Corporate Law Update

In this week's update: confirmation that electronic signatures are valid, a consultation to changes to the Listing Rules and DTRs, amendments to the prospectus regime to cope with no-deal Brexit and a few other items.

Law Commission confirms electronic signatures are valid

The Law Commission has published a report on executing documents by electronic means, in which it concludes that electronic signatures are valid under English law. For quick reading, the Commission has also published a summary of the project and its findings.

The report follows a consultation published by the Commission in August 2018 into the validity of electronic signatures. That consultation was launched because, although electronic signatures are already in use and various law firms, including Macfarlanes, offer clients the ability to sign documents electronically, take-up on large commercial transactions has remained relatively modest.

The Commission received 177 responses to its consultation, including from businesses, professional and industry associations, law firms and HM Land Registry.

In short, the Commission has concluded the following:

  • Deeds and other documents can be signed electronically under English law, provided that the signatory intends to authenticate the document and any other formalities are satisfied.
  • Electronic signatures are admissible in legal proceedings. They can be used to prove a signatory’s identity or that they intended to sign a document.
  • Generally speaking, English law does not require any particular form of signature. The courts have accepted various means of signing a document. There is “no reason in principle” to think that they would reject electronic signatures. Indeed, they have accepted them in the past.
  • As a general rule, where parties execute a deed or other document electronically using a signing platform, the electronic document produced by the platform will form an “original document”.
  • Parties may still need to sign on paper where documents need to be filed at certain registries or provided to authorities in other countries.
  • There is no need for any change to the law. However, the Commission has suggested introducing a new statement in legislation clarifying that an electronic signature has the same legal status as a handwritten signature.
  • An industry working group should be created to consider how best to implement electronic signature in practice. The group would consider issues such as evidence, security and reliability of electronic signatures, issues on cross-border transactions, and protecting vulnerable people.
  • It is possible to witness an electronic signature, but the witness must be physically present. At the moment, the law does not allow “remote witnessing” by video link. The Commission has suggested that the Government consider legislating to allow video-witnessing, depending on the outcome of the working group’s discussions.
  • The Commission has recommended that, as a future project, it will review the need for deeds generally. This would include not only requirements for executing a deed (such as witnessing and delivery), but the kinds of transaction for which a deed is necessary.

The new report confirms the preliminary views published by the Commission in its consultation, but with the benefit of significant stakeholder input and further deliberation. It provides further comfort that, where appropriate, electronic signing is a valid and efficient way of executing documents.

FCA consults on changes to Listing Rules and DTRs

The Financial Conduct Authority (FCA) has published Quarterly Consultation 25 (CP 19/27), in which it is proposing to make changes to its Listing Rules Sourcebook, its Disclosure Guidance and Transparency Rules Sourcebook (DTRs) and certain other parts of its Handbook.

From a general corporate perspective, the main proposed changes are as follows.

New UK Corporate Governance Code

The FCA is proposing to update its Handbook Glossary to refer to the current version of the UK Corporate Governance Code published by the Financial Reporting Council (FRC) (the 2018 Code). The 2018 Code was launched in July 2018 and applies to premium-listed companies for financial years beginning on or after 1 January 2019.

The Listing Rules and DTRs would also be updated to require reporting on the 2018 Code to begin from 1 January 2020. The FCA is also proposing to include “transitional provisions” to continue to apply the previous version of the Code to financial years beginning before 1 January 2019.

This change would also affect other parts of the Handbook (SYSC, COCON, APER and DEP).

European Single Electronic Format (ESEF)

The FCA is also proposing to update the DTRs to reflect ESEF – the forthcoming new European electronic financial reporting format – should the UK remain subject to EU law when the regime comes into force on 1 January 2020. (For more information on ESEF, see our previous update here).

The new rule (DTR 4.1.14R) would simply state that issuers must prepare their annual financial reports in a single electronic reporting format in accordance with the technical standards laid down in EU law. The FCA also intends to publish its guidance on how to comply with ESEF.

This change will not apply if the UK leaves the EU before 1 January 2020 without a deal.


Finally, the FCA is consulting on certain proposed changes to its Handbook which would take place if and when the UK leaves the EU without a deal. These include the following:

  • Related party transactions. DTR 7.3, which currently applies to UK companies whose voting shares are admitted to a regulated market anywhere in the European Economic Area (EEA), will no longer apply to companies whose shares are not admitted to a UK regulated market. DTR 7.3 requires a company to announce certain details of material related party transactions and to ensure its board approves the transaction without involving any interested directors.
  • Prospectus regime. The Prospectus Regulation Rules (PRR) (which replaced the FCA’s Prospectus Rules (PR) on 21 July 2019) would be amended to “on-shore” the EU prospectus regime into the UK.

The FCA has asked for comments on its proposals relating to the UK Corporate Governance Code and the ESEF by 1 November 2019, and comments on its Brexit-related proposals by 4 October 2019.

Changes made to prospectus legislation

The Prospectus (Amendment etc.) (EU Exit) Regulations 2019 have been published, along with an explanatory memorandum.

The purpose of the Regulations is to amend primary and secondary legislation to further prepare the UK for its withdrawal from the European Union following the coming into force of the EU Prospectus Regulation in the UK on 21 July 2019.

In this sense, the Regulations do not make any significant changes to the UK’s prospectus regime, which is still currently embodied in the EU Prospectus Regulation and will (by virtue of the European Union (Withdrawal) Act 2018) remain substantially unchanged when the UK leaves the EU.

The Regulations amend (among other things) the Financial Services and Markets Act 2000 and the EU Prospectus Regulation with effect from “exit day”. This is the day on which EU law ceases to apply in the UK, which, in the event of a “no-deal Brexit”, will be the day on which the UK leaves the EU.

The key changes are as follows:

  • The functions of the European Securities and Markets Authority (ESMA) relating to prospectuses will be transferred to the Financial Conduct Authority (FCA), and those of the European Commission will be transferred to HM Treasury.
  • UK issuers that include historic financial information in a prospectus will need to use UK-adopted IFRS. Non-UK issuers will be able to use either UK-adopted IFRS or an equivalent standard. The Regulations deem EU-adopted IFRS and Japanese, US, Chinese, Canadian and South Korean GAAP to be equivalent. It will also be possible, in certain circumstances, to use generic IFRS.
  • It will no longer be possible to passport an EEA-approved prospectus or registration document into the UK to offer shares to the public. Instead, the passport will need to be approved by the FCA. (There is an exception for prospectuses already passported into the UK from the EEA.)
  • It will not be possible to incorporate information into a prospectus by reference to documents approved by the national regulator of an EEA state after exit day.

Other items

  • Brexit extension request law passed. The European Union (Withdrawal) (No. 2) Act 2019 has received Royal Assent. The Act requires the Prime Minister to seek an extension of the Brexit deadline to 11:00 p.m. (UK time) on 31 January 2020 if, by 19 October 2019, the House of Commons has neither approved a “no-deal Brexit” nor approved a withdrawal agreement. It also sets out a procedure for accepting the new deadline depending on whether the European Council proposes an alternative new deadline. Note that the Act itself does not extend the deadline, as this requires the agreement of the European Council.
  • FRC publishes annual report. The Financial Reporting Council (FRC) has published its annual report for 2018/2019. Among other things, the report sets out the FRC’s work during the year against its planned projects and objectives, and it touches on the FRC’s transition to the new Audit, Reporting and Governance Authority (the ARGA).
  • QCA publishes report on growth NEDs. The Quoted Companies Alliance (QCA) has published a report on the role of non-executive directors in growth companies. The report notes the difference between the role of an NED of a growth company and that of an NED of a large listed company. It also assesses best practice for the chair and NEDs of a growth company and applies these principles to four different types of growth company.