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Session 1999-2000
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Delegated Legislation Committee Debates

Draft Companies Act 1985 (Electronic Communications) Order 2000

Sixth Standing Committee on Delegated Legislation

Wednesday 8 November 2000

[Sir David Madel in the Chair]

Draft Companies Act 1985 (Electronic Communications) Order 2000

4.30 pm

The Minister for Small Business and E-Commerce (Ms Patricia Hewitt): I beg to move,

    That the Committee has considered the draft Companies Act 1985 (Electronic Communications) Order 2000.

I am pleased that we are to debate today the first order to be introduced under section 8 of the Electronic Communications Act 2000. As this is the first order, I will, after describing its main provisions, take the opportunity to set out the Government's plans for further orders under section 8 of the Act.

The draft order removes obstacles in the Companies Act 1985 to electronic communications between a company and its members. A number of provisions in the 1985 Act either require communications to be made in writing or, because they were drafted in the pre-electronic age, are unclear as to whether electronic means can be used. The order will cover three types of electronic communication: from companies to Companies House; from companies to their shareholders; and from shareholders to their company.

The draft order will amend provisions in the 1985 Act that prevent the electronic delivery of certain documents to Companies House. Companies may already file some documents electronically, including the annual return, directors' details and a change of registered office. The order will allow new companies to incorporate electronically. It will also allow existing companies to re-register electronically when they are changing their status, for example changing from a private to a public company. The principal barrier in the 1985 Act to electronic communications for those transactions is the requirement that they be supported by a statutory declaration of compliance with the Act. As statutory declarations must be sworn before a solicitor or notary, they cannot be made electronically. Consequently, the draft order will replace them with statements, which can be made electronically. False statements will be as serious as false declarations, and will attract equivalent penalties.

The order deals also with communications from a company to its members. Many companies already use websites to publish shareholder information. However, certain information that the Companies Act 1985 requires companies to send to shareholders must currently be sent by post in hard copy. Under the order, companies will be able to send that information by electronic communication to any shareholder who agrees to receive it in that way. The information covered by the order is the annual report and accounts, summary financial statements and notices of general meetings. The order includes provision for that information to be published on a website, accompanied by a communication to members notifying them how to access the information. In addition, the draft order covers communications from a member to the company. Shareholders will be able to lodge proxies electronically, along with instructions on how the proxy should be exercised.

In addition to the obstacles in the Companies Act 1985 that I have mentioned, the articles of association of companies may also impose barriers to electronic

communications. The order provides that anything in a company's articles that would prevent it from taking advantage of the order is overridden. As required by section 8(6)(a) of the Electronic Communications Act 2000, the draft order is permissive. It enables, but does not require companies and shareholders to use electronic communications. So, for example, companies may continue to use traditional means to incorporate at Companies House. Electronic communications will be used between a company and an individual member only where both agree. In practice, a company may well communicate electronically with some of its members and by post with others who prefer paper copies or who do not have internet access.

The order will require companies to ask their members to opt in to electronic communications, rather than to opt out. However, it leaves considerable flexibility for companies to decide on the best means of electronic communication, and the method for agreeing to it. Companies need that flexibility to accommodate their varying circumstances and to adapt to developments in technology. In that respect, guidance rather than legislation is appropriate. I welcome the initiative of the Institute of Chartered Secretaries and Administrators, which has prepared best practice guidance for companies that choose to take advantage of the order. That guidance will be of great assistance to companies and their shareholders. In accordance with the undertaking given by my right hon. Friend the Attorney-General last year, I confirm that in my view the amendments to the Companies Act 1985 proposed in the order are compatible with the European Convention on Human Rights.

The order has been laid under the affirmative resolution procedure in accordance with the memorandum that I submitted to Parliament in January, in which I said that the Government envisaged that the first order would be subject to an affirmative resolution, but that other orders would usually be subject to the negative resolution.

The Committee will wish to note that my hon. Friend the Minister for Housing and Planning proposes to lay an order later this month to amend the Local Government and Housing Act 1989 for the purpose of allowing electronic communication between the Department of the Environment, Transport and the Regions and local authorities on housing reserve account subsidy determinations and decisions. As no major issues of principle are raised by the DETR order, my hon. Friend proposes to make it subject to the negative resolution procedure. That will enable it to come into force in time for the annual determination of housing revenue account subsidy. That order is likely to be made, and it could therefore come into force before this one.

The order was widely welcomed by companies when it was issued for consultation earlier this year. Companies believe that it will assist them to reduce costs and to improve their communications with shareholders. The order is a good example of how section 8 of the Electronic Communications Act 2000 can be used to reduce burdens on companies and individuals while improving the service that they provide or receive.

The main purpose of that Act is to help build confidence in electronic commerce. It does that by providing for an approval scheme for businesses and other organisations that provide cryptography services such as electronic signature and confidentiality services. It also provides for the legal recognition of electronic signatures, and the process under which they are verified, generated or communicated. However, section 8 crucially contains a power to remove obstacles in other legislation to the use of electronic communication and storage in place of paper. That power is a major element in delivering the Government's policy of promoting electronic commerce, and of meeting the targets for making Government services available electronically.

The power in section 8 of the Act is extremely flexible in its application and, like most other provisions in the Act, it is technology-neutral. Together with the provision in section 7 for the legal recognition of electronic signatures, it has the potential to create a step-change in the effectiveness and efficiency of transactions between Government and citizens or business, and in business-to-business and business-to-customer transactions. An illustration of the potential benefit is the opportunity offered by the Inland Revenue this year, made under similar powers in the Finance Act 1999, for the on-line submission of tax returns. I have no doubt that many right hon. and hon. Members will have made good use of that facility.

In his written answer of 24 May, my right hon. Friend the Minister of State for the Cabinet Office stated the Government's priorities for making orders under section 8 of the Act. Those included the company law order now before the Committee. It also included orders to permit electronic conveyancing, to facilitate the electronic submission of trade statistics to the Office of National Statistics, to permit the electronic submission of a statutory off-road declaration of a vehicle, to allow the electronic authentication of public records for court proceedings, and to give legal recognition to the official legislation website version of statutes.

Earlier this year, in a written answer on 28 July, I said that a further order was likely to allow the electronic submission of information by oil companies under the Petroleum Act 1998 and the consequent electronic delivery of consents and approvals by the Secretary of State. In the UK Online Report published in September, the Government accepted a commitment to remove 70 per cent. of identified regulatory and legal barriers to electronic ways of working in the UK by the end of 2001, and 100 per cent. by the end of 2002. We are on target to achieve that aim.

The orders that I have mentioned are not the only ones to have been identified. The Office of the e-Envoy in the Cabinet Office has worked with the information age Government champions in each Department to review other potential candidates for section 8 orders. In accordance with the Government's commitment, given in their response to the Trade and Industry Committee's recent report on the Electronic Communications Bill, we shall be publishing details within two years—that is by the end of next year—of all the statutory definitions of words such as ''writing'' and ''signature'' that need to be updated to take account of electronic communications.

Departments are in discussion with trade associations and other interested bodies to seek their views on the priorities for other section 8 orders. One possibility is the amendment of the Consumer Credit Act 1974 to allow consumer credit agreements to be concluded on-line. The Finance and Leasing Association raised that proposal with my Department, and we are discussing it with the association and other interested parties.

The Act is bringing the statute book into the 21st century. This order is the first of many that will enable Government, businesses and citizens to reap the full benefits of information technology and I commend it to the Committee.

4.40 pm


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