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Untitled Document
Communication provisions of the Companies Act 2006
Introduction
The Companies Act 2006, which received Royal Assent on 8 November 2006, is due to be fully implemented by October 2008.
However, the Government has indicated that the provisions in the Act which relate to electronic communications will be implemented by January 2007, as it is felt that these provisions will bring substantial cost saving benefits to many companies.
As the Companies Act 2006 has not yet been published by the Government, this article looks at the provisions which were included in the version of the Companies Bill which was published in July 2006, but only insofar as they relate to private companies. It will be updated when a copy of the Companies Act 2006 becomes available.
It is also unclear exactly which provisions of the Act relating to electronic communications will be implemented, and we will update on that when further information is available.
Current law
Under the current law, companies can send certain documents – notices of meetings and copies of their annual accounts, directors' report, auditors' report or summary financial statements – by means of electronic communication if the company and the recipient has agreed to this and the recipient is notified of the publication on the website if this is the means of e-communication chosen.
Members can send requests to hold general meetings and appointment of proxies by means of e-communication.
The provisions in the Act are designed to allow any information or documents to be communicated in electronic form, provided that the requirements of the Act are fulfilled.
Different rules for different companies
The rules on communications between companies and other persons are split into 3 areas:
- Communications to a company;
- Communications by a traded company (ie a company whose shares are admitted to trading on a regulated market); and
- Communications by a company which is not a traded company.
Where two companies are in communication, only the rules relating to communications BY a company will apply.
This article will look at communications to a company and communications by a company which is not a traded company.
Definitions in the Act
Before looking at what the rules are, we need first to understand some of the terminology used in the Act.
"Hard copy form" means that the document or information is supplied in a paper copy or similar form capable of being read.
"Electronic form" means that the document or information is sent or supplied by electronic means (eg email or fax) or by any other means whilst in electronic form (for example by sending a disk by post).
A document or information is sent by "electronic means" if it is sent and received by means of electronic equipment for the processing or storage of data and transmitted, conveyed and received by wire, radio, optical means or other electromagnetic means.
A document or information sent by "electronic means" must also be sent in such a form that the sender reasonably considers will enable the recipient to read it and retain a copy of it. Here "read" means that the document or information can be read with the naked eye, or, if it consists of images, pictures, plans etc, it can be seen with the naked eye.
Communications TO a company
The rules relating to communications to a company are set out in Schedule 4, which covers communications in hard copy form or in electronic form.
Hard copy
Communications in hard copy form (ie by letter or written notice) can be sent by post or delivered by hand to the company’s registered office or to another address that the company specifies. If the envelope is prepaid and posted then this will be sufficient to effect valid delivery. This mirrors the current rules.
Electronic form
Documents may only be properly sent or served on the company if the company has agreed, either generally or specifically, that the document can be sent using electronic form. The company may revoke any such agreement.
The address to be used for electronic communication is that specified by the company for the purpose.
So, for example, the company may publish an email address – eg notices@jordans.co.uk - or a fax number to which documents may be sent.
The company’s agreement may be deemed to have been given if the Companies Acts provide to that effect. For example, by publishing an electronic address in a notice convening a general meeting, the Act provides that the company is deemed to have consented to receiving documents relating to that meeting, such as proxies, at the electronic address.
If a document is sent in electronic form by hand or by post (for example on a CD or floppy disk) then it must be sent to the address provided by the company for hard copy form correspondence.
The company may also agree to receive documents in a form other than hard copy or electronic, subject to any requirements or contrary provision in the Companies Acts.
Communication BY a company which is not a traded company
The rules for communications by a company which is not a traded company are set out in Schedule 5 of the Act.
Hard copy
The hard copy form rules are the same as under the current law; they must be handed to or sent by pre-paid, properly addressed post to be validly served.
The document or information must be sent to:
- The address that the recipient specifies for the purpose;
- If to a member, at the address shown in the register of members;
- If to a director, to the address shown in the Register of Directors. This will be the directors service address rather than his residential address, so if the director wants the company to send notices to his residential address he will have to so specify in writing; or
- To any address that the Companies Act specifies for the purpose
If the company is unable to locate any of these addresses, then the communication can be sent to the last known address of the recipient.
Electronic form
The company may supply information and documents in electronic form if the recipient has agreed (generally or specifically) to electronic form being used and has not revoked that agreement.
The company may also communicate by electronic means with a company which is deemed to have agreed to this under the Companies Acts.
The address to be used for communications in electronic form is that supplied for the purpose by the intended recipient (generally or specifically) or, where the intended recipient is a company, the address deemed to have been so provided by the Companies Acts.
Again, if the document or information is sent in electronic form by hand or by post (eg on a disk), it must be handed to the intended recipient or sent or supplied to the company's registered office or to an address to which it could be validly sent if it were in hard copy form.
Publication on website
A company may communicate via its website with its members. The Act provides that a document or information is validly sent or supplied by a company if it is made available on a website in accordance with the rules set out in Schedule 5.
Communication with members or debenture holders via a website
In order to use a website for communication with members of the company (or a person identified by a member as being entitled to enjoy or exercise members rights under section 137 of the Act):
- The members must resolve that the company may communicate with members through a website or the company’s articles must contain a provision to this effect. The resolution must be filed at Companies House.
- Each member (or identified person) must be individually asked by the company to consent to communication by means of a website (either generally or in relation to specific documents) and
- The company’s request must clearly state the effect of a failure to respond by the member or identified person (eg that he would be deemed to have consented if he does not reply within 28 days starting with the date on which the request is sent).
- The company's request must not be sent less than 12 months after a previous request made to that member or identified person in respect of a similar class of documents.
If the company satisfies all of this, it can communicate with members or identified persons who consent or who fail to respond within 28 days starting with the date on which the request is sent via a website. If a member or identified person says he does not want to be communicated with via a website, the company must wait 12 months before it asks him again for consent in relation to the specific documents for which consent was originally sought.
Similar rules apply for debenture holders, except the power to allow the company to communicate via a website will be set out in the debenture.
Other recipients
In relation to other recipients, the intended recipient must have agreed (generally or specifically) to communication by means of a website and that agreement must not have been revoked.
Other rules for communication via a website
Once the necessary consents have been obtained (from all or some of the members) the company must also ensure the following:
- A document or information on a website must be made available in a form, and by a means, that the company reasonably considers will enable the recipient to read it and retain a copy of it. So, the company must use an electronic form that is in common usage; an electronic form at the cutting edge may not enable most recipients to read and retain a copy.
- The company must notify the intended recipient of the presence of a document or information on a website, the address of the website, the place on the website where it may be accessed and how to access the document or information. Unless the member has consented to being contacted by electronic means, this means that this information must be provided in hard copy form (eg by letter). As noted below, this could work out more expensive then simply sending the document that is made available on the website to the recipient in hard copy form.
- The document or information is taken to be sent on the date on which this notification is sent or, if later, the date on which the document or information first appears on the website after that notification is sent.
- The company must make the document or information available on the website throughout the period specified by any applicable provision of the Companies Acts or, if no such period is specified, the period of 28 days beginning with the date on which the notification that the document is available on the website is sent to the person in question.
- However, a failure to make a document or information available on a website during the period is disregarded if it is made available on the website for part of that period and the failure to make it available throughout that period is wholly attributable to circumstances that it would not be reasonable to have expected the company to prevent or avoid.
Power to request hard copy form
Notwithstanding any consents to electronic communication by the member or debenture holder of a document, if the member or debenture holder so requests, the company must provide a hard copy form of any document sent by electronic means or made available on a website within 21 days of receipt of the request and for no charge. If the company fails to comply with this, the company and every officer in default commits an offence and is liable to a fine and a daily fine while the contravention continues.
Authentication of documents sent to the company
A signature is sufficient to authenticate any hard copy form of document.
Electronic form documents are sufficiently authenticated if the identity of the sender is confirmed in a manner specified by the company or, if no such manner is specified, the communication contains or is accompanied by a statement of the identity of the sender and the company has no reason to doubt the truth of that statement.
Where a document or information is sent or supplied by one person on behalf of another, the company may require reasonable evidence of the authority of the former to act on behalf of the latter.
Deemed service of documents
As documents can be served by a variety of means, the Act sets out the deemed service times in relation to documents sent or supplied BY a company:
- If sent by post in a properly addressed, prepaid envelope, it is deemed to have been received 48 hours after it was posted.
- If sent by electronic means and the company can show that it was properly addressed, it is deemed to have been received 48 hours after it was sent.
- If made available on a website, it is deemed to have been received when the material was first made available on the website or, if later, when the recipient received or is deemed to have received notice of the fact that the material was available on the website.
In calculating the 48 hours, no account is taken of any part of a day that is not a working day.
These provisions apply subject to any contrary provision of the Companies Act or the company's articles and any contrary agreement between the company and the intended recipient.
Specific provisions in the Act relating to electronic communication
Written resolutions
The Act sets out a new procedure for passing written resolutions. Part of that new procedure includes the ability for the company to provide an electronic address for the resolution to be consented to by electronic means. The company may also send a written resolution or statement relating to a written resolution to a member by means of a website, in which case the resolution must be made available for a period beginning on the date on which the resolution is made available and ending on the date on which the written resolution lapses if not consented to. This period is set at 28 days in the Act, but may be a different period if the articles so provide.
It is difficult to know at this stage whether the new provisions relating to the passing of written resolutions will be implemented in January 2007, as they are so closely interwoven with the new electronic communication provisions.
Notices of general meetings
The Act provides that notices of general meetings may be given in hard copy form, electronic form or by means of a website, and partly in one form and partly in another to accommodate the situation where some members consent to e-communication and others don't.
If given by means of a website, the notification sent by the company to a member that the notice is available on the website must contain the following information;
- that it concerns the notice of a general meeting;
- the place, date and time of the meeting; and
- if the company is a public company, state whether the company will be an annual general meeting
The notice must be made available on the website throughout the period beginning with the date of the notification and ending with the conclusion of the meeting.
As it will be necessary to notify the member that the notice has been posted on the website, companies will not save much money by using a website for simple notices of meetings. It would be cheaper to include the notice as an attachment to an email, or, for the same cost, it could be posted directly to the members in hard copy form. A cost saving is only achieved if there are documents to be circulated with the notice, when the cost of copying those documents is saved.
Documents relating to meetings
If the company has provided an electronic address in a notice convening a meeting, it is deemed to have agreed that any document relating to the meeting can be sent to that electronic address, for example an appointment of a proxy, any evidence required as to the validity of that proxy appointment or the termination of an appointment of a proxy.
This could be useful to many members, especially when up against a deadline for returning documents to the company.
However, the company will need to ensure that any electronic address it provides is easily accessible by it, so that it is aware when important documents such as proxies have been received. If the company is not aware of receipt of the document, perhaps because the email inbox is not accessed because the owner is off sick and there are no procedures in place to check the inbox, the document will still have been properly received by the company.
Summary
These new provisions could provide a substantial cost saving where there are a large number of members, particularly if there are many documents to be circulated. They could also prevent there being delays in the passing of resolutions or the valid receipt of documents where there are overseas members or directors.
As email has become such a part of normal life, no doubt this will become one of the major methods of e-communication adopted under these new provisions.
However, it should be noted that the use of e-communications requires the consent of the member, which may be withdrawn at any time.
If a website is to be used, there are also extra hurdles to jump. If the company’s articles do not contain any such provision, the members must agree by resolution that the company may communicate in this way, and then each member must be asked to consent individually. If they do not reply to the request for individual consent, the member is deemed to have consented after 28 days have passed. So, for a company to use a website, they must ensure that they seek consent at least 28 days prior to them wanting to use the website as a means of communication.
Companies will also have to time their requests for consent to communicate via a website very carefully. A member may only be approached to give consent once in any 12 month period, and the request must contain the required wording in the Act in order to be valid.
Finally, the member must also be notified that the document has been posted on the website, and this extra step could mean that any cost savings of using a website disappear, especially if members have consented to communication via the website but not via email. In this case the notification that the document is available will have to be sent by post. If the document being notified is a one page notice of a meeting, there is no cost saving if a letter has to be sent to the members saying that it is available on the website.
Underlying all of this, is the power for any member who has consented to e-communication at any time to require the company to provide the communication in hard copy format, free of charge. So even if a member is deemed to have agreed to web communication, he can simply request a paper copy when he receives the notification of publication.
It is also likely that some members will consent to e-communication and some won't, leading to the company having to operate both e-communication and hard copy communication mechanisms, with the added complications and expense of keep track of two separate communication systems.
So, for some companies, the use of e-communication may prove to be more complex and expensive than using hard copy communication methods.
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