Update as at 24 July 2020: 

Since this blog first went up in April 2020, legislation has been passed confirming (among other things) that parties to security agreements containing power of attorney provisions can sign those document(s) electronically.  The change applies only to powers of attorney signed in connection with a security interest between 21 March 2020 and 16 November 2020 (although the legislation does allow for that timeline to be formally extended if necessary).  With lockdown having lifted in NZ (and hopefully staying that way, fingers crossed), companies may find that banks continue to require “wet ink” signatures to security agreements, even with this new law having come into effect.

…….

With everyone in lockdown mode, many businesses used to taking care of their corporate admin face-to-face may be wondering how to approach this brave new world.

We thought a quick breakdown of how to go about signing documents, and passing resolutions, when you can’t meet people face-to-face might help.

You might need to pass board or shareholder resolutions in the next few weeks if you are currently in the middle of the following business activities:

• cap raising/bridge funding activities like issuing shares to investors, or entering into convertible notes
• adopting, amending or replacing your constitution
• restructuring activities – particularly if they involve major transactions, business acquisitions or divestments, spin outs, etc.
• corporate housekeeping like holding annual shareholder meetings, or opting out of default financial reporting requirements, now that the end of the financial year for most companies is upon us
• putting in place ESOPs or other equity incentives for team members

(This article is part of our Covid-19 series. See the full set of articles here.)

signing documents

You should be able to sign everything necessary to keep your business running during this period electronically.

Solutions can be as sophisticated as traceable digital signatures through DocuSign and other platforms, or as simple as using Adobe Reader in Windows, Preview on a Mac, or taking advantage of the user-friendly tools built into many phones, tablets and laptops.

We’ve also found institutions that would usually require traditional signing processes to be followed are willing to consider practical alternatives.  A bank in the last few days was comfortable accepting documents having been witnessed on the basis of us watching the clients sign via a video call, for example. 

We understand the NZ Government also plans to introduce legislative changes that will allow parties to electronically sign security agreements that contain power of attorney provisions soon.  Until that change is made, powers of attorney remain one of the few categories of document that cannot, under NZ law, be signed electronically.  A company is often required to execute a security agreement before it can access bank financing, and powers of attorney are a common feature of security agreements, so we welcome this change.

passing resolutions

Whether it’s business as usual, or specific resolutions required to authorise bridge funding for your company, the lockdown shouldn’t prevent you from passing any board and/or shareholder resolutions you need to. 

You have two options – in person via Zoom or in writing.

in person via Zoom

If you prefer holding meetings in person, and would like to stick with that approach as much as possible, you could hold a meeting by conference call or Zoom.  Broadly, the same rules and process that apply to an in-person board or shareholder meeting apply to any meeting held by conference call/Zoom.

pass a resolution in writing

Different rules apply to written board and shareholder resolutions (more on that below).  As long as those different rules will still work for you, practically, we find written resolutions a convenient and practical way to take care of corporate admin.

how to pass a resolution in writing

How do you go about it? Here’s what we recommend:

• Check your constitution (if you have one) for any special rules that may apply to written resolutions.
  
• Check your shareholders’ agreement (again, if you have one), for any special rules that may apply to written resolutions.
  
• No special rules under your governance documents (or no governance documents)? – then follow the default rules set out by the Companies Act.

default rules for board resolutions

The default rule for board resolutions is that a resolution in writing is valid if it is signed or assented to by all of the directors.  Keep in mind that a majority isn’t enough – everyone on the board needs to sign or assent.

default rules for shareholder resolutions

The default rule for shareholder resolutions – with a few exceptions* – is that a resolution in writing is valid if it is signed by shareholders who:

(i) make up at least 75% of the voting shareholders by headcount; and
(ii) hold at least 75% of the voting shares. 

*  The few exceptions apply where: a company is seeking shareholder support to opt out of its obligations under the Companies Act to prepare financial statements, have those financial statements audited, and/or to prepare annual reports.  In each case, shareholders holding at least 95% of the voting shares must sign the resolution.

tips for passing shareholder resolutions

A few things to note about those default rules for shareholder resolutions:

• A company’s constitution can impose a higher threshold than the default, but cannot allow for a lower threshold.
• Shareholders must sign the resolution (assent isn’t enough).
• Because of the headcount requirement, a small group of shareholders who hold most of the shares won’t be able to pass a written resolution on their own.  E.g. in a company of 4 shareholders, 1 or 2 shareholders on their own can’t pass a written resolution even if they hold 90% of the voting shares.
• It will make life easier to go beyond the minimum threshold required and get every shareholder’s signature to a shareholders’ resolution, if you can. If you can’t, then you should send a copy of the resolution in its final signed and dated form to any shareholder who hasn’t signed the resolution within 5 working days.
• Special rules also apply if you’re adopting a constitution or approving a major transaction – in which case you’re most likely to be in touch with your favourite legal adviser anyway.

need help?

The above isn’t a full breakdown of the rules surrounding written shareholder resolutions (we figure everyone’s already suffering enough).  If you have any questions though, we’d be happy to help.