House of Commons - Amendments

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

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Authority for market purchase

Margaret Hodge

NC205

To move the following Clause:—

‘(1) A company may only make a market purchase of its own shares if the purchase has first been authorised by a resolution of the company.

(2) That authority—

(a) may be general or limited to the purchase of shares of a particular class or description, and

(b) may be unconditional or subject to conditions.

(3) The authority must—

(a) specify the maximum number of shares authorised to be acquired, and

(b) determine both the maximum and minimum prices that may be paid for the shares.

(4) The authority may be varied, revoked or from time to time renewed by a resolution of the company.

(5) A resolution conferring, varying or renewing authority must specify a date on which it is to expire, which must not be later than 18 months after the date on which the resolution is passed.

(6) A company may make a purchase of its own shares after the expiry of the time limit specified if—

(a) the contract of purchase was concluded before the authority expired, and

(b) the terms of the authority permitted the company to make a contract of purchase that would or might be executed wholly or partly after its expiration.

(7) A resolution to confer or vary authority under this section may determine either or both the maximum and minimum price for purchase by—

(a) specifying a particular sum, or

(b) providing a basis or formula for calculating the amount of the price (but without reference to any person’s discretion or opinion).’.

Copy of contract or memorandum to be available for inspection

Margaret Hodge

NC206

To move the following Clause:—

‘(1) This section applies where a company has entered into—

(a) a contract approved under section (Authority for off-market purchase) (authorisation of contract for off-market purchase), or

(b) a contract for a purchase authorised under section (Authority for market purchase) (authorisation of market purchase).

(2) The 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 its terms.

(3) The copy or memorandum must be kept available for inspection from the conclusion of the contract until the end of the period of ten years beginning with—

(a) the date on which the purchase of all the shares in pursuance of the contract is completed or,

(b) the date on which the contract otherwise determines.

(4) Every copy or memorandum required to be kept under this section must be kept open to inspection without charge—

(a) by any member of the company, and

(b) in the case of a public company, by any other person.

(5) The provisions of this section apply to a variation of a contract as they apply to the original contract.’.

Enforcement of right to inspect copy or memorandum

Margaret Hodge

NC207

To move the following Clause:—

‘(1) If default is made in complying with section (Copy of contract or memorandum to be available for inspection)(2) or (3), or an inspection required under section (Copy of contract or memorandum to be available for inspection)(4) is refused, an offence is committed by every officer of the company who is in default.

(2) 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.

(3) In the case of refusal of an inspection required under section (Copy of contract or memorandum to be available for inspection)(4) the court may by order compel an immediate inspection.’.

No assignment of company’s right to purchase own shares

Margaret Hodge

NC208

To move the following Clause:—

‘The rights of a company under a contract authorised under—

(a) section (Authority for off-market purchase) (authority for off-market purchase), or

(b) section (Authority for market purchase) (authority for market purchase)

are not capable of being assigned.’.

Payments apart from purchase price to be made out of distributable profits

Margaret Hodge

NC209

To move the following Clause:—

‘(1) A payment made by a company in consideration of—

(a) acquiring any right with respect to the purchase of its own shares in pursuance of a contingent purchase contract approved under section (Authority for off-market purchase) (authorisation of off-market purchase),

(b) the variation of any contract approved under that section, or

(c) the release of any of the company’s obligations with respect to the purchase of any of its own shares under a contract—

(i) approved under section (Authority for off-market purchase), or

(ii) authorised under section (Authority for market purchase) (authorisation of market purchase),

must be made out of the company’s distributable profits.

(2) If this requirement is not met in relation to a contract, then—

(a) in a case within subsection (1)(a), no purchase by the company of its own shares in pursuance of that contract may be made under this Chapter;

(b) in a case within subsection (1)(b), no such purchase following the variation may be made under this Chapter;

Treatment of shares purchased

Margaret Hodge

NC210

To move the following Clause:—

‘Where a limited company makes a purchase of its own shares in accordance with this Chapter, then—

(a) if section (Treasury shares) (treasury shares) applies, the shares may be held and dealt with in accordance with Chapter (Treasury shares) of this Part;

(b) if that section does not apply—

(i) the shares are treated as cancelled, and

(ii) the amount of the company’s issued share capital is diminished accordingly by the nominal value of the shares cancelled.’.

Return to registrar of purchase of own shares

Margaret Hodge

NC211

To move the following Clause:—

‘(1) Where a company purchases shares under this Chapter, it must deliver a return to the registrar within the period of 28 days beginning with the date on which the shares are delivered to it.

(2) The return must distinguish—

(a) shares in relation to which section (Treasury shares) (treasury shares) applies and shares in relation to which that section does not apply, and

(b) shares in relation to which that section applies—

(i) that are cancelled forthwith (under section (Treasury shares: cancellation) (cancellation of treasury shares)), and

(ii) that are not so cancelled.

(3) The return must state, with respect to shares of each class purchased—

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

(b) the date on which they were delivered to the company.

(4) In the case of a public company the return must also state—

(a) the aggregate amount paid by the company for the shares, and

(b) the maximum and minimum prices paid in respect of shares of each class purchased.

(5) Particulars of shares delivered to the company on different dates and under different contracts may be included in a single return.

In such a case the amount required to be stated under subsection (4)(a) is the aggregate amount paid by the company for all the shares to which the return relates.

(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.’.

Notice to registrar of cancellation of shares

Margaret Hodge

NC212

To move the following Clause:—

‘(1) If on the purchase by a company of any of its own shares in accordance with this Part—

(a) section (Treasury shares) (treasury shares) does not apply (so that the shares are treated as cancelled), or

(b) that section applies but the shares are cancelled forthwith (under section (Treasury shares: cancellation) (cancellation of treasury shares)),

the company must give notice of cancellation to the registrar, within the period of 28 days beginning with the date on which the shares are delivered to it, specifying the shares cancelled.

(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 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).

(4) If default is made in complying 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 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.’.

Power of private limited company to redeem or purchase own shares out of capital

Margaret Hodge

NC213

To move the following Clause:—

‘(1) A private limited company may in accordance with this Chapter, but 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.

(2) References below in this Chapter to payment out of capital are to any payment so made, whether or not it would be regarded apart from this section as a payment out of capital.’.

The permissible capital payment

Margaret Hodge

NC214

To move the following Clause:—

‘(1) The payment that may, in accordance with this Chapter, be made by a company out of capital in respect of the redemption or purchase of its own shares is such amount as, after applying for that purpose—

(a) any available profits of the company, and

(b) the proceeds of any fresh issue of shares made for the purposes of the redemption or purchase,

is required to meet the price of redemption or purchase.

(2) That is referred to below in this Chapter as “the permissible capital payment” for the shares.’.

Available profits

Margaret Hodge

NC215

To move the following Clause:—

‘(1) For the purposes of this Chapter the available profits of the company, in relation to the redemption or purchase of any shares, are the profits of the company that are available for distribution (within the meaning of Part (Distributions)).

(2) But the question whether a company has any profits so available, and the amount of any such profits, shall be determined in accordance with section (Determination of available profits) instead of in accordance with sections (Justification of distribution by reference to relevant accounts) to (Determination of profit or loss in respect of asset where records incomplete) in that Part.’.

Determination of available profits

Margaret Hodge

NC216

To move the following Clause:—

‘(1) The available profits of the company are determined as follows.

(2) First, determine the profits of the company by reference to the following items as stated in the relevant accounts—

(a) profits, losses, assets and liabilities,

(b) provisions of the following kinds—

(i) where the relevant accounts are Companies Act accounts, provisions of a kind specified for the purposes of this subsection by regulations under section 378;

(ii) where the relevant accounts are IAS accounts, provisions of any kind;

(3) Second, reduce the amount so determined by the amount of—

(a) any distribution lawfully made by the company, and

(b) any other relevant payment lawfully made by the company out of distributable profits,

after the date of the relevant accounts and before the end of the relevant period.

(4) For this purpose “other relevant payment lawfully made” includes—

(a) financial assistance lawfully given out of distributable profits in accordance with Chapter (Financial assistance for acquisition of own shares) of this Part,

(b) payments lawfully made out of distributable profits in respect of the purchase by the company of any shares in the company, and

(c) payments of any description specified in section (Payments apart from purchase price to be made out of distributable profits) (payments other than purchase price to be made out of distributable profits) lawfully made by the company.

(5) The resulting figure is the amount of available profits.

(6) For the purposes of this section “the relevant accounts” are any accounts that—

(a) are prepared as at a date within the relevant period, and

(b) are such as to enable a reasonable judgment to be made as to the amounts of the items mentioned in subsection (2).

(7) In this section “the relevant period” means the period of three months ending with the date on which the directors’ statement is made in accordance with section (Directors’ statement and auditor’s report).’.

Requirements for payment out of capital

Margaret Hodge

NC217

To move the following Clause:—

‘(1) A payment out of capital by a private company for the redemption or purchase of its own shares is not lawful unless the requirements of the following sections are met—

section (Directors’ statement and auditor’s report) (directors’ statement and auditor’s report);

section (Approval by special resolution) (approval by special resolution);

section (Public notice of proposed payment) (public notice of proposed payment);

section (Directors’ statement and auditor’s report to be available for inspection) (directors’ statement and auditor’s report to be available for inspection)

(2) This is subject to any order of the court under section (Application to court to cancel resolution) (power of court to extend period for compliance on application by persons objecting to payment).’.

Directors’ statement and auditor’s report

Margaret Hodge

NC218

To move the following Clause:—

‘(1) The company’s directors must make a statement in accordance with this section.

(2) The statement must specify the amount of the permissible capital payment for the shares in question.

(3) It must state that, having made full inquiry into the affairs and prospects of the company, the directors have formed the opinion—

(a) as regards its initial situation immediately following the date on which the payment out of capital is proposed to be made, that there will be no grounds on which the company could then be found unable to pay its debts, and

(b) as regards its prospects for the year immediately following that date, that having regard to—

(i) their intentions with respect to the management of the company business during that year, and

(ii) the amount and character of the financial resources that will in their view be available to the company during that year,

the company will be able to continue to carry on business as a going concern (and will accordingly be able to pay its debts as they fall due) throughout that year.

(4) In forming their opinion for the purposes of subsection (3)(a), the directors must take into account all of the company’s liabilities (including any contingent or prospective liabilities).

(5) The directors’ statement must be in the prescribed form and must contain such information with respect to the nature of the company’s business as may be prescribed.

(6) It must in addition have annexed to it a report addressed to the directors by the company’s auditor stating that—

(a) he has inquired into the company’s state of affairs,

(b) the amount specified in the statement as the permissible capital payment for the shares in question is in his view properly determined in accordance with sections (The permissible capital payment) to (Determination of available profits), and

(c) he is not aware of anything to indicate that the opinion expressed by the directors in their statement as to any of the matters mentioned in subsection (3) above is unreasonable in all the circumstances.’.

Directors’ statement: offence if no reasonable grounds for opinion

Margaret Hodge

NC219

To move the following Clause:—

‘(1) If the directors make a statement under section (Directors’ statement and auditor’s report) without having reasonable grounds for the opinion expressed in it, an offence is committed by every director who is in default.

(2) 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 exceeding twelve months or 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 a fine not exceeding the statutory maximum (or both).’,

Payment to be approved by special resolution

Margaret Hodge

NC220

To move the following Clause:—

‘(1) The payment out of capital must be approved by a special resolution of the company.

(2) The resolution must be passed on, or within the week immediately following, the date on which the directors make the statement required by section (Directors’ statement and auditor’s report).

(3) A resolution under this section is subject to—

section (Resolution authorising payment: exercise of voting rights) (exercise of voting rights), and

section (Resolution authorising payment: disclosure of directors’ statement and auditor’s report) (disclosure of directors’ statement and auditors’ report).’.

Resolution authorising payment: exercise of voting rights

Margaret Hodge

NC221

To move the following Clause:—

‘(1) This section applies to a resolution under section (Payment to be approved by special resolution) (authority for payment out of capital for redemption or purchase of own shares).

(2) Where the resolution is proposed as a written resolution, a member who holds shares to which the resolution relates is not an eligible member.

(3) Where the resolution is proposed at a meeting of the company, it is not effective if—

(a) any member of the company holding shares to which the resolution relates exercises the voting rights carried by any of those shares in voting on the resolution, and

(b) the resolution would not have been passed if he had not done so.

(4) For this purpose—

(a) a member who holds shares to which the resolution relates is regarded as exercising the voting rights carried by those shares not only if he votes in respect of them on a poll on the question whether the resolution shall be passed, but also if he votes on the resolution otherwise than on a poll;

(b) notwithstanding anything in the company’s articles, any member of the company may demand a poll on that question;

(c) a vote and a demand for a poll by a person as proxy for a member are the same respectively as a vote and a demand by the member.’.

Prepared: 20 July 2006