Although electronic communications between companies and their shareholders have been permitted to some degree since 2000, use of this method of communication has been limited and companies have continued to send large volumes of hard copy documents to their shareholders.
As a result, the Government has used the 2006 Act to introduce a fresh approach to electronic communications. The new regime (which was brought in on 20 January 2007) has been heralded as a key cost saving provision for companies with large numbers of shareholders, many of whom will wish to consider implementing the new law at this year's AGM.
The Government also hopes that the changes will lead companies to review their communication strategies with shareholders more frequently, resulting in enhanced ‘Shareholder Engagement’, one of the four stated company law reform objectives of the 2006 Act.
Key changes under the 2006 Act Website as Default method of Communication
Under the old legislation, a company could only communicate with a shareholder in electronic form if the shareholder had expressly agreed to correspond in such a way. In the absence of such agreement, the default method of communication between a company and its shareholders was through hard copy documents.
Under the 2006 Act, a company may with shareholder approval (or by amending its articles of association), use its website as the default method of communication. Once such approval has been obtained, the company must write to shareholders individually, affording them the opportunity to object specifically to being communicated with via the website. Shareholders who do not respond to this letter are deemed to have agreed to such form of communication and the company may thereafter communicate with such shareholders by placing relevant documents on its website rather than by sending out hard copies.
Any shareholder who expressly refuses consent to website communication must be sent hard copy documents. Companies must still send a hard copy notification to shareholders who are deemed to have given, or who have given, their consent, to advise them whenever a new document has been posted on the website.
A shareholder who specifically objects to being communicated with electronically may be contacted by the company again with any number of requests to communicate electronically, but a company may not deem a shareholder's silence in the face of any subsequent requests sent within twelve months of the first request as constituting consent.
As shareholders in fully listed and AIM traded companies regularly change, the number of shareholders whom a company can treat as having given deemed consent to website communications will reduce over time and companies who wish to use their website as a default will need to send out periodic requests for consent to new shareholders.
Shareholders can also expressly consent to being communicated with via email. The advantage of this is that the notification the company needs to make when it places a document on its website can then be by way of email rather than hard copy. Shareholder approval in general meeting is not needed for this type of communication under the 2006 Act. However, companies listed on the Official List need to comply with Chapter 6 of the Disclosure and Transparency Rules (DTRs) which requires approval of the decision to use electronic communications to be made in general meeting.
Type of documents
There was previously some uncertainty about what documents or other information could be sent electronically. Under the new provisions, it is clear that a company may communicate electronically to its shareholders any document authorised or required to be communicated under the 2006 Act. In addition, where a company wishes to communicate any documents electronically which are not required by the 2006 Act (e.g. documents which are circulated under the AIM Rules or the Listing Rules), this is also now possible subject to the inclusion of an express provision in the company’s articles of association and, when appropriate, compliance with the DTRs.
Even where a shareholder has received a document in electronic form, a company must still comply with any request for a hard copy made in the following 21 days.
In an extension of the previous position, where a company includes an email address or fax number on a notice of meeting, it is taken to have agreed to allow the return of proxies by electronic means to that address or number.
The electronic communications provisions in the 2006 Act apply irrespective of any provisions contained in a company's articles of association (although as noted above, fully listed companies may be subject to additional requirements). There is therefore no need for a company to amend its articles unless it wishes to use its website as its default method of communication.
If a company wishes to use the default website option and already has provisions in its articles to allow communications ‘allowable by law’, the Institute of Chartered Secretaries and Administrators recommends that best practice is that such a company should still seek shareholder approval rather than rely on its current articles.
Any company that is considering implementing any of the new provisions should contact us in order to discuss the necessary consent requests and the form of the resolutions that may be required.