Under clauses 8 and 9 of the Electronic Communications Bill (currently being considered by Parliament), Ministers may make orders amending legislation in order to authorise or facilitate the use of electronic communications or storage. The purpose of this consultative document was to seek views on a draft Order which the Government intends to make assuming that the power in clause 8 is enacted in its current form. The Order deals with communications between a company and its members, and will also enable companies to be incorporated at Companies House, and deliver other significant documents to Companies House by electronic means.

The Department received a total of 39 responses to the consultative document, two of which were confidential. The responses came from a variety of interested parties which included individuals, public limited companies, organisations representative of the business community, institutional investors and their representative bodies, private investors' organisations, accountancy firms/bodies, legal firms/bodies and those concerned with companies administration.

Generally respondents were supportive of the manner in which the option of electronic communications was to be facilitated by the provisions within the Order. Many of the concerns expressed were points of detail which may more usefully be covered in a best practice guide. For this reason, copies of responses (except those sent in confidence) were sent to the Institute of Chartered Secretaries and Administrators for consideration. The Institute issued its own consultative document on best practice on 1 March 2000 (Electronic Communications for Companies: A Discussion on Best Practice).

Some respondents suggested that equivalent powers should also be given to other bodies, such as building societies, subject to similar legislation. Where appropriate, copies of these responses were forwarded to the Government department responsible for the relevant legislation.

Most respondents thought that after start-up costs, savings would grow to become significant in the long term. The costs of setting up a system for electronic communications were considered to be relatively high. The savings, would also be high but would not start to accrue until the majority of members elected to receive communications electronically and it was thought that this would take at least two years. In the interim period, for most companies, there would not be much of a saving. One respondent thought the Order to be extremely detailed and that this would give rise to a requirement for legal advice to understand its effects. This itself would increase the costs of implementation and make its usage less attractive to companies.

Some respondents considered that savings would come quicker and be greater for larger companies. Although few respondents attempted to quantify the amount of savings, one large public limited company estimated that its savings could be as much as £300,000 for the first year and that this could be expected to increase each year after that.

It was also pointed out that there was a growing recognition in small and medium sized enterprises that electronic communications were essential to the conduct of modern business and that its costs could not be considered in isolation.

Respondents agreed with the approach taken in the Order that it should facilitate and enable, but not compel, companies, members or Companies House to use electronic communications. Most also agreed with the approach whereby members should be asked to 'opt in' to electronic communications rather than be taken to agree by default if they did not raise objections. It was pointed out that this would ensure that shareholders would not become disenfranchised by failing to receive their rightful information through default.

A few, however, felt this not to be the best way forward and that an 'opt out' approach, for shareholders to choose to continue to receive paper copies, would result in a faster adoption of electronic communication with a consequent realisation of cost savings. Some also considered that when electronic communication became the norm, it might then be appropriate to introduce an 'opt out' provision.

Several respondents expressed concern that there did not appear to be statutory procedures in place for shareholders to rescind or vary their request to receive electronic communications. There was a suggestion, by two respondents, that shareholders should have the right to change their choice at any time.

Concern was also expressed by some that shareholders without electronic media might not receive statutory information of the same quality and at the same time, as far as possible, as those with it. It was emphasised that members without access to electronic media should not be prejudiced in any way. This subject was also considered in responses to question 6 (see below).

Two respondents suggested that there was a case for all listed companies to be required to adopt electronic communications.

Respondents generally welcomed in principal the move to incorporation by electronic means. It was seen as simplifying the process of incorporation and streamlining administration, thus encouraging greater use of electronic communications by the business community and the adoption of more on-line services by Companies House.

Of concern to some respondents was the fact that no specific mention is made as to whether companies will be able to submit other documentation to Companies House in electronic form. Some respondents suggested that the aim should be to allow for the electronic submission of all documents to the Registrar and several said that they presumed that the proposed section 707B (clause 22) was intended to cover this. It was also suggested that the provisions in the Order concerning statutory declarations should be extended to all other instances where a statutory declaration is required to be made and lodged with the Registrar under the Companies Act 1985.

A few respondents mentioned that those continuing to file conventionally, and requiring a statutory declaration, will incur the extra costs of a solicitor or notary whereas those filing electronically (where the statutory declaration will be replaced by an electronic statement) will not. It was suggested that the statutory declaration be withdrawn and replaced with a signed statement, whether sent on paper by post or electronically. Some others, however, thought that those filing electronically should be charged a reduced fee in order to encourage users and to reflect the Registrar's reduced costs.

Some respondents expressed reservation about the lack of filing of original signatures and whether any kind of authentication procedure would be introduced regarding electronic signatures. Others did, however, consider that an electronic signature was sufficient but that the penalty for false statements may have to be strengthened because of the ease with which false statements could be made or the interception of mail that can occur in electronic media.

Answers to this question varied considerably between respondents. A minority considered that there was no other important information which a company would be likely to want to make to its members by electronic means; others pointed out specific communications, some of which were within Companies Act legislation (eg, corporate action documents and forms including notices under sections 428,429 and 430 as well as accounts and summary financial statements), and some of which were not (eg, dividend tax vouchers).

The majority, however, proposed that a company should be able to make all statutory communications with its members by electronic means. A few went further still and took the opportunity, in answer to this question, to state that legislation should enable all statutory communications between a company and a) the Secretary of State; b) the Registrar of Companies; c) its members; and d) its auditors to be by electronic means; in all cases, where they have agreed.

Article 14 provides for the company to give notice of meeting by electronic communication. New section 369(4C) requires that notification that a meeting notice has been published on a website should include the place, date and time of the meeting, state whether it is an annual or extraordinary meeting, and state that it concerns a statutory notice given under the Companies Act.

There were mixed responses to this question; although many respondents considered the requirements adequate, there were also many who raised points concerning the content of the notification. In particular, several respondents thought that the notification should draw attention to information about any special business to be conducted at the meeting. It was also mentioned that the notification should emphasise the importance of the message as well as clearly stating any deadlines applicable and the consequences of failure to respond. A few respondents suggested that the notification should include a hyper-text link to the company's website.

Some respondents thought that the whole notice of meeting should be sent directly to members and that this should include either, as attachments, the documents referred to in the notice, or, alternatively, links to that part of the company's website where the referred documents are located.

As mentioned above, when considering the responses to question 4, the majority of respondents considered that a company should be able to make all statutory communications with its members by electronic means. It was also generally considered that company law should allow companies maximum flexibility and a minimum of prescription in their communications with shareholders so that companies can determine how best to put electronic communications in place.

One point made by two respondents was that the Order was a significant opportunity to facilitate direct communications between a company and its underlying beneficial owners of shares. The current Company Law Review has given detailed consideration to the position of beneficial owners in its recent consultative document Modern Company Law for a Competitive Economy: Developing the Framework (URN 00/656), paras. 4.7 - 4.18.

Many of the comments received in response to this question dealt with issues which could most usefully be covered within a code of best practice. As mentioned above, apart from those sent in confidence, copies of all responses have been forwarded to the Institute of Chartered Secretaries and Administrators for consideration. Points which were emphasised are shown below.

Equality of Information: Several respondents commented that, whether shareholders had electronic communications or not, it was important that all shareholders should receive the same quality of information and at the same time, as far as possible.

Electronic Document Status: One respondent suggested that the law should clarify that the directors are solely responsible for ensuring that the version of a document on the website is a faithful reproduction of the original. Other respondents raised concerns over identification on a company's website of what is or is not statutory and is or is not audited. It was pointed out that in relation to the publishing of documents on company websites, it was important to make it clear whether or not the information had been subject to audit or any other form of auditor review. For instance, it was suggested that changes may be necessary to the auditors' report when published electronically in order to ensure that proper references are made to the financial statements, that they have been audited, and to other information, which the auditors may have considered in accordance with auditing standards.

Posting of Documents to a Company's Website: Several respondents thought that information posted to a company's website should be available for as long as it was relevant so that members that receive information electronically are not disadvantaged compared to those that receive hard copy. In this respect, it was suggested that one year's annual accounts should not be removed from the website until replaced by the following year's.

Particular concern was expressed in relation to shareholders' access to the accounts in the 21 day period prior to the annual general meeting. It was thought that legislation may be needed to clarify the position of the directors should access to the company's website become unavailable in this period. It was also suggested that a member, who has failed to receive a document sent to him by electronic means, should have the right to have a replacement sent to him in hard copy format.

Respondents were generally in favour of the appointment of proxies by electronic means. It should be mentioned that some already considered that this was permissible under the Companies Act 1985.

Appointment of proxies by electronic means was seen as advantageous in that it would overcome delays inherent in the postal system. It was also thought likely to result in an increase in voting levels and was seen as enabling shareholders from abroad, as well as a company's underlying beneficial owners of shares, to effect their shareholder rights more easily. One respondent thought that there was a strong case for requiring all listed companies to offer this facility within two years.

The chief concerns of respondents were security and the authentication of the identity of members. Most respondents were content that the company should determine the mechanisms of authentication.

Many respondents expressed disappointment that the proposals excluded direct electronic voting and considered that an opportunity to increase the level of shareholder voting had been lost. The Company Law Review has already proposed that the law should permit electronic voting by shareholders - see Modern Company Law for a Competitive Economy: Developing the Framework, para. 4.59 - and some respondents noted that they would be supporting such an approach in responding to that document.

Respondents took the opportunity to reiterate here some of comments expressed in answers to previous questions. Chief among these was that the Order did not go far enough and that electronic communication should be available for all statutory communications between a company and the Secretary of State, the Registrar of Companies, the company's members and its auditors. The Order was viewed as a limited facility and it was stated by several respondents that the aim should also be to allow the electronic submission of all documents to the Registrar. One respondent suggested that it would be more helpful to include general provisions in legislation to permit any reference to writing in the Companies Act to include electronic communication or storage; this would avoid having to make repeated orders for specific provisions in the future.

It was felt by some that the issue of security was not dealt with adequately in the Order although, in this respect, the security recommendations of the Electronic Communications Bill were pointed out as welcome by one respondent.

Some respondents also felt that the Order was too complex and that electronic communications would not, therefore, be widely used by smaller companies and one respondent thought that an explanatory note, explaining the Order and what it meant in practice, would be helpful. In this context, another respondent suggested that it would be helpful to have clarification of the status of the ICSA best practice guide.

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