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 19 — Share capital
278

(2A)
In the case of a reduction of share capital that forms part of a
compromise or arrangement sanctioned by the court under section 425
(power of company to compromise with creditors and members), the
resolution for reducing share capital as confirmed by the order
registered under subsection (1) takes effect—
5
(a)
on delivery of the order and statement of capital to the registrar,
or
(b)
if the court so orders, on the registration of the order and
statement.”.
(6)
In subsection (4) for “minute”, in both places where it occurs, substitute
10
“statement of capital”.
(7)
Omit subsections (5) and (6).
573
Liability of members on reduced shares
(1)
After section 139 of the Companies Act 1985 (c. 6) insert—
“Supplementary”.
15
(2)
In section 140 of the Companies Act 1985 (liability of members on reduced
shares)—
(a)
in subsection (1) for “as fixed by the minute” substitute “as notified to
the registrar in accordance with section 135C(1) or 138(1)”,
(b)
in subsection (2) after “if” insert “a reduction of capital is confirmed by
20
the court and”, and
(c)
in subsection (3) for “minute” substitute “statement of capital”.
Financial assistance
574
Financial assistance by company for acquisition of shares
(1)
Chapter 6 of Part 5 of the Companies Act 1985 (financial assistance by a
25
company for acquisition of its own shares) is amended as follows.
(2)
For section 151 (financial assistance generally prohibited) substitute—
“151
Prohibited financial assistance: acquisition of shares in public
company
(1)
Where a person is acquiring or proposing to acquire shares in a public
30
company, it is not lawful for the company or any of its subsidiaries to
give financial assistance directly or indirectly for the purpose of the
acquisition before or at the same time as the acquisition takes place.
(2)
Where—
(a)
a person has acquired shares in a company (“the company”),
35
and
(b)
a liability has been incurred (by that or another person) for the
purpose of the acquisition,

it is not lawful for the company or any of its subsidiaries to give
financial assistance directly or indirectly for the purpose of reducing or
40
discharging the liability if, at the time the assistance is given, the
company is a public company.

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(3)
Subsections (1) and (2) have effect subject to section 153 (transactions
not prohibited).
(4)
If a company contravenes this section an offence is committed by—
(a)
the company, and
(b)
every officer of the company who is in default.
5
(5)
A person guilty of an offence under this section 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—
(i)
in England and Wales, to imprisonment for a term not
10
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
the statutory maximum (or both).
15
151A
Prohibited financial assistance: acquisition of shares in private
company
(1)
Where a person is acquiring or proposing to acquire shares in a private
company, it is not lawful for a public company that is a subsidiary of
that company to give financial assistance directly or indirectly for the
20
purpose of the acquisition before or at the same time as the acquisition
takes place.
(2)
Where—
(a)
a person has acquired shares in a private company, and
(b)
a liability has been incurred (by that or another person) for the
25
purpose of the acquisition,

it is not lawful for a public company that is a subsidiary of that
company to give financial assistance directly or indirectly for the
purpose of reducing or discharging the liability.
(3)
Subsections (1) and (2) have effect subject to section 153 (transactions
30
not prohibited).
(4)
If a company contravenes this section an offence is committed by—
(a)
the company, and
(b)
every officer of the company who is in default.
(5)
A person guilty of an offence under this section is liable—
35
(a)
on conviction on indictment, to imprisonment for a term not
exceeding 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
40
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
the statutory maximum (or both).”.
(3)
Sections 155 to 158 (relaxation of prohibitions for private companies) shall
45
cease to have effect.

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575
Circumstances in which financial assistance is not prohibited
(1)
Section 153 of the Companies Act 1985 (c. 6) (transactions not prohibited by
section 151) is amended as follows.
(2)
In the heading for “s 151” substitute “this Chapter”.
(3)
After subsection (2) insert—
5
“(2A)
Section 151A(1) does not prohibit a company from giving financial
assistance for the purpose of an acquisition of shares in its holding
company if—
(a)
the company’s principal purpose in giving that assistance is not
to give it for the purpose of any such acquisition, or the giving
10
of the assistance for that purpose is but an incidental part of
some larger purpose of the company, and
(b)
the assistance is given in good faith in the interests of the
company.
(2B)
Section 151A(2) does not prohibit a company from giving financial
15
assistance if—
(a)
the company’s principal purpose in giving the assistance is not
to reduce or discharge any liability incurred by a person for the
purpose of the acquisition of shares in its holding company, or
the reduction or discharge of any such liability is but an
20
incidental part of some larger purpose of the company, and
(b)
the assistance is given in good faith in the interests of the
company.”.
(4)
In subsection (3) for “Section 151 does not prohibit” substitute “Neither section
151 nor section 151A prohibits”.
25
(5)
In subsection (4) for “Section 151 does not prohibit” substitute “Neither section
151 nor section 151A prohibits”.
Redeemable shares
576
Redeemable shares
For sections 159 to 160 of the Companies Act 1985 (redeemable shares)
30
substitute—
“159
Power to issue redeemable shares
(1)
A limited company having a share capital may issue shares that are to
be redeemed or are liable to be redeemed at the option of the company
or the shareholder (“redeemable shares”), subject to the following
35
provisions.
(2)
The articles of a private limited company may exclude or restrict the
issue of redeemable shares.
(3)
A public limited company may only issue redeemable shares if it is
authorised to do so by its articles.
40
(4)
No redeemable shares may be issued at a time when there are no issued
shares of the company that are not redeemable.

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159A
Terms and manner of redemption
(1)
The directors of a limited company may determine the terms,
conditions and manner of redemption of shares if they are authorised
to do so—
(a)
by a resolution of the company, or
5
(b)
by the company’s articles.
(2)
A resolution giving authority under this section may be an ordinary
resolution, even though it alters the company’s articles.
(3)
Where the directors are authorised to determine the terms, conditions
or manner of redemption of shares, they must do so before the shares
10
are allotted.
(4)
Any obligation of the company to state in a statement of capital the
rights attached to shares extends, in the case of redeemable shares, to
the terms and manner of redemption.
159B
Payment for redeemable shares
15
(1)
Redeemable shares in a limited company may not be redeemed unless
they are fully paid.
(2)
The terms of redemption of shares in a limited company may provide
that the amount payable on redemption may, by agreement between
the company and the holder of the shares, be paid on a date later than
20
the redemption date.
(3)
Unless redeemed in accordance with provision authorised by
subsection (2), the shares must be paid for on redemption.
160
Financing of redemption
(1)
Redeemable shares in a limited company may only be redeemed out
25
of—
(a)
distributable profits of the company, or
(b)
the proceeds of a fresh issue of shares made for the purposes of
the redemption.
(2)
Any premium payable on redemption of shares in a limited company
30
must be paid out of distributable profits of the company, subject to the
following provision.
(3)
If the redeemable shares were issued at a premium, any premium
payable on their redemption may be paid out of the proceeds of a fresh
issue of shares made for the purposes of the redemption, up to an
35
amount equal to—
(a)
the aggregate of the premiums received by the company on the
issue of the shares redeemed, or
(b)
the current amount of the company’s share premium account
(including any sum transferred to that account in respect of
40
premiums on the new shares),

whichever is the less.
(4)
The amount of the company’s share premium account is reduced by a
sum corresponding (or by sums in the aggregate corresponding) to the
amount of any payment made under subsection (3).
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(5)
Subsections (1) and (2) are subject to—
section 171 (private companies redeeming shares out of capital),
and
section 178(4) (terms of redemption enforceable in a winding up).
160A
Redeemed shares treated as cancelled
5
Where shares in a limited company are redeemed—
(a)
the shares are treated as cancelled, and
(b)
the amount of the company’s issued share capital is diminished
by the nominal value of the shares accordingly.”.
Purchase by company of its own shares
10
577
Power of company to purchase own shares
For section 162 of the Companies Act 1985 (c. 6) (power of company to
purchase own shares) substitute—
“162
Power of company to purchase own shares
(1)
A limited company having a share capital may purchase its own shares
15
(including any redeemable shares), subject to—
(a)
the following provisions of this Chapter, and
(b)
any restriction or prohibition in the company’s articles.
(2)
A limited company may not purchase its own shares if as a result of the
purchase there would no longer be any issued shares of the company
20
other than redeemable shares or shares held as treasury shares.
162ZA
   Payment for purchase of own shares
(1)
A limited company may not purchase its own shares unless they are
fully paid.
(2)
Where a limited company purchases its own shares, the shares must be
25
paid for on purchase.
162ZB
   Financing of purchase of own shares
(1)
A limited company may only purchase its own shares out of—
(a)
distributable profits of the company, or
(b)
the proceeds of a fresh issue of shares made for the purpose of
30
financing the purchase.
(2)
Any premium payable on the purchase by a limited company of its own
shares must be paid out of distributable profits of the company, subject
to the following provision.
(3)
If the shares to be purchased were issued at a premium, any premium
35
payable on their purchase by the company may be paid out of the
proceeds of a fresh issue of shares made for the purpose of financing the
purchase, up to an amount equal to—
(a)
the aggregate of the premiums received by the company on the
issue of the shares purchased, or
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(b)
the current amount of the company’s share premium account
(including any sum transferred to that account in respect of
premiums on the new shares),

whichever is the less.
(4)
The amount of the company’s share premium account is reduced by a
5
sum corresponding (or by sums in the aggregate corresponding) to the
amount of any payment made under subsection (3).
(5)
Subsections (1) and (2) are subject to—
section 171 (private companies purchasing shares out of capital),
and
10
section 178(4) (terms of purchase enforceable in a winding up).
162ZC
    Treatment of shares purchased
(1)
Where a limited company makes a purchase of its own shares and—
(a)
the shares are qualifying shares, and
(b)
the purchase is made out of distributable profits,
15

section 162A (treasury shares) applies to the shares purchased.
(2)
For the purposes of this Chapter “qualifying shares” are shares that—
(a)
are included in the official list in accordance with the provisions
of Part 6 of the Financial Services and Markets Act 2000,
(b)
are traded on the market known as the Alternative Investment
20
Market established under the rules of the London Stock
Exchange plc,
(c)
are officially listed in an EEA State, or
(d)
are traded on a regulated market.

In paragraph (a) “the official list” has the meaning given in section
25
103(1) of the Financial Services and Markets Act 2000.
(3)
In any other case where a limited company makes a purchase of its own
shares—
(a)
the shares are treated as cancelled, and
(b)
the amount of the company’s issued share capital is diminished
30
by the nominal value of the shares accordingly.”.
578
Statement of capital on disclosure by company of purchase etc of own shares
(1)
In section 169 of the Companies Act 1985 (disclosure by company of purchase
of own shares) after subsection (1A) insert—
“(1AA)
A return required by subsection (1) must be accompanied by a
35
statement of capital.
(1AB)
The statement of capital must state with respect to the company’s share
capital immediately following the delivery to it of the shares
purchased—
(a)
the total number of shares of the company,
40
(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
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(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).”.
(2)
After subsection (2) of section 169A of that Act (disclosure by company of
5
cancellation or disposal of treasury shares) insert—
“(2A)
A return required by this section must be accompanied by a statement
of capital.
(2B)
The statement of capital must state with respect to the company’s share
capital immediately following cancellation or disposal (as the case may
10
be) of the shares—
(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
15
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
20
by way of premium).”.
579
Copy of contract or memorandum of terms to be available for inspection
(1)
In section 169 (disclosure by company of purchase of own shares), omit
subsections (4), (5) and (7) to (9).
(2)
After that section insert—
25
“169AA
   Copy of contract or memorandum of terms to be available for
inspection
(1)
This section applies where a company enters into—
(a)
a contract approved under section 164 or 165, or
(b)
a contract for a purchase authorised under section 166.
30
(2)
A company must keep available for inspection at its registered office—
(a)
a copy of the contract, or
(b)
if the contract is not in writing, a written memorandum setting
out the terms of the contract.
(3)
The copy or memorandum must be kept available for inspection from
35
the conclusion of the contract until the end of the period of ten years
beginning with the date on which the purchase of all the shares in
pursuance of the contract is completed or, as the case may be, the date
on which the contract otherwise determines.
(4)
Every copy or memorandum required to be kept under this section
40
must be open to inspection without charge—
(a)
by any member of the company, and
(b)
if the company is a public company, by any other person.