Business

The spread of Coronavirus (COVID-19) has forced us to think and act differently. Beyond the human response, now is the time to think about what the consequences may be on your business, and how best you can prepare for those.

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