Company Law Reform Bill [HL]

House of Commons

Session 2005 - 06
Internet Publications
Other Bills before Parliament

Company Law Reform Bill [HL]

Company Law Reform Bill [HL]
Part 18 — Allotment of shares
259

(a)
on conviction on indictment, to a fine;
(b)
on summary conviction, to a fine not exceeding the statutory
maximum.
(3)
A contravention of section 536 does not affect the validity of a transaction
entered into by the company, but if a company—
5
(a)
enters into a transaction in contravention of that section, and
(b)
fails to comply with its obligations in connection with the transaction
within 21 days from being called on to do so,

the directors of the company are jointly and severally liable to indemnify any
other party to the transaction in respect of any loss or damage suffered by him
10
by reason of the company’s failure to comply with its obligations.
(4)
The directors who are so liable are those who were directors at the time the
company entered into the transaction.
Part 18
Allotment of shares
15
Power of directors to allot shares
540
Exercise by directors of power to allot shares etc
(1)
The directors of a company must not exercise any power of the company—
(a)
to allot shares in the company, or
(b)
to grant rights to subscribe for, or to convert any security into, shares in
20
the company,

except in accordance with section 541 (private company with single class of
shares) or section 542 (authorisation by company).
(2)
Subsection (1) does not apply—
(a)
to the allotment of shares in pursuance of an employees’ share scheme,
25
or
(b)
to the grant of a right to subscribe for, or to convert any security into,
shares so allotted.
(3)
Where this section applies in relation to the grant of a right to subscribe for, or
to convert any security into, shares, it does not apply in relation to the
30
allotment of shares pursuant to that right.
(4)
A director who knowingly and wilfully contravenes, or permits or authorises
a contravention of, this section commits an offence.
(5)
A person guilty of an offence under this section is liable—
(a)
on conviction on indictment, to a fine;
35
(b)
on summary conviction, to a fine not exceeding the statutory
maximum.
(6)
Nothing in this section affects the validity of an allotment or other transaction.

Company Law Reform Bill [HL]
Part 18 — Allotment of shares
260

541
Power of directors to allot shares etc: private company with only one class of
shares

Where a private company has only one class of shares, the directors may
exercise any power of the company—
(a)
to allot shares of that class, or
5
(b)
to grant rights to subscribe for, or to convert any security into, such
shares,

except to the extent that they are prohibited from doing so by the company’s
articles.
542
Power of directors to allot shares etc: authorisation by company
10
(1)
The directors of a company may exercise a power of the company—
(a)
to allot shares in the company, or
(b)
to grant rights to subscribe for, or to convert any security into, shares in
the company,

if they are, in accordance with this section, authorised to do so by the
15
company’s articles or by resolution of the company.
(2)
Authority under this section may be given for a particular exercise of the
power or for its exercise generally, and may be unconditional or subject to
conditions.
(3)
The authority must—
20
(a)
state the maximum amount of shares that may be allotted under it, and
(b)
specify the date on which it will expire, which must be not more than
five years from—
(i)
in the case of an authority contained in the company’s articles
at the time of its original incorporation, the date of that
25
incorporation;
(ii)
in any other case, the date on which the resolution is passed by
virtue of which the authority is given.
(4)
Authority under this section—
(a)
may be renewed or further renewed by resolution of the company for a
30
further period not exceeding five years, and
(b)
may at any time be revoked or varied by resolution of the company.
(5)
A resolution renewing an authority under this section must—
(a)
state (or restate) the maximum amount of shares that may be allotted
under the authority or, as the case may be, the amount remaining to be
35
allotted under it, and
(b)
specify the date on which the renewed authority will expire.
(6)
In relation to rights to subscribe for, or to convert any security into, shares in
the company, references in this section to the maximum amount of shares that
may be allotted under the authority are to the maximum amount of shares that
40
may be allotted pursuant to the rights.
(7)
The directors may allot shares, or grant rights to subscribe for or to convert any
security into shares, after an authority under this section has expired if—
(a)
the shares are allotted, or the rights are granted, in pursuance of an
offer or agreement made by the company before the authority expired,
45
and

Company Law Reform Bill [HL]
Part 18 — Allotment of shares
261

(b)
the authority allowed it to make an offer or agreement which would or
might require shares to be allotted, or rights to be granted, after the
authority expired.
(8)
A resolution of a company to give, vary, revoke or renew an authority under
this section may be an ordinary resolution, even though it alters the company’s
5
articles.
Public companies: allotment where issue not fully subscribed
543
Public companies: allotment where issue not fully subscribed
(1)
No allotment shall be made of shares of a public company offered for
subscription unless—
10
(a)
the issue is subscribed for in full,
(b)
the offer is made on terms that the shares subscribed for may be allotted
in any event, or
(c)
the offer is made on terms that the shares subscribed for may be allotted
if specified conditions are met, and those conditions are met.
15
(2)
If shares are prohibited from being allotted by subsection (1) and 40 days have
elapsed after the first making of the offer, all money received from applicants
for shares must be repaid to them forthwith, without interest.
(3)
If any of the money is not repaid within 48 days after the making of the offer,
the directors of the company are jointly and severally liable to repay it, with
20
interest at the rate for the time being specified under section 17 of the
Judgments Act 1838 (c. 110) from the expiration of the 48th day.

A director is not so liable if he proves that the default in the repayment of the
money was not due to any misconduct or negligence on his part.
(4)
This section applies in the case of shares offered as wholly or partly payable
25
otherwise than in cash as it applies in the case of shares offered for
subscription, with the following adaptations—
(a)
the references in subsection (1) to subscription shall be construed
accordingly;
(b)
in subsections (2) and (3) references to the repayment of money
30
received from applicants for shares include—
(i)
the return of any other consideration so received (including, if
the case so requires, the release of the applicant from any
undertaking), or
(ii)
if it is not reasonably practicable to return the consideration, the
35
payment of money equal to its value at the time it was so
received;
(c)
any reference in those subsections to interest applies accordingly.
(5)
Any condition requiring or binding an applicant for shares to waive
compliance with any requirement of this section is void.
40
544
Effect of allotment in contravention of section 543
(1)
An allotment made by a company to an applicant in contravention of section
543 (public companies: allotment where issue not fully subscribed) is voidable

Company Law Reform Bill [HL]
Part 18 — Allotment of shares
262

at the instance of the applicant within one month after the date of the allotment,
and not later.
(2)
It is so voidable even if the company is in the course of being wound up.
(3)
If a director of a company knowingly permits or authorises the contravention
of section 543 with respect to an allotment, he is liable to compensate the
5
company and the allottee respectively for any loss, damages, costs or expenses
that the company or allottee may have sustained or incurred by the
contravention.
(4)
Proceedings to recover any such loss, damages, costs or expenses may not be
brought more than two years after the date of the allotment.
10
Return of allotments
545
Return of allotment by limited company
(1)
This section applies to a company limited by shares and to a company limited
by guarantee and having a share capital.
(2)
The company must, within one month of making an allotment of shares,
15
deliver to the registrar for registration a return of the allotment.
(3)
The return must—
(a)
contain the prescribed information, and
(b)
be accompanied by a statement of capital.
(4)
The statement of capital must state with respect to the company’s share capital
20
at the date to which the return is made up—
(a)
the total number of shares of the company,
(b)
the aggregate nominal value of those shares,
(c)
for each class of shares—
(i)
prescribed particulars of the rights attached to the shares,
25
(ii)
the total number of shares of that class, and
(iii)
the aggregate nominal value of shares of that class, and
(d)
the amount paid up and the amount (if any) unpaid on each share
(whether on account of the nominal value of the share or by way of
premium).
30
546
Return of allotment of new class of shares by unlimited company
(1)
If an unlimited company allots shares with rights that are not in all respects
uniform with shares previously allotted, the company must, within one month
of making an allotment of shares, deliver to the registrar for registration a
return of allotment containing prescribed particulars of those rights.
35
(2)
For this purpose shares are not to be treated as different from shares previously
allotted by reason only that the former do not carry the same rights to
dividends as the latter during the twelve months immediately following the
former’s allotment.
547
Offence of failure to make return
40
(1)
If a company makes default in complying with—

Company Law Reform Bill [HL]
Part 18 — Allotment of shares
263

section 545 (return of allotment of shares by limited company), or
section 546 (return of allotment of new class of shares by unlimited
company),

an offence is committed by every officer of the company who is in default.
(2)
A person guilty of an offence under this section is liable—
5
(a)
on conviction on indictment, to a fine;
(b)
on summary conviction, to a fine not exceeding the statutory maximum
and, for continued contravention, a daily default fine not exceeding
one-tenth of the statutory maximum.
(3)
In the case of default in delivering to the registrar within one month after the
10
allotment the return required by section 545 or 546—
(a)
any person liable for the default may apply to the court for relief, and
(b)
the court, if satisfied—
(i)
that the omission to deliver the document was accidental or due
to inadvertence, or
15
(ii)
that it is just and equitable to grant relief,

may make an order extending the time for delivery of the document for
such period as the court thinks proper.
Time for accepting pre-emption offer
548
Time for acceptance of pre-emption offers
20
In section 90 of the Companies Act 1985 (c. 6) (communication of pre-emption
offers to shareholders) after subsection (6) insert—
“(6A)
The Secretary of State may by regulations made by statutory
instrument—
(a)
reduce the period specified in subsection (6) (but not to less than
25
14 days), or
(b)
increase that period.
(6B)
A statutory instrument containing regulations made under subsection
(6A) is subject to affirmative resolution procedure.”.
Disapplication of pre-emption rights
30
549
Disapplication of pre-emption rights: private company with only one class of
shares
(1)
The directors of a private company that has only one class of shares may be
given power by the articles, or by a special resolution of the company, to allot
equity securities of that class as if section 89(1) of the Companies Act 1985
35
(offers to shareholders to be on pre-emptive basis)—
(a)
did not apply to the allotment, or
(b)
applied to the allotment with such modifications as the directors may
determine.
(2)
Where the directors make an allotment under this section, sections 89 to 94 of
40
that Act (pre-emption rights) have effect accordingly.