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maintained by the issuer rather than by CREST. The rules on ownership in equity also continue to apply although their practical significance has been noticeably reduced. An important effect of the 1995 reforms was to bring forward the point in time at which the buyer would normally acquire legal title to the securities. With the practical significance of ownership in equity decreasing, the English rules governing transfers of securities have become more in line with the rules prevailing in civil law countries. This development continued when the English law of uncertificated transfers was reformed in 2001.

3.4 The 2001 reforms

3.4.1 Introduction

The next step in the reform process was taken in 2001. The 2001 law reform project is an example of convergence: the Bank of England felt that the current system – in which there was a delay between the time when instructions were matched centrally with CREST and the transfer of legal title, which occurred only when the records were amended by the registrars – did not satisfy international best practice.28

There were a number of directions that law reform could have taken. The most direct way of bringing England in line with what was perceived to be best international practice would have been to pass a statute stating that legal ownership in uncertificated registered securities is transferred to the buyer when the records held by CRESTCo are amended. This, however, was not done; it would have required Parliament to intervene and that would have caused significant delay.

Moreover, and more importantly, the drafting of a statutory provision determining the point in time at which legal title is transferred to the transferee would have required a careful examination of the underlying common law. English common law does not enforce ownership rights by way of what is commonly known as the rei vindicatio in civil law jurisdictions. The common law does not provide for an action that results in an absolute declaration as to who holds legal title in a particular asset; the common law determines only the proprietary position as between the parties to the litigation.29 It does not declare the successful claimant the absolute owner as against all third parties; it only

28Bank of England, Securities Settlement Priorities Review (March 1998); Bank of England,

Securities Settlement Priorities Review (September 1998).

29Sarah Worthington, Personal Property Law (Oxford: Hart, 2000) 457–458.

resolves priority disputes between parties.30 Because ownership rights are enforced only as between the parties participating in the respective dispute, there is no common law rule stating explicitly at which point in time ownership as against all third parties is vested in the transferee of registered securities. It is possible to distil from the common law the circumstances in which claims against third parties will be successful. Legal title normally vests in the buyer when her name is entered on the register of shareholders.31 But the fact that the ownership rights are recognised in certain factual circumstances against certain claimants does not mean that title would not have vested in the transferee at an earlier point in time in different circumstances.32

A statutory provision attempting to determine a point in time at which absolute title is transferred to the buyer would have had to take into account the approach to the enforcement of English property law. Drafting such a provision would have required a significant amount of research on what the effect of such a provision would be on the mechanism through which English law enforces property rights. An inadequately drafted provision would not only not achieve the desired result; it could also have the effect of reducing the legal protection available to the transferee. Mistakes in drafting can cause the transferee to lose rights that would otherwise be available to her at common law. Drafting a provision determining the point in time at which title to securities vests in the transferee would have been a very difficult task, which England did not undertake.

England gave way to what was perceived as a pressure for convergence and changed its law to comply with best international practice. The way in which the change was effected is an example of how a legal system when carrying out law reform gravitates towards changing as little as possible of existing legal rules. England did not modify the common law; convergence was achieved without introducing a statutory rule regulating the point in time at which ownership vests in the transferee. England left the common law untouched and passed a rule stating that the CREST records relating to uncertificated securities constituted the register of holders of securities. USR 2001 changes only

30Michael Bridge, Personal Property Law (Oxford: Oxford University Press, 2002) 47, 162–164.

31CA 1985 s. 22; J. Sainsbury plc v. O’Connor (Inspector of Taxes) [1991] 1 WLR 963 at 977 (CA); Re Rose, Rose v. Inland Revenue Commissioners [1952] 1 Ch 499, at p 518–519 (CA); Pennington, Company Law 416.

32Pennington, Company Law 416–417.

types of registered securities. The later category includes public sector securities and corporate securities other than shares. In subsections 3.4.2.1–3.4.2.2 the changes relating to both types will be examined. The new regime for registered shares will be discussed first.

3.4.2.1 Effect of entries on registers: shares

The USR 2001 abolished CA 1985, s. 361, which stated that the register of members is prima facie evidence of any matters which the Companies Act 1985 directed or authorised to be inserted in it.34 This section gave special evidential quality only to the register maintained by or on behalf of the issuing company. The records kept by CREST, prior to USR 2001, contained the same information as the company register, but were not considered to be kept on behalf of the issuing company and were therefore not privileged by CA 1985, s. 361.

To change this, USR 2001 implemented a new regime. There are now two registers of shareholders – the Issuer register of members and the Operator (i.e. CREST) register of members. USR 2001, Sched. 4 determines the information which needs to be inserted into both registers.

The issuer register of members needs to contain the following particulars: the names and addresses of the members, the date on which each person was registered as a member and the date on which any person ceased to be a member.35 With the names and addresses, there shall be entered a statement relating to the certificated shares held by each member.36 The issuer register of members therefore contains records of all members irrespective of whether the shares are held in the certificated or in the uncertificated form. Certificated shares are to be identified by way of a statement.37 There is no requirement for a special statement on uncertificated shares.

The CREST register of members needs to indicate the names and addresses of members who hold uncertificated shares in the company.38 CREST is not required to keep records of certificated shares; it is also not required to record the dates of commencement and end of membership.

USR 2001, reg. 24 replaces the now-abolished CA 1985, s. 361 and states that a ‘register of members’ is prima facie evidence of any matter which is by USR 2001 directed or authorised to be inserted in it. The rule does not specify if it relates to the issuer or the Operator register of

34 USR 2001, reg. 24 (4). 35 USR 2001, Sched. 4, para. 2 (1).

36 USR 2001, Sched. 4, para. 2 (2). 37 USR 2001, Sched. 4, para. 2 (2). 38 USR 2001, Sched. 4, para. 4 (1).