Companies Act 1985 (Electronic Communications) Order 2000 is in force

United Kingdom
The Order (SI 2000/3373) came into force on 22nd December 2000. It modifies various provisions of the Companies Act 1985 (and related legislation, such as the model articles of association set out in Table A) for the purpose of authorising or facilitating the use of electronic communications between companies and their members, debenture holders and auditors, and between companies and the registrar of companies (see "Amendments to the Companies Act - Implications for Electronic Communication", 10-Nov-2000, in the LawNow archive). The DTI had previously doubted that the existing legal framework permitted certain things to be done electronically (although these doubts were not shared by all - for example, E-Vote promoted its electronic proxy service to institutional investors from early 1999).

Although by no means the only matters addressed by the Order, there is particular interest in the provisions dealing with electronic notices of meetings, proxies and delivery of accounts. As far as methods of delivery are concerned, "electronic communication" is very broadly defined in the Electronic Communications Act 2000 and, besides e-mail, covers fax, CD-ROM, audio tape and other media.

All these things can be done regardless of anything to the contrary in the company's articles of association. In relation to proxies and the service of notices, in so far as the company's articles already provide for electronic delivery, the company should follow its articles. Otherwise, new provisions in the model articles in Table A automatically apply.

Article 18 enables notices of company meetings to be provided electronically. The Order distinguishes between "notices" and "notifications": either a notice, meaning an electronic communication containing the text of the hardcopy Notice of Meeting, can be sent directly to an electronic address supplied for the purpose by the recipient; or, if agreed, the company can send him an electronic notification that the notice is available on a web site. The notice or notification must be given in sufficient time for the prescribed period to elapse before the meeting (ie 21 or 14 clear days, depending on the business of the meeting). If notification is used, the notice must remain on the web site for at least the period for which notice of the meeting must be given, and the notification must contain certain details of the meeting. Article 31(3) makes corresponding changes so as to allow for notice to the auditors in the same way.

Article 19 enables a member to appoint proxies electronically by communicating with an electronic address supplied by the company for the purpose. Paper proxies invariably require the shareholder to sign and, although the model articles of association in Table A have been amended to include electronic proxies, the relevant provision still requires the proxy to be "executed", and prescribes a format which continues to envisage signature. It is unclear as to whether, in relation to e-mail proxy forms, electronic signatures within the meaning of the Electronic Communications Act are necessary, and, if so, whether this can be surmounted by the company's allocating identifying codes or numbers to the proxy forms. Companies may wish to deal with this by customising their articles of association rather than use the Table A provision (which automatically applies in so far as the articles do not make other provision in that respect).

Articles 12-14 enable the electronic delivery of accounts and annual reports, including summary financial statements - again, either by sending them electronically or by notifying a member on a pre-agreed basis that they are available on a web site, in each case no later than 21 days before the meeting at which the accounts are to be laid. Web site accounts must be published on the web site throughout the period from the notification to the close of the meeting. (If the company - as private companies can - has elected to dispense with the laying of accounts, it must send them to members not less than 28 days before the end of the 10 months following the end of the accounting period. If the company notifies a member that the accounts are on a web site, they must be on the web site when the notification is given, but it is not clear how long they must be left there - perhaps for the remainder of the 10 month period?).

Nothing in the Order itself obliges a company to use electronic communication at the behest of any member - or obliges any member to accept electronic communications instead of paper. Once the company and an individual member have agreed to communicate electronically, the extent of their obligations will depend on the terms of that agreement, and the parties may wish to consider what else (for example, by way of limitation of liability, or the right to switch back to paper delivery) needs to be covered in the agreement.

The Institute of Chartered Secretaries and Administrators has published "Electronic Communications with Shareholders - A Guide to Recommended Best Practice", which includes 25 points of recommended best practice and a specimen "Invitation to Use Electronic Communications". It is available from the ICSA at 16 Park Crescent, London W1B 1AH (price £10). Note in particular that, under the revised Table A, proof that a notice contained in an electronic communication was sent in accordance with the Guidance is conclusive evidence that the notice was given. According to the Guidance, the relevant recommendations (set out in section 8) are that records of electronic despatches are kept; that the relevant shareholders should be alerted by the company that its obligation is satisfied on transmission, and that the company cannot be held responsible for a transmission failure beyond its control; and that if the company is aware that transmission has failed, and subsequent attempts also fail, it must send a hardcopy of the failed communication by post within 48 hours of the first attempt.

Copies of the Order can be downloaded from: http://www.legislation.hmso.gov.uk/si/si2000/20003373.htm

For further information, please contact Simon Howley at simon.howley@cms-cmck.com or on +44 (0)20 7367 3566.