Company Law Reform Bill [HL]

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL]

Company Law Reform Bill [HL]
Part 18 — Allotment of shares
264

550
Disapplication of pre-emption rights: directors acting under general
authorisation
(1)
Where the directors of a company are generally authorised for the purposes of
section 542, they may be given power by the articles, or by a special resolution
of the company, to allot equity securities pursuant to that authority as if section
5
89(1) of the Companies Act 1985 (c. 6) (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.
10
(2)
Where the directors make an allotment under this section, sections 89 to 94 of
that Act (pre-emption rights) have effect accordingly.
(3)
The power conferred by this section ceases to have effect when the authority to
which it relates—
(a)
is revoked or
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(b)
would (if not renewed) expire.

But if the authority is renewed the power may also be renewed, for a period not
longer than that for which the authority is renewed, by a special resolution of
the company.
(4)
Notwithstanding that the power conferred by this section has expired, the
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directors may allot equity securities in pursuance of an offer or agreement
previously made by the company if the power enabled the company to make
an offer or agreement that would or might require equity securities to be
allotted after it expired.
551
Disapplication of pre-emption rights by special resolution
25
(1)
Where the directors of a company are authorised for the purposes of section
542 (whether generally or otherwise), the company may by special resolution
resolve that section 89(1) of the Companies Act 1985 (offers to shareholders to
be on pre-emptive basis)—
(a)
shall not apply to a specified allotment of equity securities to be made
30
pursuant to that authority, or
(b)
shall apply to the allotment with such modifications as may be
specified in the resolution.
(2)
Where such a resolution is passed sections 89 to 94 of that Act (pre-emption
rights) have effect accordingly.
35
(3)
A special resolution under this section ceases to have effect when the authority
to which it relates—
(a)
is revoked or
(b)
would (if not renewed) expire.

But if the authority is renewed the resolution may also be renewed, for a period
40
not longer than that for which the authority is renewed, by a special resolution
of the company.
(4)
Notwithstanding that any such resolution has expired, the directors may allot
equity securities in pursuance of an offer or agreement previously made by the
company if the resolution enabled the company to make an offer or agreement
45
that would or might require equity securities to be allotted after it expired.

Company Law Reform Bill [HL]
Part 18 — Allotment of shares
265

(5)
A special resolution under this section, or a special resolution to renew such a
resolution, must not be proposed unless—
(a)
it is recommended by the directors, and
(b)
the directors have complied with subsections (6) and (7).
(6)
Before such a resolution is proposed, the directors must make a written
5
statement setting out—
(a)
their reasons for making the recommendation,
(b)
the amount to be paid to the company in respect of the equity securities
to be allotted, and
(c)
the directors’ justification of that amount.
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(7)
The directors’ statement must—
(a)
if the resolution is proposed as a written resolution, be sent or
submitted to every eligible member at or before the time at which the
proposed resolution is sent or submitted to him;
(b)
if the resolution is proposed at a general meeting, be circulated to the
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members entitled to notice of the meeting with that notice.
552
Liability for false statement in directors’ statement
(1)
This section applies in relation to a statement sent, submitted or circulated
under section 551(7) (directors’ statement on resolution disapplying pre-
emption rights).
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(2)
A person who knowingly or recklessly authorises or permits the inclusion of
any matter that is misleading, false or deceptive in a material particular in such
a statement commits an offence.
(3)
A person guilty of an offence under this section is liable—
(a)
on conviction on indictment, to imprisonment for a term not exceeding
25
two years or a fine (or both);
(b)
on summary conviction—
(i)
in England and Wales, to imprisonment for a term not
exceeding twelve months or to a fine not exceeding the
statutory maximum (or both);
30
(ii)
in Scotland or Northern Ireland, to imprisonment for a term not
exceeding six months, or to a fine not exceeding the statutory
maximum (or both).
553
Disapplication of pre-emption rights: sale of treasury shares
(1)
This section applies in relation to a sale of shares that is an allotment of equity
35
securities by virtue of section 94(3A) of the Companies Act 1985 (c. 6) (sale of
shares held by company as treasury shares).
(2)
The directors of a company may be given power by the articles, or by a special
resolution of the company, to allot equity securities as if section 89(1) of the
Companies Act 1985 (offers to shareholders to be on pre-emptive basis)—
40
(a)
did not apply to the allotment, or
(b)
applied to the allotment with such modifications as the directors may
determine.
(3)
The provisions of section 550(2) and (4) apply in that case as they apply to a
case within subsection (1) of that section.
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Company Law Reform Bill [HL]
Part 18 — Allotment of shares
266

(4)
The company may by special resolution resolve that section 89(1) of the
Companies Act 1985 (c. 6) (offers to shareholders to be on pre-emptive basis)—
(a)
shall not apply to a specified allotment of securities, or
(b)
shall apply to the allotment with such modifications as may be
specified in the resolution.
5
(5)
The provisions of section 551(2) and (4) to (7) apply in that case as they apply
to a case within subsection (1) of that section.
Commissions, discounts and allowances
554
Commissions, discounts and allowances
(1)
A company may, if the following conditions are satisfied, pay a commission to
10
a person in consideration of his subscribing or agreeing to subscribe (whether
absolutely or conditionally) for shares in the company, or procuring or
agreeing to procure subscriptions (whether absolute or conditional) for shares
in the company,
(2)
The conditions are—
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(a)
the payment of the commission is authorised by the company’s articles;
(b)
the commission paid or agreed to be paid does not exceed—
(i)
10% of the price at which the shares are issued, or
(ii)
the amount or rate authorised by the articles,

whichever is the less.
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(3)
A vendor to, or promoter of, or other person who receives payment in money
or shares from, a company may apply any part of the money or shares so
received in payment of any commission the payment of which directly by the
company would be permitted by this section.
(4)
Except as permitted by subsections (1) to (3), a company must not apply any of
25
its shares or capital money, either directly or indirectly, in payment of any
commission, discount or allowance to any person in consideration of his
subscribing or agreeing to subscribe (whether absolutely or conditionally) for
shares in the company, or procuring or agreeing to procure subscriptions
(whether absolute or conditional) for shares in the company.
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(5)
It is immaterial how the shares or money are so applied, whether by being
added to the purchase money of property acquired by the company or to the
contract price of work to be executed for the company, or being paid out of the
nominal purchase money or contract price, or otherwise.
(6)
Nothing in this section affects the payment of such brokerage as has previously
35
been lawful.
Provisions not applicable to shares taken on formation
555
Provisions not applicable to shares taken on formation
The provisions of—
(a)
sections 540 to 553 of this Act, and
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(b)
sections 89 to 96 of the Companies Act 1985 (pre-emption rights),

Company Law Reform Bill [HL]
Part 19 — Share capital
267

have no application in relation to the taking of shares by the subscribers to the
memorandum on the formation of the company.
Part 19
Share capital
Share capital and how it may be altered
5
556
Companies having a share capital
(1)
References in the Companies Acts to a company having a share capital are to a
company that has power under its constitution to issue shares.
(2)
References in the Companies Acts—
(a)
to “issued share capital” are to shares of a company that have been
10
issued;
(b)
to “allotted share capital” are to shares of a company that have been
allotted.
(3)
References in the Companies Acts to issued or allotted shares, or to issued or
allotted share capital, include shares taken on the formation of the company by
15
the subscribers to the company’s memorandum.
557
Shares of limited companies to have fixed nominal value
(1)
Shares in a limited company having a share capital must each have a fixed
nominal value.
(2)
An allotment of a share that does not have a fixed nominal value is void.
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(3)
Shares in a limited company having a share capital may be denominated in any
currency, and different classes of shares may be denominated in different
currencies.
(4)
If a company purports to allot shares in contravention of this section, an offence
is committed by every officer of the company who is in default.
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(5)
A person guilty of an offence under this section is liable—
(a)
on conviction on indictment, to a fine, and
(b)
on summary conviction, to a fine not exceeding the statutory
maximum.
558
Alteration of share capital of limited company
30
(1)
A limited company having a share capital may not alter its share capital except
in the following ways.
(2)
The company may—
(a)
increase its share capital by allotting new shares in accordance with
Part 18 of this Act and Part 4 of the Companies Act 1985 (c. 6), or
35
(b)
reduce its share capital in accordance with Chapter 4 of Part 5 of that
Act.
(3)
The company may—

Company Law Reform Bill [HL]
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(a)
sub-divide or consolidate all or any of its share capital in accordance
with section 559 of this Act, or
(b)
reconvert stock into shares in accordance with section 561 of this Act.
(4)
The company may redenominate all or any of its shares in accordance with
section 586 of this Act and may reduce its share capital in accordance with
5
section 590 of this Act in connection with such a redenomination.
(5)
Nothing in this section affects—
(a)
the power of a company to redeem shares, or to purchase its own
shares, in accordance with Chapter 7 of Part 5 of the Companies Act
1985 (c. 6),
10
(b)
the power of a company to purchase shares in pursuance of an order of
the court under—
(i)
section 98 of this Act (litigated objection to resolution for
company to be re-registered as private),
(ii)
section 534 of this Act (remedial order in case of breach of
15
prohibition of public offers by private company),
(iii)
section 177 of the Companies Act 1985 (powers of court on
objection to certain payments out of capital), or
(iv)
Part 17 of the Companies Act 1985 (relief to members unfairly
prejudiced),
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(c)
the forfeiture of shares, or the acceptance of shares surrendered in lieu,
in pursuance of the articles, for failure to pay any sum payable in
respect of the shares,
(d)
the cancellation of shares under section 146(2) of the Companies Act
1985 (treatment of shares held by or for a public company), or
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(e)
the power of a company—
(i)
to enter into a compromise or arrangement in accordance with
section 425 of the Companies Act 1985, or
(ii)
to do anything required to comply with an order of the court on
an application under that section.
30
559
Sub-division or consolidation of shares
(1)
A limited company having a share capital may—
(a)
sub-divide its shares, or any of them, into shares of a smaller nominal
amount than its existing shares, or
(b)
consolidate and divide all or any of its share capital into shares of a
35
larger nominal amount than its existing shares.
(2)
In any sub-division, consolidation or division of shares under this section, the
proportion between the amount paid and the amount (if any) unpaid on each
resulting share must be the same as it was in the case of the share from which
that share is derived.
40
(3)
A company may exercise a power conferred by this section only if its members
have passed an ordinary resolution authorising it to do so.
(4)
A resolution under subsection (3) may authorise a company—
(a)
to exercise more than one of the powers conferred by this section;
(b)
to exercise a power on more than one occasion;
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(c)
to exercise a power at a specified time or in specified circumstances.

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(5)
The company’s articles may exclude or restrict the exercise of any power
conferred by this section.
560
Notice to registrar of sub-division or consolidation
(1)
If a company exercises a power conferred by section 559 (sub-division or
consolidation of shares) it must within one month after doing so give notice to
5
the registrar, specifying the shares affected.
(2)
The notice must be accompanied by a statement of capital.
(3)
The statement of capital must state with respect to the company’s share capital
immediately following the exercise of the power—
(a)
the total number of shares of the company,
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(b)
the aggregate nominal value of those shares,
(c)
for each class of shares—
(i)
prescribed particulars of the rights attached to the shares,
(ii)
the total number of shares of that class, and
(iii)
the aggregate nominal value of shares of that class, and
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(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).
(4)
If default is made in complying with this section, an offence is committed by—
(a)
the company, and
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(b)
every officer of the company who is in default.
(5)
A person guilty of an offence under this section is liable on summary
conviction to a fine not exceeding level 3 on the standard scale and, for
continued contravention, a daily default fine not exceeding one-tenth of level
3 on the standard scale.
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561
Re-conversion of stock into shares
(1)
A company that has converted paid-up shares into stock (before the repeal by
this Act of the power to do so) may re-convert that stock into paid-up shares of
any nominal value.
(2)
A company may exercise the power conferred by this section only if its
30
members have passed an ordinary resolution authorising it to do so.
(3)
A resolution under subsection (2) may authorise a company to exercise the
power conferred by this section—
(a)
on more than one occasion;
(b)
at a specified time or in specified circumstances.
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(4)
If a company exercises the power conferred by this section it must, within one
month after doing so, give notice to the registrar specifying the stock affected.
(5)
The notice must be accompanied by a statement of capital.
(6)
The statement of capital must state with respect to the company’s share capital
immediately following the reconversion—
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(a)
the total number of shares of the company,
(b)
the aggregate nominal value of those shares,

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(c)
for each class of shares—
(i)
prescribed particulars of the rights attached to the shares,
(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
5
(whether on account of the nominal value of the share or by way of
premium).
(7)
If a company makes default in complying with subsection (4) or (5), an offence
is committed by—
(a)
the company, and
10
(b)
every officer of the company who is in default.
(8)
A person guilty of an offence under this section is liable on summary
conviction to a fine not exceeding level 3 on the standard scale and, for
continued contravention, a daily default fine not exceeding one-tenth of level
3 on the standard scale.
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562
Notice to registrar of alteration of share capital
In section 122 of the Companies Act 1985 (c. 6) (notice to registrar of alteration
of share capital) after subsection (1) insert—
“(1A)
The notice must be accompanied by a statement of capital.
(1B)
The statement of capital must state with respect to the company’s share
20
capital immediately following the redemption or cancellation—
(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
25
shares,
(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
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by way of premium).”.
Reserve capital
563
Abolition of reserve capital
(1)
Section 120 of the Companies Act 1985 (reserve liability of limited company)
shall cease to have effect.
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(2)
Section 124 of that Act (reserve capital of unlimited company) shall cease to
have effect.
(3)
The repeals made by this section do not affect the validity of—
(a)
a special resolution passed by a company under section 120 of the
Companies Act 1985 before the date on which this section came into
40
force, provided that the resolution is forwarded to the registrar in
accordance with section 380 of that Act or Chapter 3 of Part 3 of this Act,
or