Can minutes & stock transfers forms be held electronically?

With the move to filing and keeping everything electronic, what happens about signed minutes and signed/stamped stock transfer forms.  Is it permissible to scan these into pdfs and then bin the hard copy or do the originals need to be retained somewhere?

Comments

Retention of documents

alastairfriend@... | | Permalink

 The quick answer is that you have to keep the hard copies because the courts are likely to treat electronic copies as  'hearsay' unless the organisations electronic documents policy follows the required BSI standard.

In practice I find the best way is to do both, which means the hard copies can be archived and the electronic copies are useful for reference purposes.

 

 

any other documents to be kept?

pkhaynes | | Permalink

Thanks Alistair - are there any other documents comprising of the statutory records or similar which need to be kept in hard copy form?- perhaps shareholder agreements?

What is the BSI standard or where can I find out about this?  all our client companies are small/medium sized private companies that we maintain the statutory records for.

 

 

 

 

 

Electronic company records

jimlowe | | Permalink

Though a lawyer, I have no experience of the court work or the eveidential requirements of the courts, but I rather doubt that company records still have to be kept in hard copy form. On a quick scan through the enormously long Companies Act 2006 I cannot find any authority for this specifically, though there are very many provisions allowing documents to be communicated electronically. The statutory requirement for directors' minutes is in s. 248, which does not specify whether or not electronic records are acceptable. S.249 says any minutes kept in accordance with s. 248 are evidence of their contents.

Article 15 of the Model Articles requiores records of directors decisions to be kept 'in writing' for at leaqst 10 years, and the definition section of those articles defines 'writing' as the representation of or reproduction of words, symbols or other information in a visible formby any method or combination of methods, whether sent or supplied in electronic form or otherwise.

This appears to me to be an authorisation from Model Articles laid down by statutory instrument of electronic records.

Companies House is authorised to make regulations that information must be sent in electronic form (though paper records are still acceptable). Note also that 90+% of company registrations are now effected electronically, and the certificate is the electronic communication sent out by Companies House, not a print of it. A printed copy is accepted by the courts as eveidence of the incorporation of the company.

We keep all our records in electronic form and will continue to do so.

- Jim Lowe Company Law Solutions Limited Q16, Quorum Business Park, Benton Lane, Newcastle upon Tyne, NE12 8BX www.companylawsolutions.co.uk

Retention of documents

alastairfriend@... | | Permalink

 Jim 

I refer this article for your information which outlines best practice as far as I am aware. However it was written in 2005, so there may have been some developments since then.

 

Making electronic documents legally valid

When it comes to the legal admissibility of electronic documents, it’s all a question of evidential weight. By Jessica Twentyman

After several years of struggling to comply with a slew of regulatory and legal mandates, most companies now recognise the importance of securing the confidentiality, integrity and availability of their electronic documents as part of a corporate-wide records-management strategy – even if they don’t yet practice it with the stringency required of them.

Few, however, are confident that those documents would be accepted as evidence if the company landed up in court, thanks to a disgruntled customer, a former employee with a grudge or a regulatory authority seeking to impose penalties for non-compliance.

These companies are right to be nervous, says Sanjay Bhandari, a lawyer with international law firm Baker & McKenzie. “Rejection of a company’selectronic documents by a court can have a crippling effect on its case,” he says.

This is an increasingly pressing concern as more and more important business information is stored electronically in e-mails, human resources or customer management systems, scanned-in faxes and application forms.

In determining the legal admissibility of an electronic document or file, he explains, expert legal opinion tends to rely on the ‘best-practice rule’, meaning that a court will give most credence to the best evidence available, such as original documents or oral testimony.

Evidence that is not original – for example, a printout of an electronic document or a scanned-in version of a paper original — is considered more remote and thereby classified as ‘hearsay’.

There are a number of reasons for that. Unlike traditional paper copies, surreptitiously altering electronic documents is relatively simple. And, moreover, malicious intent is not necessary to damage data – files are frequently damaged or lost forever by accident or computer malfunction.

However, electronic evidence is increasingly presented in court as evidence – and the law has adapted to accommodate that. The Civil Evidence Act of 1995, for example, changed the common law rule that hearsay evidence is not admissible in proving the truth of an argument. Section 1 of the Act provides that “evidence shall not be excluded on the ground that it is hearsay”, provided that reasonable notice of a party’s intention to rely on the hearsay evidence is given. That, explains Bhandari, involves a company’s legal representatives filing a Civil Evidence Act Notice prior to the court date.

Hearsay evidence, Bhandari points out, can still be a powerful weapon – especially in civil suits. “Generally speaking, in civil cases, lawyers are not dealing with issues of liberty, so the burden of proof is lower when it comes to hearsay evidence,” he says.

However, in criminal cases (and particularly fraud cases), says SimonHalberstam, partner and head of e-commerce law at Sprecher Grier &Halberstam LLP, hearsay evidence is likely to be treated to far closer scrutiny and, for that reason, companies need to think hard about keeping at least some of their documents in the original paper format. “Destruction of original documents will prevent the use of forensic techniques such as analysis of impressions, creases, ink, source or age of paper and so on. Generally, this is not relevant; however, if there is a suspicion of forgery in relation to a particular matter, there should be a procedure for marking the file for retention in hard copy form,” he says.

Evidential weight

The issue of hearsay evidence highlights an important distinction between the legal admissibility of electronic documents and their evidential weight, says Lars Davies, a senior research fellow in computer law at Queen Mary andWestfield College at the University of London.

The evidential weight of a document, he explains, is the value a court will place on the information presented to it, alongside surrounding corroborative evidence that can convince the court that a document is what it purports to be. “In most jurisdictions, virtually any electronic data can be submitted before a court of law. The real question is that of evidential weight. Evidential weight is the extent to which the court can rely upon the electronic information,” he says.

With that in mind, companies need to ensure that electronic records are captured, stored and managed in such a way as to maximise their evidential weight. That has created a great opportunity for suppliers of electronic-document and records-management systems, because these systems fulfil two of the most important criteria underpinning the concept of evidential weight: First, that it is possible for systems to ‘freeze’ a record at a specific moment in time; and second, that a documented audit trail is maintained for documents, detailing when (and by whom) they were created, altered, accessed and stored.

Companies that can demonstrate that their document-management systems provide these functions can generally expect the authenticity and reliability of their electronic records to be considered credible in court.

Enterprise-content-management (ECM) systems from companies such as IBM, EMC Documentum and FileNet address the ‘freezing’ of information for evidential purposes in their records management functions. By definition, a record is static (or ‘frozen’) evidence of a business action, transaction or decision.

Records-management software not only recognises the necessity of capturing static information in an unalterable format for legal purposes, but also defines how long records are kept and what happens to a record at the end of the retention period, including the regulated archiving and subsequent destruction of documents. In the UK, the National Archives provides certification to records-management software that complies with its own standards.

In addition, ECM systems provide an audit trail for documents, contents and records that can provide supporting information about them. That, says George Parapadakis, a solutions architect with ECM company FileNet, can enable electronic evidence to be viewed within its wider context. “There are certain types of information retained in ECM systems that may complement or contradict the legality of electronic documents,” he says.

These might include additional information stored in metadata; information about contextual relationships between documents; information associating documents with particular business processes where these documents haveparticipated in the decision-making process; and finally, the overall association of documents with people and the roles and responsibilities they are given. “In other words, how the document has been used may be just as much a part of the evidence as the words contained in the document itself,” says Parapadakis.

That could prove vital in a court of law, says Bhandari of Baker & McKenzie. “A court may reject anything presented as evidence if the associated audit trail information is either incomplete or contradicts the information itself. If they don’t reject it outright, they may only accept it with a greatly reduced weight, equivalent to a greatly increased doubt,” he says.

In particular, metadata should include: author’s name; the date the record was stored; the names of anyone who has accessed or made changes to the document; details of the changes made to the record and version control; details of movement of the record from medium to medium and format to format; the authentication measures used when the file is moved; and evidence of the controlled operation of the system in which the record is stored.

Further guidance

However, different ECM systems have different ways of addressing these issues, and prospective customers should quiz their vendors thoroughly. It is also important to ensure that these systems are approved by the employees that will be using them as part of their day-to-day activities, says Robert Markham, an analyst with IT market research company Forrester Research. “The number one reason that records-management implementations fail is that the records-management system is overly burdensome to end users like the corporate legal department. This results in end users circumventing records declaration or, worse, randomly selecting a records classification just to get by the declaration screen,” he says.

As a result, getting the right systems in place to support the legal admissibility of electronic documents can be a complex task. Fortunately, there is plenty of guidance surrounding it. The British Standards Institute (BSI), for example,has issued a code of practice on the legal admissibility of electronic records,

BIP 0008.

Previously known as PD008, the code underwent significant review in 2004, to assist in the understanding of compliance requirements such as the UK’s Freedom of Information and Data Protection Acts and so that it might include case study material from recent implementations. In particular, the rewritten code takes into account improvements and enhancements to electronic-document-management systems.

While compliance with BIP 0008 does not guarantee legal admissibility, it does define the best practices that are most likely to influence a court in the defendant’s favour. For that reason it will likely prove “good enough” in most cases, says Davies of Queen Mary and Westfield College. “It’s my experience that the side that can demonstrate the most certainty as to the source of its information will win a case, because the judge will direct more questions their way. They will certainly be held to be more reliable, so even if their case is found wanting, that may go some way to mitigating losses,” he says.

Legal admissibility pitfalls

Electronic documents can easily be scuppered in court where so-called‘compliance points’ are found to be missing in systems from which a company sources evidence, according to experts at the British Standards Institute. These include:

  • No information policy document;
  • No retention schedule;
  • Inappropriate security controls;
  • Lack of procedural documentation;
  • Insufficient control on document input procedures;
  • Insufficient information about the technology from the system supplier;
  • Use of inappropriate facilities, such as image clean-up;
  • No thought of future migration requirements;
  • A lack of documentation on audit trails and access procedures.

Signed, sealed and delivered

A recognisable signature can play a vital role in securing the legal admissibility and evidential weight of documents, both paper and electronic. The signature has been used for centuries to authorise documents, contracts or payments and is seen, says Francois Roux, managing director of digital signature specialists Simplicity UK, as the one way of unequivocally stating that a document has been read or approved by the signatory. “And of course, people take a great deal of care before signing because they know that they can be held to account for it,” he says.

But the situation, he says, is complicated when it comes to electronic documents. “It is perfectly possible and now commonplace to send a document across the world in an instant, but what if that document needs to be verified and signed by several people?” Until recently, he says, the options available significantly slowed that process down: the document might be sent in the post, delivered to signatories by a courier or a meeting may be organised at which all signatories are present, incurring significant travel expenses.

 “We now have an online signing facility to complement online contract negotiation and finalisation,” says Michèle Rennie, head of intellectual property and internet law at legal specialists Computalaw. “Prior to this, even though every other stage of our client’s contract drafting, amendment and finalisation would be carried out online, the actual signing, by comparison, involved all signing parties meeting, or signing the relevant pages and faxing them to each other. The signed originals would then usually be couriered to the other party or back to one of them for consolidation into a single signed version. The process was not only prone to delay and uncertainty (if the signed original did not turn up), but could also be the most costly part of the contract preparation if all parties had to meet for signing,” she says.

 

Data detectives

“In today’s business environment, more and more computer related crime is ending up in the courtroom,” says Adrian Reed, managing director of computer forensics company, DataSec. DataSec employees spend much of their time plundering computer files looking for evidence to defend legal claims and often act as expert witnesses in trials.

DataSec employees experienced forensic analysts, criminal investigators, technical and security experts, legal professionals and crime pattern analysts. The company is registered with the National Crime Faculty and the Law Society as providers of computer forensic expertise and works closely with corporate clients, the police and the judicial system to present the most accurate electronic evidence in legal cases.

In the course of their work, DataSec’s analysts have uncovered numerous scams by which electronic evidence, and especially e-mails, can be tampered with.

“An e-mail creates a digital audit trail of information, including where it came from, where it’s been to and where it’s supposed to be going. To the everyday e-mail user, this information is invisible, but to the person who understands the process, it can be easily accessible,” he says. Anyone in the know can potentially change, hijack or falsify the digital audit trail. “It is important to remember that an e-mail that has been changed in transit will almost certainly look like a normal e-mail to the everyday user,” he says.

If ‘best evidence’ is to be presented, says Reed, then verification of this digital audit trail is essential to ensure that the electronic process of e-mail has not been altered at any stage nor has the whole trail itself been fabricated. “In a case where allegations are made that an e-mail was never sent or received, a printed copy of an e-mail without the verified audit trail is significantly devalued evidentially,” he says.

Showing emails on a laptop in court

chatman | | Permalink

Would a court allow you to bring in a laptop and pull up an email as evidence? Surely that would carry more weight than a printed email. 

update on records being held electronically

pkhaynes | | Permalink

I  colleague of mine was doing some research in respect of accounting records:

 

1.                   The Companies Act 2006 (sections 1134 and 1135) states that the accounting (and other) records can either be held as hard copies or in electronic format so long as, if held in electronic format, they can be reproduced in hard copy form if so required. 2.                   The HMRC website also suggests that you can keep records in electronic format so long as all of the information on the document is captured properly and completely.  There are some records that should be kept in hard copy format.  Here is  the extract from the website: You don't need to keep the vast majority of your records in their original form. If you prefer, you can keep a copy of most of them in an alternative format. For example:·                     scanned PDF ·                     files saved on a CD-ROM ·                     files saved on an optical imaging system Whatever alternative format you choose, your records must be legible and you must be able to produce them in a readable format if you need to.But there are certain records that you must keep in their original form. These include:·                     dividend vouchers ·                     bank interest certificates ·                     Construction Industry Scheme (CIS) vouchers - (these vouchers were used before the current scheme was introduced in April 2007) So it would appear provided the electronic documents are kept securely, are backed up and are capable of being printed out.

 

MonicaP's picture

Electronic documents

MonicaP | | Permalink

Hi

I think Alistair's article is good reflection of best practice which we should all be adhering to for our clients. 

Most lawyers and accountants I know who maintain company secretarial records may maintain the registers electronically but certain documents are kept in hard copy such as board minutes, resolutions, stock transfer forms. As a rule of thumb why not ask yourself what the consequence of disposing of a document would be?  If the company were to be sold in the future would you be able to evidence title if the statutory registers had been lost and you couldn't produce stock transfer forms. Similarly with minutes or shareholder resolutions, what would happen in the event of a disgruntled shareholder coming back in the future arguing a decision made years before. It could happen, even in companies which you may think are not ever going to be sold, or have external shareholders. I think if we take on the company secretarial responsibility for our clients, we owe them a duty to adhere to best practice standards.

Monica

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