Company Law Reform Bill [HL]

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL]

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(b)
the exercise of either of the powers under section 124 of the Companies
Act 1985 (c. 6) before that date.
Class rights
564
Variation of class rights: companies having a share capital
For section 125 of the Companies Act 1985 (variation of class rights)
5
substitute—
“125
Variation of class rights: companies having a share capital
(1)
This section is concerned with the variation of the rights attached to a
class of shares in a company having a share capital.
(2)
Rights attached to a class of a company’s shares may be varied if, and
10
only if, the holders of shares of that class consent to the variation in
accordance with this section.
(3)
This is without prejudice to any other restrictions on the variation of the
rights.
(4)
The consent required for the purposes of this section on the part of the
15
holders of a class of a company’s shares is—
(a)
consent in writing from the holders of at least three-quarters in
nominal value of the issued shares of that class (excluding any
shares held as treasury shares), or
(b)
a special resolution passed at a separate general meeting of the
20
holders of that class sanctioning the variation.
(5)
Any alteration of a provision contained in a company’s articles for the
variation of the rights attached to a class of shares, or the insertion of
any such provision into the articles, is itself to be treated as a variation
of those rights.
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(6)
In this section, and (except where the context otherwise requires) in any
provision in a company’s articles for the variation of the rights attached
to a class of shares, references to the variation of those rights include
references to their abrogation.”.
565
Variation of class rights: companies without a share capital
30
After section 125 of the Companies Act 1985 (variation of class rights:
companies having a share capital) (inserted by section 564 above) insert—
“125A
Variation of class rights: companies without a share capital
(1)
This section is concerned with the variation of the rights of a class of
members of a company where the company does not have a share
35
capital.
(2)
Rights of a class of members may be varied if, and only if, the members
of that class consent to the variation in accordance with this section.
(3)
This is without prejudice to any other restrictions on the variation of the
rights.
40

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(4)
The consent required for the purposes of this section on the part of the
members of a class is—
(a)
consent in writing from at least three-quarters of the members
of the class, or
(b)
a special resolution passed at a separate general meeting of the
5
members of that class sanctioning the variation.
(5)
Any alteration of a provision contained in a company’s articles for the
variation of the rights of a class of members, or the insertion of any such
provision into the articles, is itself to be treated as a variation of those
rights.
10
(6)
In this section, and (except where the context otherwise requires) in any
provision in a company’s articles for the variation of the rights of a class
of members, references to the variation of those rights include
references to their abrogation.”.
566
Variation of class rights: saving for court’s powers under other provisions
15
For section 126 of the Companies Act 1985 (c. 6) substitute—
“126
Saving for court’s powers under other provisions

Nothing in section 125 or 125A (variation of class rights) affects the
power of the court under—
section 425 (court control of company compromising with
20
members and creditors);
section 427 (company reconstruction or amalgamation);
sections 459 to 461 (protection of minorities);
section 98 of the Company Law Reform Act 2006 (litigated
objection to public company becoming private by re-
25
registration).”.
567
Variation of class rights: right to object to variation
(1)
For the heading to section 127 of the Companies Act 1985 (shareholders’ right
to object to variation) substitute “Right to object to variation: companies having
a share capital”.
30
(2)
For subsection (1) of that section substitute—
“(1)
This section applies where the rights attached to any class of shares in
a company are varied under section 125 (variation of class rights:
companies having a share capital).”.
(3)
Omit subsection (5) of that section.
35
(4)
After that section insert—
“127A
Right to object to variation: companies without a share capital
(1)
This section applies where the rights of any class of members of a
company are varied under section 125A (variation of class rights:
companies without a share capital).
40
(2)
Members amounting to not less than 15% of the members of the class in
question (being persons who did not consent to or vote in favour of the

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resolution for the variation) may apply to the court to have the
variation cancelled.

If such an application is made, the variation has no effect unless and
until it is confirmed by the court.
(3)
Application to the court must be made within 21 days after the date on
5
which the consent was given or the resolution was passed (as the case
may be) and may be made on behalf of the members entitled to make
the application by such one or more of their number as they may
appoint in writing for the purpose.
(4)
The court, after hearing the applicant and any other persons who apply
10
to the court to be heard and appear to the court to be interested in the
application, may, if satisfied having regard to all the circumstances of
the case that the variation would unfairly prejudice the members of the
class represented by the applicant, disallow the variation, and shall if
not satisfied confirm it.
15

The decision of the court on any such application is final.
(5)
References in this section to the variation of the rights of a class of
members include references to their abrogation.
127B
Copy of court order to be forwarded to the registrar
(1)
The company shall within 15 days after the making of an order by the
20
court on an application under section 127 or 127A (objection to
variation of class rights) forward a copy of the order to the registrar.
(2)
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.
(3)
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.”.
30
568
Registration of class rights
(1)
In section 128 of the Companies Act 1985 (c. 6) (registration of particulars of
special rights)—
(a)
in subsection (3) (notification of variation of class rights), omit from
“otherwise than” to “section 380”;
35
(b)
in subsection (4) omit from “(otherwise than” to “above)”.
(2)
In section 129 of the Companies Act 1985 (registration of newly created class
rights of company without share capital)—
(a)
in subsection (1) (notification of new class of members)—
(i)
for “a class of members” substitute “a new class of members”,
40
and
(ii)
omit from “with rights which” to “section 380 applies”;
(b)
in subsection (2) (notification of variation of class rights), omit from
“otherwise than” to “section 380”;
(c)
in subsection (3) (notification of variation of name or designation of
45
class) omit from “(otherwise than” to “above)”.

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Share premiums
569
Application of share premiums
(1)
In section 130 of the Companies Act 1985 (c. 6) (application of share premiums)
for subsection (2) substitute—
“(1A)
Where, on issuing shares, a company has transferred a sum to the share
5
premium account, it may use that sum to write off—
(a)
the expenses of the issue of those shares;
(b)
any commission paid on the issue of those shares.
(2)
The company may use the share premium account to pay up new
shares to be allotted to members as fully paid bonus shares.”.
10
(2)
In subsection (3) of that section for “this” substitute “subsections (1A) and (2)”.
Reduction of share capital
570
Circumstances in which companies may reduce share capital
(1)
Before section 135 of the Companies Act 1985 (special resolution for reduction
of share capital) insert—
15
“Circumstances in which limited companies may reduce share capital”.
(2)
Section 135 (special resolution for reduction of share capital) is amended as
follows.
(3)
For subsection (1) substitute—
“(1)
A limited company having a share capital may reduce its share
20
capital—
(a)
in the case of a private company limited by shares, by special
resolution supported by a solvency statement in accordance
with section 135A;
(b)
in any case, by special resolution confirmed by the court in
25
accordance with sections 136 to 139.
(1A)
A company may not reduce its capital under subsection (1)(a) if as a
result of the reduction there would no longer be any member of the
company holding shares other than redeemable shares.
(1B)
Subject to that, a company may reduce its share capital under this
30
section in any way.”.
(4)
In subsection (2)—
(a)
for “subsection (1)” substitute “subsection (1B)”;
(b)
omit the words following paragraph (c).
(5)
After subsection (2) insert—
35
“(2A)
A special resolution under this section may not provide for a reduction
of share capital to take effect later than the date on which the resolution
has effect in accordance with this Chapter.

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(2B)
This Chapter (apart from subsection (2A)) has effect subject to any
provision of the company’s articles restricting or prohibiting the
reduction of the company’s share capital.”.
571
Reduction of capital supported by solvency statement
After section 135 of the Companies Act 1985 (c. 6) insert—
5
“Reduction of capital of private company supported by solvency statement
135A
Requirement for solvency statement
(1)
A resolution for reducing share capital of a private company limited by
shares is supported by a solvency statement if—
(a)
the directors of the company make a statement of the solvency
10
of the company in accordance with section 135B (a “solvency
statement”) not more than 15 days before the date on which the
resolution is passed, and
(b)
the resolution and solvency statement are registered in
accordance with section 135C.
15
(2)
Where the resolution is proposed as a written resolution, a copy of the
solvency statement must be sent or submitted to every eligible member
at or before the time at which the proposed resolution is sent or
submitted to him.
(3)
Where the resolution is proposed at a general meeting, a copy of the
20
solvency statement must be made available for inspection by members
of the company throughout that meeting.
(4)
The validity of a resolution is not affected by a failure to comply with
subsection (2) or (3).
135B
Solvency statement
25
(1)
A solvency statement is a statement that each of the directors—
(a)
has formed the opinion, as regards the company’s situation at
the date of the statement, that there is no ground on which the
company could then be found to be unable to pay (or otherwise
discharge) its debts; and
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(b)
has also formed the opinion—
(i)
if it is intended to commence the winding up of the
company within twelve months of that date, that the
company will be able to pay (or otherwise discharge) its
debts in full within twelve months of the
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commencement of the winding up; or
(ii)
in any other case, that the company will be able to pay
(or otherwise discharge) its debts as they fall due during
the year immediately following that date.
(2)
In forming those opinions, the directors must take into account all of
40
the company’s liabilities (including any contingent or prospective
liabilities).
(3)
The solvency statement must be in the prescribed form and must
state—

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(a)
the date on which it is made, and
(b)
the name of each director of the company.
(4)
If the directors make a solvency statement without having reasonable
grounds for the opinions expressed in it, and the statement is delivered
to the registrar, an offence is committed by every director who is in
5
default.
(5)
A person guilty of an offence under subsection (4) is liable—
(a)
on conviction on indictment, to imprisonment for a term not
exceeding two years or a fine (or both);
(b)
on summary conviction—
10
(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);
(ii)
in Scotland or Northern Ireland, to imprisonment for a
term not exceeding six months, or to a fine not exceeding
15
the statutory maximum (or both).
135C
Registration of resolution and supporting documents
(1)
Within 15 days after the resolution for reducing share capital is passed
the company must deliver to the registrar—
(a)
a copy of the solvency statement, and
20
(b)
a statement of capital.

This is in addition to the copy of the resolution itself that is required to
be delivered to the registrar under Chapter 3 of Part 3 of the Company
Law Reform Act 2006.
(2)
The statement of capital must state with respect to the company’s share
25
capital as reduced by the resolution—
(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
30
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
35
by way of premium).
(3)
The registrar must register the documents delivered to him under
subsection (1) on receipt.
(4)
The resolution does not take effect until those documents are
registered.
40
(5)
The company must also deliver to the registrar, within 15 days after the
resolution is passed, a statement by the directors confirming that the
solvency statement was—
(a)
made not more than 15 days before the date on which the
resolution was passed, and
45
(b)
provided to members in accordance with section 135A(2) or (3).

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(6)
The validity of a resolution is not affected by—
(a)
a failure to deliver the documents required to be delivered to
the registrar under subsection (1) to the registrar within the time
specified in that subsection, or
(b)
a failure to comply with subsection (5).
5
(7)
If the company delivers to the registrar a solvency statement that was
not provided to members in accordance with section 135A(2) or (3), an
offence is committed by every officer of the company who is in default.
(8)
If the company fails to comply with this section, an offence is
committed by—
10
(a)
the company, and
(b)
every officer of the company who is in default.
(9)
A person guilty of an offence under subsection (7) or (8) is liable—
(a)
on conviction on indictment, to a fine;
(b)
on summary conviction, to a fine not exceeding the statutory
15
maximum.
Reduction of capital confirmed by court”.
572
Registration of court order
(1)
Section 138 of the Companies Act 1985 (c. 6) (registration of order and minute
of reduction) is amended as follows.
20
(2)
In the section heading for “minute of reduction” substitute “statement of
capital”.
(3)
In subsection (1) for the words “minute (approved by the court)” to the end
substitute “statement of capital (approved by the court) shall register the order
and statement (but subject to section 139).”.
25
(4)
After that subsection insert—
“(1A)
The statement of capital must state with respect to the company’s share
capital as altered by the order—
(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
35
(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).”.
(5)
For subsection (2) substitute—
“(2)
The resolution for reducing share capital as confirmed by the order
40
registered under subsection (1) takes effect on the registration of the
order and statement of capital.

This is subject to subsection (2A).