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
285

(5)
If default is made in complying with subsection (2) or (3), or an
inspection required under subsection (4) is refused, an offence is
committed by every officer of the company who is in default.
(6)
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
5
continued contravention, a daily default fine not exceeding one-tenth
of level 3 on the standard scale.
(7)
In the case of a refusal of an inspection required under subsection (4)
the court may by order compel an immediate inspection.
(8)
The provisions of this section apply to a variation of a contract as they
10
apply to the original contract.”.
580
Power of private companies to redeem or purchase own shares out of capital
In section 171 of the Companies Act 1985 (c. 6) (power of private companies to
redeem or purchase own shares out of capital), for subsection (1) substitute—
“(1)
A private limited company may in accordance with this section, but
15
subject to any restriction or prohibition in the company’s articles, make
a payment in respect of the redemption or purchase of its own shares
otherwise than out of distributable profits or the proceeds of a fresh
issue of shares.”.
581
Conditions for redemption or purchase of own shares out of capital
20
(1)
Section 173 of the Companies Act 1985 (conditions for payment out of capital
for redemption or purchase by a private company of its own shares) is
amended as follows.
(2)
In subsection (3) (under which the directors are required to make a statutory
declaration as to the company’s financial position) for “a statutory declaration”
25
substitute “a statement”.
(3)
For subsection (4) (directors’ opinion as to solvency: liabilities to be taken into
account) substitute—
“(4)
In forming their opinion for the purposes of subsection (3)(a), the
directors must take into account all of the company’s liabilities
30
(including any contingent or prospective liabilities).”.
(4)
In subsection (5) (further requirements)—
(a)
in the opening words, for “statutory declaration” substitute
“statement”;
(b)
in paragraphs (b) and (c) for “declaration” substitute “statement”.
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(5)
For subsection (6) (offence of making declaration without reasonable grounds)
substitute—
“(6)
If the directors make a statement under this section without having
reasonable grounds for the opinion expressed in it, an offence is
committed by every director who is in default.
40
(7)
A person guilty of an offence under subsection (6) is liable—
(a)
on conviction on indictment, to imprisonment for a term not
exceeding two years or a fine (or both);

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(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);
(ii)
in Scotland or Northern Ireland, to imprisonment for a
5
term not exceeding six months, or to a fine not exceeding
the statutory maximum (or both).”.
(6)
The following amendments are consequential on that in subsection (2) above—
(a)
in section 172(6) of the Companies Act 1985 (c. 6) for “statutory
declaration of the directors” substitute “directors’ statement”;
10
(b)
in section 174 of that Act—
(i)
in subsection (1), for “statutory declaration” substitute
“statement”, and
(ii)
in subsection (4), for “statutory declaration” substitute
“directors’ statement”;
15
(c)
in section 175 of that Act—
(i)
in subsections (1)(c) and (5), for “statutory declaration of the
directors” substitute “directors’ statement”;
(ii)
in subsection (6) for “statutory declaration”, substitute
“directors’ statement”, and
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(iii)
in subsection (8), for “declaration” (twice) substitute
“statement”;
(d)
in section 179 of that Act—
(i)
in subsection (1)(d), for “statutory declaration of the directors’”
substitute “directors’ statement”, and
25
(ii)
in subsection (1)(e), for “declaration” substitute “statement”.
582
Notice to registrar of payment out of capital for redemption or purchase of
own shares
After section 177 of the Companies Act 1985 insert—
“177A
Notice to registrar of payment out of capital for redemption or
30
purchase of own shares
(1)
A private limited company that makes a payment out of capital for the
redemption or purchase of its own shares must, within 15 days after
making the payment, give notice to the registrar.
(2)
The notice must be accompanied by a statement of capital.
35
(3)
The statement of capital must state with respect to the company’s share
capital immediately following the payment out of capital—
(a)
the total number of shares of the company,
(b)
the aggregate nominal value of those shares,
(c)
for each class of shares—
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(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—
5
(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 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
10
of level 3 on the standard scale.”.
Transfers of shares etc
583
Registration of transfers of shares and debentures
(1)
In section 183 of the Companies Act 1985 (c. 6) (transfer and registration)—
(a)
in the heading, omit “and registration”;
15
(b)
omit subsections (4) to (6).
(2)
After that section insert—
“183A
Registration of allotment and transfer of shares and debentures
(1)
A company must register an allotment of shares or debentures as soon
as practicable and in any event within two months after the date of the
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allotment.
(2)
A company must—
(a)
register a transfer of shares or debentures, or
(b)
send to the transferee notice of refusal to register the transfer,
giving reasons for the refusal,
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as soon as practicable and in any event within two months after the
date on which the transfer is lodged with it.
(3)
The directors must provide the transferee with such further
information about the reasons for the refusal as the transferee may
reasonably request, but such information does not include copies of
30
minutes of meetings of directors.
(4)
On the application of the transferor of any share or interest in a
company, the company must enter in its register of members the name
of the transferee in the same manner and subject to the same conditions
as if the application for the entry were made by the transferee.
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(5)
If a company fails to comply with this section, an offence is committed
by—
(a)
the company, and
(b)
every officer of the company who is in default.
(6)
A person guilty of an offence under this section is liable on summary
40
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 2 on the standard scale.

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(7)
This section does not apply—
(a)
in relation to an allotment or transfer of shares if the company
has issued a share warrant in respect of the shares (under
section 188);
(b)
in relation to the transmission of shares by operation of law.”.
5
(3)
Subsection (2) has effect in relation to allotments and transfers of shares and
debentures that take effect after this section comes into force.
584
Share certificates and share warrants
In section 185 of the Companies Act 1985 (c. 6) (duty of company as to issue of
certificates), after subsection (2) insert—
10
“(2A)
Subsection (1) does not apply in relation to an allotment or transfer of
shares if, following the allotment or transfer, the company has issued a
share warrant in respect of the shares (under section 188).
(2B)
A company must, within two months of the surrender of a share
warrant for cancellation, complete and have ready for delivery the
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certificates of the shares specified in the warrant (unless its articles
provide otherwise).”.
Distributions
585
Distributions in kind
(1)
Part 8 of the Companies Act 1985 (distributions) is amended as follows.
20
(2)
After section 275 insert—
“Distributions in kind
275A
Distribution in kind arising on disposition of non-cash asset at an
undervalue: determination of amount
(1)
This section applies for the purpose of determining the amount of any
25
distribution arising from the sale, transfer or other disposition by a
company of a non-cash asset.
(2)
If the conditions in subsection (3) are met, the amount of the
distribution is—
(a)
in a case in which the book value of the asset exceeds the
30
amount or value of the consideration for the disposition, the
amount of the excess, and
(b)
in any other case, zero.
(3)
The conditions are—
(a)
that, at the time of the disposition of the asset, the company has
35
profits available for distribution, and
(b)
that, if the amount of the distribution were determined in
accordance with subsection (2), the company could make the
distribution without contravening—
(i)
section 263 (general limit on distributions), or
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(ii)
section 264 (restriction on distribution of assets by
public companies).
(4)
For the purposes of subsection (3)(a) the company’s profits available
for distribution are treated as increased by the amount, if any, by which
the amount or value of the consideration for the disposition exceeds the
5
book value of the asset.
(5)
If the conditions in subsection (3) are not met, the amount of the
distribution is the amount by which the market value of the asset as at
the date of the disposition exceeds the amount or value of the
consideration for the disposition.
10
(6)
In this section “book value”, in relation to an asset, means—
(a)
the amount at which the asset is stated in the accounts relevant
for the purposes of the distribution in accordance with sections
270 to 275, or
(b)
where the asset is not stated in those accounts at any amount,
15
zero.
(7)
The provisions of sections 270 to 275 (distribution to be justified by
reference to company’s accounts) have effect subject to this section.”.
(3)
In section 276 (distributions in kind)—
(a)
at the end of the heading insert “: treatment of unrealised profits”, and
20
(b)
for “of or including” substitute “arising from the sale, transfer or other
disposition by it of”.
(4)
After section 280 insert—
(5)

“280A
Application of rules of law restricting distribution
25
(1)
Except as provided in this section, the provisions of this Part are
without prejudice to any rule of law restricting the sums out of which,
or the cases in which, a distribution may be made.
(2)
For the purposes of any rule of law requiring distributions to be paid
out of profits or restricting the return of capital to members—
30
(a)
the amount of any distribution or return of capital arising from
the sale, transfer or other disposition by a company of a non-
cash asset must be determined in accordance with section 275A
(distributions in kind: determination of amount); and
(b)
section 276 (distributions in kind: treatment of unrealised
35
profits) applies as it applies for the purposes of this Part.
(3)
In this section references to distributions are to amounts regarded as
distributions for the purposes of any such rule of law as is referred to in
subsection (1).”.
(6)
In section 281 (saving for other restraints on distribution), omit “or rule of law”.
40