Law and technology

The Government is set to update the Companies Act 1993 to allow the use of electronic communications for certain formal notices and procedures.

Currently, the law permits shareholder meetings to be held via the following methods (Schedule 1, section 3 of the Companies Act 1993):

(a) by a number of shareholders, who constitute a quorum, being assembled together at the place, date, and time appointed for the meeting; or

(b) subject to the constitution of the company, by means of audio, or audio and visual, communication by which all shareholders participating and constituting a quorum, can simultaneously hear each other throughout the meeting.

There is no formal provision for electronic communication (although certain electronic means do meet the existing requirements). The Regulatory Reform Bill, which received its first reading recently, will improve that by allowing meetings by shareholders to be held by:

(a) being assembled together at the time and place appointed for the meeting; or

(b) participating in the meeting by means of audio, audio and visual, or electronic communication; or

(c) by [sic] a combination of both of the methods described in paragraphs (a) and (b).

Currently, notices to individual shareholders may be sent via the following means:

(a) delivered to that person; or

(b) posted to that person’s address or delivered to a box at a document exchange which that person is using at the time; or

(c) sent by facsimile machine to a telephone number used by that person for the transmission of documents by facsimile.

Again, there is no express provision for modern electronic communication such as email. It is reasonably arguable (and in practice does happen) that delivery by email falls under (a), however companies (especially those with large shareholder bases) may be reluctant to take such chances.

The option to receive notices electronically is not so much for the company’s benefit, but for the shareholders’. Accordingly, the new law does not force shareholders to accept electronic communications, but gives them the option (binding on the company):

(3A) … a shareholder or creditor may notify the company—

(a) that the shareholder or creditor wishes to receive the document by electronic means; and

(b) of the electronic address to which the document is to be delivered.

(3B) Notification in accordance with subsection (3A) may be made in respect of a particular document or documents, or in respect of all documents to be served.

(3C) The company must comply with a notification made under subsection (3A).

Note that the company must comply with the shareholder’s specified mode of electronic communication. The new law does not limit what the modes are, so in theory a shareholder could request to be sent documents via Facebook or Twitter.

This is a sensible reform, as many modern business people are far more likely to have ready access to their electronic communications, than to a document posted to a physical address.

The Electronic Transactions Act 2002 will apply to any questions over the time of dispatch and receipt.

From October, the UK will be restricting access to the residential addresses of company directors on new registrations (and optionally for existing registrations).

At present – as in NZ – directors must disclose their residential addresses, although – unlike in NZ – a director may apply to have that information restricted on the grounds of possible attack. Soon, residential addresses will become “protected information” by default – only disclosable to credit reference agencies and certified authorities. There will also be an option to hide the residential address from even those authorities.

The change is apparently in response to increased privacy concerns and threats of violence against directors.

In New Zealand, the law requires that company directors disclose their residential address (e.g. section 215 of the Companies Act 1993 among other sections). There is no provision for withholding an address. Interestingly, our Companies Act also requires that founding shareholders provide a residential address (section 12(2)(c)), but not subsequent shareholders (section 87 only refers to “the latest known address” which, in the case of a person, could be a non-residential postal or even electronic address. Many companies I have dealt with and managed use a non-residential person-shareholder address).

It is probable that New Zealand will eventually go the way of the UK, although there has not been any call for it yet. Australia has a provision for suppressing directors’ residential addresses which would also be a possible model to adopt.

Is this a good idea? It depends on the purpose of showing a director’s residential address. Why do we really need to know that information? If the answer is to serve documents on a director, that can be easily achieved by allowing directors to be served:

1. At an alternative “address for service” specified by the director (the new UK model); or
2. At the company’s “address for service” which all companies must have anyway.

Provided we have one of the above options, the residential address isn’t really needed and should be able to be suppressed. This would be consistent with the UK and Australia, and also the approach under the Electoral Act 1993. The electoral roll is open for public inspection (though not electronically) and can be used to find a residential address, but with the ability for individuals to request suppression under section 115.

The Privacy Commissioner has guidelines suggesting a model similar to Australia’s, allowing suppression on request, although for some reason its report does not mention the Companies Act at all.

In the meantime, all company records including director addresses are open to full public inspection. Is there some other reason why it should stay? Openness and transparency are always good things, but if it is not necessary to disclose this personal information, should we?