Essential corporate news

Week ending September 6, 2019

Publication September 2019


Law Commission: Electronic execution of documents – report and statement of law published

On September 4, 2019 the Law Commission published a report and summary document on the validity of electronic signatures in the execution of documents. The report forms part of the Law Commission’s Thirteenth Programme of Law Reform (originally launched on December 14, 2017), and follows its August 2018 Consultation in which it sought views on its provisional conclusions and proposals in relation to electronic signatures.

The report contains a statement of law, setting out the Law Commission’s high-level conclusions regarding the validity of electronic signatures, applicable both where there is a statutory requirement for a signature and where there is not.

The Law Commission’s conclusions in the statement of law are as follows

  • An electronic signature is capable in law of being used to execute a document (including a deed) provided that the person signing the document intends to authenticate the document and any execution formalities are satisfied. Such formalities may be legislative, contractual or laid down in another private law instrument under which a document is to be executed.
  • An electronic signature is admissible in evidence in legal proceedings. It is admissible, for example, to prove or disprove the identity of a signatory and/or the signatory's intention to authenticate the document.
  • Save where the contrary is provided for in relevant legislation, contractual arrangements or case law, the common law adopts a pragmatic approach and does not prescribe any particular form or type of signature. In determining whether the method of signature adopted demonstrates an authenticating intention the courts adopt an objective approach considering all of the surrounding circumstances.
  • The Law Commission identifies certain non-electronic forms of signature that have been held by the courts to amount to a valid signature including signing with an “X”, signing with initials only, using a stamp of a handwritten signature and printing of a name. The Law Commission states that there is no reason in principle to think that electronic equivalents of these forms of signature would not be equally valid. Examples are also given of electronic forms that the courts have held amount to valid signatures in the case of statutory obligations to provide a signature where the statute is silent as to whether an electronic signature is acceptable, including a name typed at the bottom of an email, clicking an “I accept” tick box and the header of a SWIFT message.
  • The Law Commission's view is that the requirement under the current law that a deed must be signed “in the presence of a witness” requires the physical presence of that witness. This is the case even where both the person executing the deed, and the witness, are executing or attesting the document using an electronic signature.

The Law Commission makes several further recommendations, including the establishment of an industry working group, to consider practical issues relating to the electronic execution of documents. The working group should also provide best practice guidance for the use of electronic signatures in different commercial transactions and consider potential solutions to the obstacles to video witnessing of electronic signatures on deeds and consequential legislative reform in this regard. The Law Commission also recommends a future review of the law of deeds to consider whether the concept remains fit for purpose.

Although the Law Commission states that current law already provides for electronic signatures, it suggests that the Government may wish to consider codifying the law on electronic signatures in order to improve the accessibility of the law.

(Law Commission: Electronic execution of documents report, 04.09.19)
(Law Commission: Electronic execution of documents summary document, 04.09.19)
(Law Commission: Electronic execution of documents press release, 04.09.19)

Law Commission: Intermediated securities - call for evidence

On August 27, 2019 the Law Commission published a call for evidence (Call for Evidence) seeking views on the intermediated securities system as the first step of its intermediated securities scoping study. This study is one of the projects that forms part of the Law Commission’s Thirteenth Programme of Law Reform (originally launched on December, 14 2017). It aims to produce a scoping study summarising the current law in relation to the dematerialisation of securities and the related system of holding shares through intermediaries. The Law Commission has been tasked by the Department for Business, Energy and Industrial Strategy with identifying issues in the current system and providing options for reform. The Call for Evidence is the initial step in this process and seeks views and feedback on the current system. This process takes the place of a consultation exercise.

The Call for Evidence sets out the background to the intermediated securities system, identifies what intermediated securities are and how they are held and recorded, as well as noting their advantages. The call for evidence goes on to identify specific issues arising in relation to intermediated securities and requests observations and evidence as to whether these issues create problems in practice, as well as inviting thoughts as to potential solutions (with a focus on technology and examples from other jurisdictions).

The main issues on which the Law Commission seeks views are listed below.

Exercising voting rights - Whether ultimate investors find it difficult to secure and/or exercise voting rights, whether there are particular systems or models of holding intermediated securities that could better facilitate the passing back of direct rights for ultimate investors and whether the type of vote affects the extent to which ultimate investors can exercise voting rights.

Confirmation of votes - Whether ultimate investors find it difficult to confirm that their vote has been received and counted.

Timing of votes - Whether the rules and practical arrangements relating to the timing of voting affect the ability of an ultimate investor to vote.

Proxy voting - Whether some aspects of proxy voting affects ultimate investors’ voting rights in the context of an intermediated securities chain. In addition, views are sought by the Law Commission on the following more specific technical matters listed below.

Schemes - Whether the headcount test in section 899 (Court sanction for compromise or arrangement) of the Companies Act 2006 has the potential to cause problems in the context of intermediated securities.

No look-through - Whether the no look through principle (under which an ultimate investor may only bring an action against its immediate intermediary) may restrict the rights of ultimate investors who wish to bring an action against an issuer or intermediary.

Insolvency - Whether the insolvency of an intermediary in an intermediated securities chain has the potential to cause problems (including in relation to the distribution of assets and set-off), whether the issues are adequately addressed by the current regulatory regime or require an additional legal review and whether there is need for better education for investors about these insolvency risks.

Disparity in manner of holding shares - Whether the disparity in the way that purchasers of directly held securities and intermediated securities are protected by law has the potential to cause problems.

Application of Law of Property Act 1925 - Whether the application of section 53(1)(c) (Instruments required to be in writing) of the Law of Property Act 1925 has the potential to cause problems.

Distributed ledger technology - Whether distributed ledger technology (used in certain jurisdictions outside the UK) has the potential to facilitate the exercise of shareholders' rights and whether there are other examples of related technology in other jurisdictions.

Preparation for CSDR - Whether the market has started to prepare for the dematerialisation that would be required by 2023 for most new publicly traded securities and 2025 for the dematerialisation of existing paper shares for publicly traded securities under the Central Securities Depositories Regulation (CSDR).

Learning from CSDR approaches - Whether there are approaches in relation to dematerialisation in the context of CSDR that could be applied to provide ultimate investors with the same or similar rights as direct shareholders.

Effect on paper certificate holders - Whether there are concerns about imposing dematerialisation on long-time shareholders holding paper certificates who may not be confident users of technology.

In addition, the Call for Evidence asks consultees whether there are additional issues or problems that the Law Commission should consider in the scoping study, and asks for estimations as to the benefits and costs of any possible changes.

The Law Commission is accepting responses to the Call for Evidence until November 5, 2019. The Law Commission will then analyse responses and use them to inform its scoping study, which will be published in Autumn 2020.

(Law Commission: Intermediated securities - call for evidence, 27.08.19)
(Law Commission: Intermediated securities - call for evidence press release, 27.08.19)

NEX Exchange: Growth Market Rules for Issuers and Corporate Adviser Handbook update published

On September 2, 2019 NEX Exchange published updates to the NEX Exchange Growth Market Rules for Issuers (Rules) and the NEX Exchange Corporate Adviser Handbook (Handbook). The updated versions of the Rules and the Handbook are effective immediately.

The changes include (amongst other things)

  • Incorporating the early suitability review process (that was previously set out in a NEX Exchange practice note) into the Rules.
  • Amending the Rules to introduce a revised procedure for the submission of application documentation.
  • Amending the form of declaration by NEX Exchange Corporate Advisers contained in Appendix B to the Handbook.

(NEX Exchange Corporate Adviser Handbook, September 2019)
(NEX Exchange Growth Market Rules for Issuers, September 2019)
(NEX Exchange: Growth Market Rules for Issuers and Corporate Adviser Handbook press release, 02.09.19)

FCA: Webpage on electoral polling and the Market Abuse Regulation published

On September 3, 2019 the Financial Conduct Authority (FCA) published a new webpage setting out how the Market Abuse Regulation (MAR) might apply to information obtained through electoral polling that has the potential to be inside information.

Where the MAR definition of inside information has been met in this context, disclosing the polling information in advance of the publication of the polling results, other than where necessary in the normal exercise of employment, a profession or duties, would be an offence, as would be trading relevant instruments (including government bonds) in advance of publication if such trading is on the basis of the anticipated price movement that will result from publication of the results.

Where the inside information definition is not met in this context, MAR imposes no restriction on individuals and firms collecting or receiving polling information relevant to financial market prices, even while polls are open. The FCA notes it will be for other authorities to enforce legislation that falls outside the scope of its remit and enforcement powers.

(FCA: Polling and Market Abuse Regulation webpage, 03.09.19)


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