Company Law Update - October 2007

Article by Paul Salmon and Ruth Walker

New laws on sending statutory documents and information to shareholders, in electronic as well as hard copy form, came into force earlier this year. Companies may wish to review their Articles of Association in the light of these changes.

Introduction

The new Companies Act 2006 (the Act) has introduced, for the first time, comprehensive provisions regarding communications between a company and its shareholders - the Company Communications Provisions. These provisions came into force on 20 January 2007.

The Company Communications Provisions apply to all documents or information authorised or required to be sent under the Companies Acts1 to or from any body corporate. However, the new provisions are of particular interest because they contain detailed provisions regarding electronic communications. Whilst the previous law did contain provisions regarding electronic communications, they were limited to certain documents (namely, the report and accounts, summary financial statements and general meeting notices and proxy appointments) and specific consent of individual shareholders was required. The provisions of the new Act apply to all communications under the Companies Acts and, whilst in general individual shareholder consent is still required, there are now provisions by which a shareholder is deemed to consent to receiving communications by way of a website if a shareholder does not specifically request hard copies when asked. This deals with the problem under the old law of overcoming shareholder lethargy to obtain their specific consent.

The provisions relating to communication by website posting are particularly welcome and are expected to lead to considerable cost savings, not to mention the environmental benefit from the reduced use of paper.

A further change introduced by the Act is that if a company gives an email address in a notice calling a meeting or a proxy invitation or form or with a proposed written resolution then a shareholder can submit his proxy and any voting instructions electronically, subject to any limitations the company may specify.

Sending Documents And Information To Shareholders In Electronic Form

The Act refers to sending documents and information in electronic form. Specific examples given in the legislation are email and fax and it also includes sending a disk in the post but the definition will cover any transmission by electronic means provided the recipient can read it and retain a copy of it. 'Electronic means' is defined as a document or information being (a) sent initially and received at its destination by means of electronic equipment for the processing or storage of data, and (b) entirely transmitted, conveyed and received by wire, by radio, by optical means or by other electromagnetic means. Furthermore, the Act includes additional flexibility in providing that a company and its shareholders may communicate by means other than in hard copy form or electronic form, as the parties may agree.

The main point to note is that each shareholder's consent is required to receiving documents in electronic form. This can be given generally for all communications or specifically in relation to certain communications, although from the company's point of view general consent will usually be the most practical option.

Separate consent is required for communications by means of a website and there are provisions by which such consent is deemed to be given- see below.

Companies admitted to trading on a regulated market such as the London Stock Exchange's main market (but not AIM) also have to meet additional requirements:

In particular, they must pass a shareholders' resolution permitting the use of electronic means to communicate with shareholders under the Financial Service Authority's Disclosure Rules and Transparency Rules. Those rules also provide that:

the use of electronic means must not depend on the location of the shareholder. This is understood to mean that a company cannot discriminate within the EEA between shareholders of the same class. The question arises, where the sending of documents to one EEA country by electronic means (eg website posting) is restricted by local law, must the company treat all shareholders alike and send hard copy documents. The FSA advises that where such restrictions exist, the FSA would not regard the principle of equality of shareholder treatment as being breached merely if the issuer does not offer to communicate by electronic means with such shareholders.

Individual shareholder consent is required to conveying information by electronic means (with deemed consent provisions) - however these requirements are "switched off" where the Company Communications Provisions apply.

Communications By Means Of A Website

In order to take advantage of...