Corporate Law Update: 11 - 17 March 2023

17 March 2023

In this week's update:

Industry Working Group publishes final report on electronic signing

The Industry Working Group (Group) on electronic signing has published its final report on the status of electronic execution of documents, covering the use of electronic signatures on cross-border transactions and how to optimise the benefits of electronic signatures in the context of fraud risk.

The Group was convened following the Law Commission’s recent report on electronic execution of documents. Its main purpose is to consider how different technologies can be used to promote electronic signing and to issue best practice for using electronic signatures.

The Group published an interim report in February 2022, covering (among other things) best practice when signing documents electronically and recommendations for future reform. For more information on the interim report, see our previous Corporate Law Update.

We have set out below the key legal aspects and recommendations of the final report.

  • Uncertainty around different legal jurisdictions’ electronic execution laws and formalities can lead to increased costs, delay and uncertainty, which can in turn hinder e-signing. The Group recommends that “significant trading states” adhere to some form of international norm and, to this end, that the UK consider adopting the UNCITRAL Model Law on Electronic Signatures.
  • An existing body, such as the Information Commissioner’s Office (ICO), should be tasked with keeping a repository of information on which states have adopted which electronic execution standards, so that transaction parties do not need to spend time and money investigating this.

    In our view (and as the report acknowledges), this could not be a substitute for formal legal advice (particularly as laws change frequently and, for corporate parties, execution requirements can depend on the constitutional requirements of the signatories). Parties may therefore still need to seek local law advice in certain circumstances.
  • Parties to a cross-border transaction should consider enforcement in different jurisdictions and align the method of signing (electronic or wet-ink) with their enforcement strategy.
  • The UK Government should consider adopting e-signatures for all purposes and investigate modernising any area where wet-ink signatures are currently required.
  • When executing deeds, an electronic signing platform has significant advantages over paper and wet-ink signature, including through storing evidence of execution and requiring specific steps to be followed before a document can be submitted.
  • If a signing platform automatically saves a copy of an electronically executed document, the parties should pay attention to the location of the server in order to ensure compliance with relevant data protection legislation.
  • The Group is divided on whether there should be regulation of electronic signing services. However, there could be a self-certification regime for signing platforms. This would involve a government moderator developing a set of signing platform "basic performance standards" and publishing them on a webpage, along with a list of self-certified signing platforms.
  • The Law Commission should review the law of deeds with a view to abolishing at least some of the current requirements.
  • The UK Government should establish a standing body, similar to the Industry Working Group, to focus on these issues and to keep abreast of developments as they occur.

Directors continued to owe duties to company following liquidation

The High Court has held that the directors of a company continued to owe limited fiduciary duties to a company even after it had been liquidated.

Alexander and others v Al-Jaber and others [2023] EWHC 364 (Ch) involved a company that had been placed into liquidation. The question arose whether former directors of the company still owed duties not to mishandle former company property.

The court acknowledged that, generally, a director’s duties to a company will end when the company is liquidated. However, depending on the specific circumstances, a director can owe certain very limited duties even after the liquidation.

This includes a duty not to “intermeddle” with a liquidated company’s property if the director continues to have “custody and control” of that property after the liquidation.

As a result, a director who deals with company property in a way that is “adverse to the liquidation” will be in breach of duty and will need to account for the property.

Although the case involved a British Virgin Islands company, the court decided it based on English case law and it is highly likely a court would take the same approach for a UK company.

The facts in this case were particularly specific. It will not frequently be the case that directors of a company continue to hold company property following a liquidation. However, it is a useful reminder that a director’s duties are capable of surviving after a director ceases to actively manage a company.

Parker Review publishes update on progress towards board ethnic diversity

The Parker Review Committee, led by Sir John Parker, has published an update report on progress towards improving the ethnic diversity of UK company boards.

The Committee was established in 2015 to conduct an official review into levels of ethnic diversity on UK company boards. In 2017, it published a report setting out various recommendations.

  • There should be at least one director of colour on each FTSE 100 board by 2021 and on each FTSE 250 board by 2024.
  • FTSE 100 and 250 nomination committees should ensure qualified people of colour are considered for board appointment when vacancies occur.
  • Companies should develop mechanisms to identify, develop and promote people of colour within their organisations to ensure there is a pipeline of board-capable candidates.
  • Companies should set objectives for pipeline development, track progress against those objectives and report to the board on a regular basis.
  • The annual report should include a description of the board's policy on diversity.
  • Companies that do not meet board composition recommendations by the relevant date should disclose the reasons why in their annual report.

The latest report sets out progress made in 2022 against the Review’s recommendations, based on a voluntary census of FTSE 100 and FTSE 250 boards. It notes the following key points. 

  • 96% of FTSE 100 companies met the target of one ethnic minority director (up from 89% in 2021).
  • FTSE 250 companies still have until December 2024 to hit their target. At the end of 2022, 60% of companies had done so, up from 55% in 2021. When excluding investment trusts (which tend to have smaller boards), the percentage for 2022 rises to 73%.
  • Ethnic minorities occupied 18% of all FTSE 100 director positions (up slightly from 16% in 2021) and 11% of all FTSE 250 directors positions (up very slightly from 10% in 2021).
  • The vast majority of FTSE 100 directors (84%) held non-executive roles. Ethnic minority directors accounted for 10% of chair and executive director positions, a slight increase from 2021.

The Parker Review is now looking to expand its scope and set further targets.

  • It is asking FTSE 350 companies to set their own target for senior management who self-identify as being in an ethnic minority. Companies should set a percentage target by December 2023 which they should aim to reach by December 2027.
  • It is asking 50 of the UK’s largest private companies (measured by turnover and number of employees) to set a target of one ethnic minority director on their main board by December 2027 and to the Parker Review with provide information about their ethnic diversity each year from December 2023 onwards. The Parker Review will use the same group of companies as the FTSE Women Leaders Review, which has also announced plans to extend its scope to large private companies (see our previous Corporate Law Update).

Gender pay-gap reporting guidance updated

The UK Government has updated its guidance for employers affected by the gender pay-gap reporting regime. The new guidance is intended to be clearer and easier to digest for businesses with a reporting obligation.

As a reminder, all firms with 250 or more employees are within the reporting regime and are obliged to upload an annual report showing a range of comparative pay and bonus data.

On a related note, PwC has published its Women in Work Index for 2023, which analyses women's employment outcomes across 33 countries within the Organisation for Economic Co-operation and Development (OECD).

The report notes that the average gender pay gap across has widened by 0.6 percentage points. The UK’s gender pay gap widened four times more than the OECD average increase, with the UK falling five places on the index to 14th place.

New draft regulations published for the Register of Overseas Entities

The UK Government has published new set of draft regulations to supplement the UK’s existing Register of Overseas Entities (the ROE) (along with an explanatory memorandum).

Under the ROE regime, non-UK companies that hold certain interests in UK land are required to register with Companies House and provide details of their beneficial owners. In some cases, the entity must also provide details of its managing officers and of any trusts sitting within its ownership structure.

The draft new regulations cover the following ground.

  • They would set out the characteristics of a foreign limited partner for the purpose of determining who is the beneficial owner of an overseas company. The wording in the draft regulations is identical to the equivalent provisions of the UK’s PSC regime.
  • They would introduce a new ability to apply to Companies House to remove any information from the register that (among other things) is factually inaccurate or was provided without the authority of the overseas entity.
  • They would relax the grounds for suppressing a beneficial owner’s details from public view. Currently, this is possible only if the beneficial owner is at serious risk of violence or intimidation, and that risk arises as a result of either the overseas entity’s activities or an association between the overseas entity and the beneficial owner’s characteristics.

    Under the proposed changes, these tests would be dropped. There would no longer be any need to show that the risk arises from the entity’s activities or an association with the beneficial owner.

The draft regulations are subject to affirmative resolution procedure, meaning Parliament will need to formally approve them before they become law. Once law, they will come into effect 21 days later.