Legal Risks for Charities & NFPs Holding Electronic & Virtual Meetings

Introduction

The framework for conducting company meetings has fundamentally shifted, with amendments to the Corporations Act 2001 (Cth) making temporary pandemic relief measures for virtual meetings and electronic execution of documents a permanent feature of corporate governance. This evolution offers charities and not-for-profit (NFP) organisations new levels of flexibility in how they engage with members and make decisions.

While these changes facilitate more accessible company meetings, they also introduce significant legal risks if not managed with care. Simple procedural defects in how electronic communications are sent or how a virtual meeting is conducted can lead to resolutions being declared invalid, creating serious governance challenges that require organisations to strengthen charity board processes. This guide provides essential information on the legal framework and common pitfalls to help organisations avoid these risks and ensure their meetings are compliant.

Interactive Tool: Check If Your Virtual Meeting Is Legally Valid & Compliant

The Legal Framework for Electronic Meetings & Notices

From Temporary Relief to Permanent Law

Before the COVID-19 pandemic, the Corporations Act 2001 (Cth) created constraints for organisations wanting to use technology for company meetings and required physical ‘wet ink’ signatures for executing company documents. The pandemic necessitated a rapid shift, prompting the government to introduce temporary relief measures.

These measures, such as the Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 (Cth), temporarily modified the law to facilitate virtual meetings and electronic execution of documents. This temporary relief provided a new framework for company meetings and communications, which included:

• Holding meetings using technology that gives all attendees a reasonable opportunity to participate without being physically present.
• Requiring that votes at a virtual or hybrid meeting be taken on a poll rather than a show of hands.
• Allowing meeting notices and related materials to be sent electronically.
• Permitting the electronic execution of documents under Section 127 of the Corporations Act 2001 (Cth).

Following these temporary measures, legislation was introduced to make these changes a permanent feature of corporate governance. The proposed permanent laws aim to enshrine the flexibility for companies and registered schemes to hold meetings physically, as a hybrid, or entirely virtually.

These laws also formalise several capabilities, including:

• The ability to distribute meeting materials electronically.
• Providing a statutory mechanism for the electronic execution of company documents.

The Central Role of Your Charity’s Constitution

While the Corporations Act 2001 (Cth) now provides a legal basis for holding electronic meetings, this framework is subject to the specific rules within your charity’s own constitution. An organisation’s constitution, a key component of choosing the right legal structure, remains the paramount governing document, and any restrictions it contains regarding meetings will continue to apply, even if the law now permits more flexibility.

It is critical to review your constitution carefully, as it may contain clauses that prevent or limit the use of technology for meetings. Specific scenarios may dictate your compliance:

• Wholly virtual meetings are only permissible if they are expressly allowed for in the constitution.
• If the document is silent or requires a physical location, you cannot legally hold a fully virtual meeting despite the changes to the Corporations Act 2001 (Cth).
• If there is ambiguity, it is advisable to address this by proposing an update at the next appropriate opportunity.

Common Defects That Can Invalidate Your Meeting Notice

Failing to Reach Every Member

A fundamental requirement for a valid meeting is ensuring that every member receives the notice. A significant error, as highlighted in the case of Clarke v Australian Computer Society Incorporated [2019] FCA 2175, is the failure to send notices to all members entitled to receive them.

This includes members who:

• May not have provided an email address.
• Must therefore be sent a physical copy.

Furthermore, organisations must distinguish between marketing communications and official notices. The court found that members who had opted out of receiving marketing materials were still entitled to receive notices of meetings.

A notice of a general meeting is not considered marketing material, and failing to send it to these members can be a serious breach that:

• Jeopardises the validity of any resolutions passed.
• Is particularly critical if the vote is close.

Why Hyperlinks Can Fail as Proper Notice

Simply emailing a hyperlink to meeting documents may not satisfy the legal requirement to ‘send’ a notice. In the Australian Computer Society case, the court determined that providing a hyperlink does not mean the document was ‘attached to or contained in’ the email.

Instead, a hyperlink acts as a pointer to a file stored on a remote server, requiring the member to:

• Take additional steps to access the information.
• Download the information manually.

The court reasoned that the information in the hyperlinked files was not technically “sent” to the recipients. The email itself, without the content of the linked documents, failed to fully and fairly inform members about the matters to be considered at the meeting.

This ruling serves as a caution for organisations that rely on hyperlinks for distributing important documents relating to meetings.

The Danger of Misleading or Incomplete Information

Meeting notices and accompanying explanatory materials must provide a full and fair disclosure of all material facts. Directors and management have a duty to ensure members are given sufficient information to make an informed decision.

Presenting significant changes as ‘minor’ can be considered materially misleading and may lead to a successful legal challenge.

In one instance, a proposal to adopt an entirely new constitution was described as involving only minor alterations. The full extent of the changes was only discoverable by navigating through a series of nested hyperlinks.

The court found this was not an acceptable way to disclose the true nature of the proposal, establishing that organisations cannot:

• Hide the truth in complex electronic documents.
• Expect it to count as fair disclosure.

Conducting Valid Virtual & Hybrid Meetings for Your NFP

Ensuring a Reasonable Opportunity to Participate

For any virtual or hybrid company meeting to be valid, members must be given a reasonable opportunity to participate. The Corporations Act 2001 (Cth) permits meetings at two or more venues using technology, provided every member can take part effectively.

To facilitate this opportunity, several factors must be considered.

The technology chosen must be reliable, enabling members to follow proceedings, communicate with the chair and engage with the business of the meeting. It should also support both verbal and written questions from members who have a right to speak.

Key measures to ensure a reasonable opportunity to participate include:

• Reasonable Timing: The meeting time must suit the majority of members.
• Functional Technology: The platform must let members hear, be heard and view any presented materials.
• Active Participation: Members need the ability to speak and ask questions—verbally or in writing—just as in a physical meeting.
• Access to Documents: Documents tabled during the meeting should be shared beforehand or in real time, for example via screen-sharing or a download link.

If these conditions are not met, the meeting’s outcomes become vulnerable to legal challenge.

Managing Voting & Polls in an Electronic Environment

The shift to electronic meetings has transformed how voting is conducted. In a virtual or hybrid setting, votes must be taken on a poll rather than by a show of hands, unless the organisation’s constitution says otherwise.

This approach ensures each member’s vote is recorded accurately—something a show of hands cannot guarantee online.

The move toward polls was solidified by temporary relief measures and ASIC’s no-action positions during the COVID-19 pandemic, which required all virtual-meeting votes to occur via a poll. This practice is now standard for electronic and hybrid meetings.

The technology used must allow every entitled person to vote in real time, and many platforms also enable members to record their vote in advance of the meeting.

Understanding Director Liability & Exposure

Key Director Duties Under ACNC Governance Standard 5

Under ACNC Governance Standard 5, charities are required to take reasonable steps to ensure their directors are subject to, and comply with, a set of specific duties. These duties are fundamental to good governance and help protect the organisation and its mission.

The duties directors must adhere to include:

• Duty 1: To act with reasonable care and diligence. Directors must carry out their roles with the level of care and diligence that a reasonable person would exercise in the same position. This involves staying informed about the charity’s activities, understanding its financial position, and actively participating in decision-making.
• Duty 2: To act in good faith and for a charitable purpose. All actions and decisions must be made honestly, in the best interests of the charity, and to advance its stated charitable purposes. Personal preferences or other motives must not influence a director’s judgment.
• Duty 3: Not to misuse their position. A director must not use their role to gain a personal advantage for themselves or someone else, or to cause harm to the charity.
• Duty 4: Not to misuse information. Information gained through the position of a director must not be used for personal benefit, to benefit another person, or to cause detriment to the charity. This includes maintaining the confidentiality of sensitive board discussions.
• Duty 5: To disclose conflicts of interest. Directors have a duty to declare any actual or perceived material conflicts of interest to the other board members. Managing conflicts of interest is crucial, as a conflict arises when a director’s personal interests could potentially interfere with their duty to act in the best interests of the charity.
• Duty 6: To ensure responsible financial management. Directors are ultimately responsible for overseeing the charity’s financial affairs. Strategic financial oversight includes implementing proper financial controls, monitoring performance against budgets, and ensuring funds are used appropriately.
• Duty 7: To prevent insolvent trading. Directors must ensure the charity does not incur new debts if it is insolvent, meaning it is unable to pay its existing debts as they become due.

How Procedural Failures Can Lead to a Breach of Duty

Failures in meeting procedures can directly lead to a breach of a director’s duties. Directors, particularly the chair, must ensure that meetings are conducted fairly and reasonably to facilitate proper consideration of the matters at hand.

In the case of Clarke v Australian Computer Society, the court found that the chair’s decision to unreasonably curtail debate was a breach of his duty. The chair’s actions were deemed:

• “manifestly unreasonable”; and
• Not taken with a view to facilitating proper discussion of a special resolution.

This highlights how procedural decisions can be scrutinised and found to be a failure to act with the required level of care.

Similarly, providing misleading or incomplete information to members ahead of a meeting can constitute a breach of the duty to act with reasonable care and diligence, as well as the duty to act in good faith. Directors have an obligation to ensure members receive a full and fair disclosure of all material facts to allow them to make informed decisions.

However, directors may expose themselves to liability if they:

• Describe significant changes as ‘minor’; or
• Hide key details within complex documents.

Dispute Escalation & Regulatory Powers

Challenging Meeting Validity in Court

When members believe a meeting has been conducted improperly, they can initiate court proceedings to challenge its validity.

Procedural defects, even if they seem minor, can be grounds for a court to declare a meeting and any resolutions passed invalid.

This was demonstrated in the case of Clarke v Australian Computer Society, where a member successfully challenged a special resolution.

The court found that the cumulative effect of multiple breaches was significant enough to invalidate the general meeting. These defects included:

• Failing to send the notice of meeting to all eligible members.
• Providing misleading information that downplayed the significance of proposed changes.
• The chair unreasonably limiting debate and preventing members from asking questions.

In that case, the special resolution was passed by a very narrow margin.

The court declared both the general meeting and the special resolution invalid, highlighting that procedural correctness is critical, especially when votes are close.

This serves as a key example of how members can use the court system to enforce proper governance.

ACNC’s Role in Warnings Enforceable Undertakings & Other Powers

As the national regulator for charities, the ACNC has a range of compliance powers to address governance failures without necessarily resorting to court action.

These powers allow the ACNC to intervene when a charity fails to meet its legal obligations, including those related to ACNC Governance Standard 5.

The ACNC’s enforcement powers, which generally apply to federally regulated entities, provide a structured way to manage non-compliance. These powers include:

• Issuing warnings: The ACNC can issue a formal warning to a charity that is not complying with its obligations.
• Giving directions: The ACNC can direct a charity to take specific actions, or to stop acting in a certain way, to ensure it complies with the law.
• Entering into enforceable undertakings: This is a formal agreement between the ACNC and a charity, where the charity commits to taking specific steps to address non-compliance. These undertakings are enforceable in court.
• Applying for injunctions: The ACNC can ask a court to order a person or charity to do, or refrain from doing, something to ensure compliance.
• Suspending or removing directors: In cases of serious breaches, the ACNC has the power to suspend or remove a director. Following a suspension or removal, the ACNC can also disqualify that person from being a director of any charity for up to 12 months.

Conclusion

The permanent changes to the Corporations Act 2001 (Cth) offer charities and NFPs significant flexibility for holding company meetings, but these new rules are always subject to the organisation’s constitution. Simple procedural defects in meeting notices or conduct can invalidate resolutions, expose directors to liability, and lead to court challenges or regulatory action from the ACNC.

To ensure your organisation’s meetings and electronic execution of documents are fully compliant, it is crucial to seek specialised legal guidance. Contact LawBridge’s expert not-for-profit lawyers today for trusted advice on the requirements of the Corporations Act and for strengthening your governance framework to avoid unnecessary legal risks.

Frequently Asked Questions