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S.C.D.  Standing Committee Proceedings: 20th July 2006            

402

 

Company Law Reform Bill[ [], continued

 
 

Meaning of payment in cash

 

Margaret Hodge

 

Added  NC88

 

To move the following Clause:—

 

‘(1)    

The following provisions have effect for the purposes of the Companies Acts.

 

(2)    

A share in a company is deemed paid up (as to its nominal value or any premium

 

on it) in cash, or allotted for cash, if the consideration received for the allotment

 

or payment up is—

 

(a)    

cash received by the company,

 

(b)    

a cheque reeived by the company in good faith that the directors have no

 

reason for suspecting will not be paid,

 

(c)    

a release of a liability of the company for a liquidated sum, or

 

(d)    

an undertaking to pay cash to the company at a future date.

 

(3)    

In relation to the allotment or payment up of shares in a company—

 

(a)    

the payment of cash to a person other than the company, or

 

(b)    

an undertaking to pay cash to a person other than the company,

 

    

counts as consideration other than cash.

 

    

This does not apply for the purposes of Chapter (allotment of equity securities:

 

existing shareholders’ right of pre-emption) (allotment of equity securities:

 

existing shareholders’ right of pre-emption).

 

(4)    

For the purpose of determining whether a share is or is to be allotted for cash, or

 

paid up in cash, “cash includes foreign currency.’.

 


 

Public companies: shares taken by subscribers of memorandum

 

Margaret Hodge

 

Added  NC89

 

To move the following Clause:—

 

‘Shares taken by a subscriber to the memorandum of a public company in

 

pursuance of an undertaking of his in the memorandum, and any premium on the

 

shares, must be paid up in cash.’.

 


 

Public companies: must not accept undertaking to do work or perform services

 

Margaret Hodge

 

Added  NC90

 

To move the following Clause:—

 

‘(1)    

A public company must not accept at any time, in payment up of its shares or any

 

premium on them, an undertaking given by any person that he or another should

 

do work or perform services for the company or any other person.


 
 

S.C.D.  Standing Committee Proceedings: 20th July 2006            

403

 

Company Law Reform Bill[ [], continued

 
 

(2)    

If a public company accepts such an undertaking in payment up of its shares or

 

any premium on them, the holder of the shares when they or the premium are

 

treated as paid up (in whole or in part) by the undertaking is liable—

 

(a)    

to pay the company in respect of those shares an amount equal to their

 

nominal value, together with the whole of any premium or, if the case so

 

requires, such proportion of that amount as is treated as paid up by the

 

undertaking; and

 

(b)    

to pay interest at the appropriate rate on the amount payable under

 

paragraph (a).

 

(3)    

The reference in subsection (2) to the holder of shares includes a person who has

 

an unconditional right—

 

(a)    

to be included in the company’s register of members in respect of those

 

shares, or

 

(b)    

to have an instrument of transfer of them executed in his favour.’.

 


 

Public companies: shares must be at least one-quarter paid up

 

Margaret Hodge

 

Added  NC91

 

To move the following Clause:—

 

‘(1)    

A public company must not allot a share except as paid up at least as to one-

 

quarter of its nominal value and the whole of any premium on it.

 

(2)    

This does not apply to shares allotted in pursuance of an employees’ share

 

scheme.

 

(3)    

If a company allots a share in contravention of this section—

 

(a)    

the share is to be treated as if one-quarter of its nominal value, together

 

with the whole of any premium on it, had been received, and

 

(b)    

the allottee is liable to pay the company the minimum amount which

 

should have been received in respect of the share under subsection (1)

 

(less the value of any consideration actually applied in payment up, to

 

any extent, of the share and any premium on it), with interest at the

 

appropriate rate.

 

(4)    

Subsection (3) does not apply to the allotment of bonus shares, unless the allottee

 

knew or ought to have known the shares were allotted in contravention of this

 

section.’.

 


 

Public companies: payment by long-term undertaking

 

Margaret Hodge

 

Added  NC92

 

To move the following Clause:—

 

‘(1)    

A public company must not allot shares as fully or partly paid up (as to their

 

nominal value or any premium on them) otherwise than in cash if the


 
 

S.C.D.  Standing Committee Proceedings: 20th July 2006            

404

 

Company Law Reform Bill[ [], continued

 
 

consideration for the allotment is or includes an undertaking which is to be, or

 

may be, performed more than five years after the date of the allotment.

 

(2)    

If a company allots shares in contravention of subsection (1), the allottee is liable

 

to pay the company an amount equal to the aggregate of their nominal value and

 

the whole of any premium (or, if the case so requires, so much of that aggregate

 

as is treated as paid up by the undertaking), with interest at the appropriate rate.

 

(3)    

Where a contract for the allotment of shares does not contravene subsection (1),

 

any variation of the contract that has the effect that the contract would have

 

contravened the subsection, if the terms of the contract as varied had been its

 

original terms, is void.

 

    

This applies also to the variation by a public company of the terms of a contract

 

entered into before the company was re-registered as a public company.

 

(4)    

Where—

 

(a)    

a public company allots shares for a consideration which consists of or

 

includes (in accordance with subsection (1)) an undertaking that is to be

 

performed within five years of the allotment, and

 

(b)    

the undertaking is not performed within the period allowed by the

 

contract for the allotment of the shares,

 

    

the allottee is liable to pay the company, at the end of the period so allowed, an

 

amount equal to the aggregate of the nominal value of the shares and the whole

 

of any premium (or, if the case so requires, so much of that aggregate as is treated

 

as paid up by the undertaking), with interest at the appropriate rate.

 

(5)    

References in this section to a contract for the allotment of shares include an

 

ancillary contract relating to payment in respect of them.’.

 


 

Liability of subsequent holders of shares

 

Margaret Hodge

 

Added  NC93

 

To move the following Clause:—

 

‘(1)    

If a person becomes a holder of shares in respect of which—

 

(a)    

there has been a contravention of any provision of this Chapter, and

 

(b)    

by virtue of that contravention another is liable to pay any amount under

 

the provision contravened,

 

that person is also liable to pay that amount (jointly and severally with any other

 

person so liable), subject as follows.

 

(2)    

A person otherwise liable under subsection (1) is exempted from that liability if

 

either—

 

(a)    

he is a purchaser for value and, at the time of the purchase, he did not

 

have actual notice of the contravention concerned, or

 

(b)    

he derived title to the shares (directly or indirectly) from a person who

 

became a holder of them after the contravention and was not liable under

 

subsection (1).

 

(3)    

References in this section to a holder, in relation to shares in a company, include

 

any person who has an unconditional right—

 

(a)    

to be included in the company’s register of members in respect of those

 

shares, or

 

(b)    

to have an instrument of transfer of the shares executed in his favour.


 
 

S.C.D.  Standing Committee Proceedings: 20th July 2006            

405

 

Company Law Reform Bill[ [], continued

 
 

(4)    

This section applies in relation to a failure to carry out a term of a contract as

 

mentioned in section (Public companies: payment by long-term undertaking)(4)

 

(public companies: payment by long-term undertaking) as they apply in relation

 

to a contravention of a provision of this Chapter.’.

 


 

Power of court to grant relief

 

Margaret Hodge

 

Added  NC94

 

To move the following Clause:—

 

‘(1)    

This section applies in relation to liability under—

 

section (Public companies: must not accept undertaking to do work or

 

perform services)(2) (liability of allottee in case of breach by public

 

company: of prohibition on accepting undertaking to do work or perform

 

services),

 

section (Public companies: payment by long-term undertaking)(2) or (4)

 

(liability of allottee in case of breach by public company of prohibition

 

on payment by long-term undertaking), or

 

section (Liability of subsequent holders of shares) (liability of subsequent

 

holders of shares) as it applies in relation to a contravention of those

 

sections.

 

(2)    

A person who—

 

(a)    

is subject to any such liability to a company in relation to payment in

 

respect of shares in the company, or

 

(b)    

is subject to any such liability to a company by virtue of an undertaking

 

given to it in, or in connection with, payment for shares in the company,

 

may apply to the court to be exempted in whole or in part from the liability.

 

(3)    

In the case of a liability within subsection (2)(a), the court may exempt the

 

applicant from the liability only if and to the extent that it appears to the court just

 

and equitable to do so having regard to—

 

(a)    

whether the applicant has paid, or is liable to pay, any amount in respect

 

of—

 

(i)    

any other liability arising in relation to those shares under any

 

provision of this Chapter, or

 

(ii)    

any liability arising by virtue of any undertaking given in or in

 

connection with payment for those shares;

 

(b)    

whether any person other than the applicant has paid or is likely to pay,

 

whether in pursuance of any order of the court or otherwise, any such

 

amount;

 

(c)    

whether the applicant or any other person—

 

(i)    

has performed in whole or in part, or is likely so to perform any

 

such undertaking, or

 

(ii)    

has done or is likely to do any other thing in payment or part

 

payment for the shares.

 

(4)    

In the case of a liability within subsection (2)(b), the court may exempt the

 

applicant from the liability only if and to the extent that it appears to the court just

 

and equitable to do so having regard to—


 
 

S.C.D.  Standing Committee Proceedings: 20th July 2006            

406

 

Company Law Reform Bill[ [], continued

 
 

(a)    

whether the applicant has paid or is liable to pay any amount in respect

 

of liability arising in relation to the shares under any provision of this

 

Chapter;

 

(b)    

whether any person other than the applicant has paid or is likely to pay,

 

whether in pursuance of any order of the court or otherwise, any such

 

amount.

 

(5)    

In determining whether it should exempt the applicant in whole or in part from

 

any liability, the court must have regard to the following overriding principles—

 

(a)    

a company that has allotted shares should receive money or money’s

 

worth at least equal in value to the aggregate of the nominal value of

 

those shares and the whole of any premium or, if the case so requires, so

 

much of that aggregate as is treated as paid up;

 

(b)    

subject to that, where a company would, if the court did not grant the

 

exemption, have more than one remedy against a particular person, it

 

should be for the company to decide which remedy it should remain

 

entitled to pursue.

 

(6)    

If a person brings proceedings against another (“the contributor”) for a

 

contribution in respect of liability to a company arising under any provision of

 

this Chapter and it appears to the court that the contributor is liable to make such

 

a contribution, the court may, if and to the extent that it appears to it, just and

 

equitable to do so having regard to the respective culpability (in respect of the

 

liability to the company) of the contributor and the person bringing the

 

proceedings—

 

(a)    

exempt the contributor in whole or in part from his liability to make such

 

a contribution, or

 

(b)    

order the contributor to make a larger contribution than, but for this

 

subsection, he would be liable to make.’.

 


 

Penalty for contravention of this Chapter

 

Margaret Hodge

 

Added  NC95

 

To move the following Clause:—

 

‘(1)    

If a company contravenes any of the provisions of this Chapter, 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.’.

 



 
 

S.C.D.  Standing Committee Proceedings: 20th July 2006            

407

 

Company Law Reform Bill[ [], continued

 
 

Enforceability of undertakings to do work etc

 

Margaret Hodge

 

Added  NC96

 

To move the following Clause:—

 

‘(1)    

An undertaking given by any person, in or in connection with payment for shares

 

in a company, to do work or perform services or to do any other thing, if it is

 

enforceable by the company apart from this Chapter, is so enforceable

 

notwithstanding that there has been a contravention in relation to it of a provision

 

of this Chapter.

 

(2)    

This is without prejudice to section (Power of court to grant relief) (power of

 

court to grant relief etc in respect of liabilities).’.

 


 

The appropriate rate of interest

 

Margaret Hodge

 

Added  NC97

 

To move the following Clause:—

 

‘(1)    

For the purposes of this Chapter the “appropriate rate” of interest is 5% per annum

 

or such other rate as may be specified by order made by the Secretary of State.

 

(2)    

An order under this section is subject to negative resolution procedure.’.

 


 

Public company: valuation of non-cash consideration for shares

 

Margaret Hodge

 

Added  NC98

 

To move the following Clause:—

 

‘(1)    

A public company must not allot shares as fully or partly paid up (as to their

 

nominal value or any premium on them) otherwise than in cash unless—

 

(a)    

the consideration for the allotment has been independently valued in

 

accordance with the provisions of this Chapter,

 

(b)    

the valuer’s report has been made to the company during the six months

 

immediately preceding the allotment of the shares, and

 

(c)    

a copy of the report has been sent to the proposed allottee.

 

(2)    

For this purpose the application of an amount standing to the credit of—

 

(a)    

any of a company’s reserve accounts, or

 

(b)    

its profit and loss account,

 

    

in paying up (to any extent) shares allotted to members of the company, or

 

premiums on shares so allotted, does not count as consideration for the allotment.

 

(3)    

If a company allots shares in contravention of subsection (1) and either—

 

(a)    

the allottee has not received the valuer’s report required to be sent to him,

 

or


 
 

S.C.D.  Standing Committee Proceedings: 20th July 2006            

408

 

Company Law Reform Bill[ [], continued

 
 

(b)    

there has been some other contravention of the requirements of this

 

Chapter that the allottee knew or ought to have known amounted to a

 

contravention,

 

    

the allottee is liable to pay the company an amount equal to the aggregate of the

 

nominal value of the shares and the whole of any premium (or, if the case so

 

requires, so much of that aggregate as is treated as paid up by the consideration),

 

with interest at the appropriate rate.

 

(4)    

This section has effect subject to—

 

section (exception to valuation requirement: arrangement with another

 

company) (exception to valuation requirement: arrangement with another

 

company), and

 

section (exception to valuation requirement: merger) (exception to

 

valuation requirement: merger).’.

 


 

Exception to valuation requirement: arrangement with another company

 

Margaret Hodge

 

Added  NC99

 

To move the following Clause:—

 

‘(1)    

Section (Public company: valuation of non-cash consideration for shares)

 

(valuation of non-cash consideration) does not apply to the allotment of shares by

 

a company (“company A”) in connection with an arrangement to which this

 

section applies.

 

(2)    

This section applies to an arrangement for the allotment of shares in company A

 

on terms that the whole or part of the consideration for the shares allotted is to be

 

provided by—

 

(a)    

the transfer to that company, or

 

(b)    

the cancellation,

 

    

of all or some of the shares, or of all or some of the shares of a particular class, in

 

another company (“company B”).

 

(3)    

It is immaterial whether the arrangement provides for the issue to company A of

 

shares, or shares of any particular class, in company B.

 

(4)    

This section applies to an arrangement only if under the arrangement it is open to

 

all the holders of the shares in company B (or, where the arrangement applies only

 

to shares of a particular class, to all the holders of shares of that class) to take part

 

in the arrangement.

 

(5)    

In determining whether that is the case, the following shall be disregarded—

 

(a)    

shares held by or by a nominee of company A;

 

(b)    

shares held by or by a nominee of a company which is—

 

(i)    

the holding company, or a subsidiary, of company A, or

 

(ii)    

a subsidiary of such a holding company;

 

(c)    

shares held as treasury shares by company B.

 

(6)    

In this section—

 

(a)    

“arrangement” means any agreement, scheme or arrangement (including

 

an arrangement sanctioned in accordance with—

 

(i)    

Part (Arrangements and reconstructions) (arrangements and

 

reconstructions), or


 
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