1 ICSA GUIDANCE ON ELECTRONIC COMMUNICATIONS WITH SHAREHOLDERS 2007

On 16 February 2007 the Institute of Chartered Secretaries and Administrators ("ICSA") published a guidance note on electronic communications with shareholders pursuant to the Companies Act 2006 and the Disclosure and Transparency Rules, which includes various recommendations for best practice (the "Guidance").

The Guidance replaces the December 2000 ICSA Best Practice on Electronic Communications with Shareholders and the ICSA Electronic Communications Update.

1.1 Background
On 20 January 2007 new provisions of the Companies Act 2006 (the "2006 Act"), relating to electronic communications between companies and their shareholders, and information which can be published on a website, came into effect.

Electronic communications were previously only permitted in limited contexts. The new provisions allow companies to supply any document or information required to be sent pursuant to the Companies Acts electronically, including by posting them on a website. Under the 2006 Act, if companies wish to use a website they must pass a resolution to this effect or amend their articles of association to permit them to do so. In addition, each shareholder must be individually invited to agree to communication via a website and will be deemed to have agreed if no response has been received within 28 days. This results in three categories of communications with shareholders:

1.1.1 Active agreement - shareholders who can be notified by email when information is available on the website;
1.1.2 Deemed agreement - shareholders who need to be notified in writing when information is available on the website; and
1.1.3 Refusal to participate - shareholders who must be notified in writing and have copies of relevant documents posted to them in hard copy.

The revised FSA Disclosure and Transparency Rules ("DTR") also came into effect on 20 January 2007. Chapter 6 deals with electronic communication. Companies listed on the Main Market will also need to comply with the obligations set out in DTR6.

1.1.1 Active Agreement
Where there is active agreement from a shareholder to electronic communications those shareholders can be notified by email when information is available on the website. ICSA recommends that the notification of availability should be sent on the publication date of the relevant material.

ICSA recommends that the contents of the electronic notification and any hard copy notifications should be identical and any electronic notification should be sent at the same time as the full hard copy mailing.

It is further recommended that the company's articles of association are amended to state that an e-mail is deemed to be delivered on the same day that it is sent (this is contrary to the default position under the 2006 Act).

1.1.2 Deemed Agreement
A shareholder may only be invited to agree to participate in communication via a website, and informed that a lack of response will be deemed to be agreement, once in every 12 month period, although there is nothing to prevent companies from inviting shareholders to sign up to electronic communications as part of all mailings.

ICSA recommended best practice is that consultation take place no more frequently than every other mailing cycle, so that those who want hard copies are not "unduly pestered by the company into having to reaffirm this preference too often".

Whilst the legislation allows agreement to be deemed after 28 days, should a refusal to take part in electronic communications and a request for hard copies arrive later then the 28 day cut off, ICSA recommend that this should be treated as a revocation of the deemed agreement and that the company should revert to communicating with that shareholder by hard copy.

1.1.3 Refusal to Participate
If shareholders refuse to participate in electronic communications then notices and notifications should be sent to shareholders in accordance with the company's articles of association in the usual way in hard copy. Any hard copy notification should be sent at the same time as the electronic notifications and the contents of any hard copy notification should be identical to the electronic copy.

1.2 Notifications on a website
During the first few years of the new regime, ICSA believe that a number of shareholders will be inadvertently deemed to have accepted electronic communication by failing to respond to the invitation. It is therefore recommended best practice that any notification of website availability of material relating to a General Meeting should, when sent in hard copy (i.e. to those whose agreement was deemed from a non-response), include a hard copy personalised proxy card as well as details of any online facility set up. This is to ensure that voting and participation levels are not negatively affected.

1.3 Website Management
It is recommended best practice that invitations to shareholders concerning the use of electronic communication should give details of, or provide a link to, software or equipment specifications which will be required to enable them to use the electronic communication suggested. Guidance on where the software can be downloaded free of charge should also be provided. An example here could be the inclusion of a link to download software to read a .pdf file.

A further recommendation is that, to distinguish between audited and non-audited information on the website, companies should not allow any hyperlinks from their online reports and accounts to any other part of the website.

Companies should note that the 2006 Act requires shareholders to be able to retain a copy of the document or information and that it must be capable of being read and pictures seen with the naked eye.

It is also recommended best practice that Companies include on their website a facility for shareholders to notify the company of any changes to their choice of communication medium or electronic address or inform them how they may do so.

1.4 Viruses
ICSA recommend that shareholders who are communicated with electronically are warned that any communication containing a virus may, or will, depending on the company's IT systems, not be accepted, but that the company will attempt to inform the shareholder of the rejected communication accordingly.

1.5 Register of Members
It is recommended that email addresses or other electronic addresses provided by shareholders should not be made available on the publicly available part of the company's register of members.

1.6 Record of Delivery
Regulation 115 of Table A states that sending a notice contained in an electronic communication in accordance with ICSA guidance will be "conclusive evidence that the notice was given". Regulation 115 was amended to include such statement after the 2000 ICSA Guidance was published.

For those companies which have adopted Regulation 115 in their articles of association the relevant sections of the 2000 ICSA guidance are repeated in the new guidance.

1.7 Conclusion
The use of electronic communications and websites under the 2006 Act raises new issues for companies and the best practice recommendations of ICSA provide useful guidance on how best to effect the changes and manage them going forwards.

If you require further information on any matter covered in this note, please contact your principal contact at Charles Russell or Simon Gilbert, Clive Hopewell or Alexander Keepin (London), Francis Rundall, Richard Norton, or Adrian Mayer (Cheltenham), Catherine Drew or Geoff Sparks (Guildford) or Peter Elliott (Oxford) on 0207 203 5000).

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Please note that the summaries above are a general indicative guide only. They are not exhaustive. This information has been prepared by the firm as a service to our clients. As it is a general guide, we recommend that you seek professional advice before taking action. No liability can be accepted by the firm for any action taken or not taken as a result of this information. The firm is not authorised under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a limited range of investment services to clients because we are members of the Law Society. We can provide these investment services if they are an incidental part of the professional services we have been engaged to provide.