House of Commons - Amendments

Company Law Reform Bill [Lords] *- continued*	House of Commons

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Treasury shares

Margaret Hodge

NC228

To move the following Clause:—

‘(1) This section applies where—

(a) a limited company makes a purchase of its own shares in accordance with Chapter (Purchase of own shares),

(b) the purchase is made out of distributable profits, and

(2) For this purpose “qualifying shares” means 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 (c. 8),

(b) are traded on the market known as the Alternative Investment Market established under the rules of London Stock Exchange plc,

(d) are traded on a regulated market.

In paragraph (a) “the official list” has the meaning given in section 103(1) of the Financial Services and Markets Act 2000 (c. 8).

(3) Where this section applies the company may—

(a) hold the shares (or any of them), or

(b) deal with any of them, at any time, in accordance with section (Treasury shares: disposal) or (Treasury shares: cancellation).

(4) Where shares are held by the company, the company must be entered in its register of members as the member holding the shares.

(5) In the Companies Acts references to a company holding shares as treasury shares are to the company holding shares that—

(a) were (or are treated as having been) purchased by it in circumstances in which this section applies, and

(b) have been held by the company continuously since they were so purchased (or treated as purchased).’.

Treasury shares: maximum holdings

Margaret Hodge

NC229

To move the following Clause:—

‘(1) Where a company has shares of only one class, the aggregate nominal value of shares held as treasury shares must not at any time exceed 10% of the nominal value of the issued share capital of the company at that time.

(2) Where the share capital of a company is divided into shares of different classes, the aggregate nominal value of the shares of any class held as treasury shares must not at any time exceed 10% of the nominal value of the issued share capital of the shares of that class at that time.

(3) If subsection (1) or (2) is contravened by a company, the company must dispose of or cancel the excess shares, in accordance with section (Treasury shares: disposal), before the end of the period of twelve months beginning with the date on which that contravention occurs.

The “excess shares” means such number of the shares held by the company as treasury shares at the time in question as resulted in the limit being exceeded.

(4) Where a company purchases qualifying shares out of distributable profits in accordance with section (Treasury shares), a contravention by the company of subsection (1) or (2) above does not render the acquisition void under section (General rule against limited company acquiring its own shares) (general rule against limited company acquiring its own shares).’.

Treasury shares: exercise of rights

Margaret Hodge

NC230

To move the following Clause:—

‘(1) This section applies where shares are held by a company as treasury shares.

(2) The company must not exercise any right in respect of the treasury shares, and any purported exercise of such a right is void.

This applies, in particular, to any right to attend or vote at meetings.

(3) No divided may be paid, and no other distribution (whether in cash or otherwise) of the company’s assets (including any distribution of assets to members on a winding up) may be made to the company, in respect of the treasury shares.

(4) Nothing in this section prevents—

(a) an allotment of shares as fully paid bonus shares in respect of the treasury shares, or

(b) the payment of any amount payable on the redemption of the treasury shares (if they are redeemable shares).

(5) Shares allotted as fully paid bonus shares in respect of the treasury shares are treated as if purchased by the company, at the time they were allotted, in circumstances in which section (Treasury shares)(1) (treasury shares) applied.’.

Treasury shares: disposal

Margaret Hodge

NC231

To move the following Clause:—

‘(1) Where shares are held as treasury shares, the company may at any time—

(a) sell the shares (or any of them) for a cash consideration, or

(b) transfer the shares (or any of them) for the purposes of or pursuant to an employees’ share scheme.

(2) In subsection (1)(a) “cash consideration” means—

(a) cash received by the company, or

(b) a cheque received by the company in good faith that the directors have no reason for suspecting will not be paid, or

(d) an undertaking to pay cash to the company on or before a date not more than 90 days after the date on which the company agrees to sell the shares.

For this purpose “cash” includes foreign currency.

(3) If the company receives a notice under section (Right of offeror to buy out minority shareholder) (takeover offers: right of offeror to buy out minority shareholders) that a person desires to acquire shares held by the company as treasury shares, the company must not sell or transfer the shares to which the notice relates except to that person.’,

Treasury shares: notice of disposal

Margaret Hodge

NC232

To move the following Clause:—

‘(1) Where shares held by a company as treasury shares—

(a) are sold, or

(b) are transferred for the purposes of an employees’ share scheme,

the company must deliver a return to the registrar not later than 28 days after the shares are disposed of.

(2) The return must state with respect to shares of each class disposed of—

(a) the number and nominal value of the shares, and

(b) the date on which they were disposed of.

(3) Particulars of shares disposed of on different dates may be included in a single return.

(4) If default is made in complying with this section an offence is committed by every officer of the company who is in default.

(5) A person guilty of an offence under this section is liable—

(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.’.

Treasury shares: cancellation

Margaret Hodge

NC233

To move the following Clause:—

‘(1) Where shares are held as treasury shares, the company may at any time cancel the shares (or any of them).

(2) If shares held as treasury shares cease to be qualifying shares, the company must forthwith cancel the shares.

(3) For this purpose shares are not to be regarded as ceasing to be qualifying shares by virtue only of—

(a) the suspension of their listing in accordance with the applicable rules in the EEA state in which the shares are officially listed, or

(b) the suspension of their trading in accordance with—

(i) in the case of shares traded on the market known as the Alternative Investment Market, the rules of London Stock Exchange plc, and

(ii) in any other case, the rules of the regulated market on which they are traded.

(4) If company cancels shares held as treasury shares, the amount of the company’s share capital is reduced accordingly by the nominal amount of the shares cancelled.

(5) The directors may take any steps required to enable the company to cancel its shares under this section without complying with the provisions of Chapter (Reduction of share capital) of Part (A company’s share capital) (reduction of share capital).’.

Treasury shares: notice of cancellation

Margaret Hodge

NC234

To move the following Clause:—

‘(1) Where shares held by a company as treasury shares are cancelled, the company must deliver a return to the registrar not later than 28 days after the shares are cancelled.

This does not apply to shares that are cancelled forthwith on their acquisition by the company (see section (Notice to registrar of cancellation of shares)).

(2) The return must state with respect to shares of each class cancelled—

(a) the number and nominal value of the shares, and

(b) the date on which they were cancelled.

(3) Particulars of shares cancelled on different dates may be included in a single return.

(4) The notice must be accompanied by a statement of capital.

(5) The statement of capital must state with respect to the company’s share capital immediately following the cancellation—

(a) the total number of shares of the company,

(b) the aggregate nominal value of those 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 (whether on account of the nominal value of the share or by way of premium).

(6) If default is made in complying with this section an offence is committed by every officer of the company who is in default.

(7) A person guilty of an offence under this section is liable—

(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.’.

Treasury shares: treatment of proceeds of sale

Margaret Hodge

NC235

To move the following Clause:—

‘(1) Where shares held as treasury shares are sold, the proceeds of sale must be dealt with in accordance with this section.

(2) If the proceeds of sale are equal to or less than the purchase price paid by the company for the shares, the proceeds are treated for the purposes of Part (Distributions) (distributions) as a realised profit of the company.

(3) If the proceeds of sale exceed the purchase price paid by the company—

(a) an amount equal to the purchase price paid is treated as a realised profit of the company for the purposes of that Part, and

(b) the excess must be transferred to the company’s share premium account.

(4) For the purposes of this section—

(a) the purchase price paid by the company must be determined by the application of a weighted average price method, and

(b) if the shares were allotted to the company as fully paid bonus shares, the purchase price paid for them is treated as nil.’.

Treasury shares: offences

Margaret Hodge

NC236

To move the following Clause:—

‘(1) If a company contravenes any of the provisions of this Chapter (except section (Treasury shares: notice of cancellation) (notice of cancellation)), an offence is committed by—

(a) the company, and

(b) every officer of the company who is in default.

(2) A person guilty of an offence under this section is liable—

(a) on conviction on indictment, to a fine;

(b) on summary conviction to a fine not exceeding the statutory maximum.’.

The capital redemption reserve

Margaret Hodge

NC237

To move the following Clause:—

‘(1) Where under this Part shares of a limited company are redeemed or purchased wholly out of the company’s profits, the amount by which the company’s issued share capital is diminished—

(a) on cancellation of the shares redeemed or purchased (see section (Redeemed shares treated as cancelled) or (Treatment of shares purchased)(3)), or

(b) on cancellation of shares held as treasury shares (see section (Treasury shares: cancellation),

must be transferred to a reserve, called the “capital redemption reserve”.

(2) Where—

(a) the shares are redeemed or purchased wholly or partly out of the proceeds of a fresh issue, and

(b) the aggregate amount of the proceeds is less than the aggregate nominal value of the shares redeemed or purchased,

the amount of the difference must be transferred to the capital redemption reserve.

(3) Subsection (2) does not apply in the case of a private company if, in addition to the proceeds of the fresh issue, the company applies a payment out of capital under Chapter (Redemption or purchase by private company out of capital) in making the purchase of shares.

(4) The company may use the capital redemption reserve to pay up new shares to be allotted to members as fully paid bonus shares.

(5) Subject to that, the provisions of the Companies Acts relating to the reduction of a company’s share capital apply as if the capital redemption reserve were part of its paid up share capital.’.

Accounting consequences of payment out of capital

Margaret Hodge

NC238

To move the following Clause:—

‘(1) This section applies where a payment out of capital is made in accordance with Chapter (Redemption or purchase by private company out of capital) (redemption or purchase of own shares by private company out of capital).

(2) If the permissible capital payment is less than the nominal amount of the shares redeemed or purchased, the amount of the difference must be transferred to the company’s capital redemption reserve.

(3) If the permissible capital payment is greater than the nominal amount of the shares redeemed or purchased—

(a) the amount of any capital redemption reserve, share premium account or fully paid share capital of the company, and

(b) any amount representing unrealised profits of the company for the time being standing to the credit of any revaluation reserve maintained by the company,

may be reduced by a sum not exceeding (or by sums not in total exceeding) the amount by which the permissible capital payment exceeds the nominal amount of the shares.

(4) Where the proceeds of a fresh issue are applied by the company in making a redemption or purchase of its own shares in addition to a payment out of capital under this Chapter, the references in subsections (2) and (3) to the permissible capital payment are to be read as referring to the aggregate of that payment and those proceeds.’.

Effect of company’s failure to redeem or purchase

Margaret Hodge

NC239

To move the following Clause:—

‘(1) This section applies where a company—

(a) issues shares on terms that they are or are liable to be redeemed, or

(b) agrees to purchase any of its shares.

(2) The company is not liable in damages in respect of any failure on its part to redeem or purchase any of the shares.

This is without prejudice to any right of the holder of the shares other than his right to sue the company for damages in respect of its failure.

(3) The court shall not grant an order for specific performance of the terms of redemption or purchase if the company shows that it is unable to meet the costs of redeeming or purchasing the shares in question out of distributable profits.

(4) If the company is wound up and at the commencement of the winding up any of the shares have not been redeemed or purchased, the terms of redemption or purchase may be enforced against the company.

When shares are redeemed or purchased under this subsection, they are treated as cancelled.

(5) Subsection (4) does not apply if—

(a) the terms provided for the redemption or purchase to take place at a date later than that of the commencement of the winding up, or

(b) during the period—

(i) beginning with the date on which the redemption or purchase was to have taken place, and

(ii) ending with the commencement of the winding up,

the company could not at any time have lawfully made a distribution equal in value to the price at which the shares were to have been redeemed or purchased.

(6) There shall be paid in priority to any amount that the company is liable under subsection (4) to pay in respect of any shares—

(a) all other debts and liabilities of the company (other than any due to members in their character as such), and

(b) if other shares carry rights (whether as to capital or as to income) that are preferred to the rights as to capital attaching to the first-mentioned shares, any amount due in satisfaction of those preferred rights.

Subject to that, any such amount shall be paid in priority to any amounts due to members in satisfaction of their rights (whether as to capital or income) as members.’.

Meaning of “distributable profits”

Margaret Hodge

NC240

To move the following Clause:—

‘In this Part (except in Chapter (Financial assistance for purchase of own shares) (financial assistance): see section (Definitions for this Chapter) “distributable profits”, in relation to the making of any payment by a company, means profits out of which the company could lawfully make a distribution (within the meaning given by section (Distributions to be made only out of profits available for the purpose)) equal in value to the payment.’.

General power to make further provision by regulations

Margaret Hodge

NC241

To move the following Clause:—

‘(1) The Secretary of State may by regulations modify the provisions of this Part.

(2) The regulations may—

(a) amend or repeal any of the provisions of this Part, or

(b) make such other provision as appears to the Secretary of State appropriate in place of any of the provisions of this Part.

(3) Regulations under this section may make consequential amendments or repeals in other provisions of this Act, or in other enactments.

(4) Regulations under this section are subject to affirmative resolution procedure.’.

Meaning of “debenture”

Margaret Hodge

NC242

To move the following Clause:—

‘In the Companies Acts “debenture” includes debenture stock, bonds and any other securities of a company, whether or not constituting a charge on the assets of the company.’.

Perpetual debentures

Margaret Hodge

NC243

To move the following Clause:—

‘(1) A condition contained in debentures, or in a deed for securing debentures, is not invalid by reason only that the debentures are thereby made—

(a) irredeemable, or

(b) redeemable only—

(i) on the happening of a contingency (however remote), or

(ii) on the expiration of a period (however long),

any rule of equity to the contrary notwithstanding.

(2) Subsection (1) applies to debentures whenever issued and to deeds whenever executed.’.

Enforcement of contract to subscribe for debentures

Margaret Hodge

NC244

To move the following Clause:—

‘A contract with a company to take up and pay for debentures of the company may by enforced by an order for specific performance.’.

Registration of allotment of debentures

Margaret Hodge

NC245

To move the following Clause:—

‘(1) A company must register an allotment of debentures as soon as practicable and in any event within two months after the date of the allotment.

(2) 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.

(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.

(4) For the duties of the company as to the issue of the debentures, or certificates of debenture stock, see Part 22 (certification and transfer of securities).’.

Prepared: 13 July 2006