sc1902007.444-450

House of Commons

Session 2005 - 06
Internet Publications
Other Bills before Parliament

S.C.D.  Standing Committee Proceedings: 20th July 2006
444

Company Law Reform Bill–[ [], continued

Public companies: duty of directors to call meeting on serious loss of capital

Margaret Hodge

Added  NC160

To move the following Clause:—

‘(1)
Where the net assets of a public company are half or less of its called-up share

capital, the directors must call a general meeting of the company to consider

whether any, and if so what, steps should be taken to deal with the situation.

(2)
They must do so not later than 28 days from the earliest day on which that fact is

known to a director of the company.

(3)
The meeting must be convened for a date not later than 56 days from that day.

(4)
If there is a failure to convene a meeting as required by this section, each of the

directors of the company who—

(a)
knowingly authorises or permits the failure, or

(b)
after the period during which the meeting should have been convened,

knowingly authorises or permits the failure to continue,


commits an offence.

(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.

(6)
Nothing in this section authorises the consideration at a meeting convened in

pursuance of subection (1) of any matter that could not have been considered at

that meeting apart from this section.’.

General power to make further provision by regulations

Margaret Hodge

Added  NC161

To move the following Clause:—

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

Part—

Sections (General prohibition of commissions, discounts and allowances)

and (Permitted commission),

Chapter (Payment for shares) (payment for shares),

Chapter (Public companies: independent valuation of non-cash

consideration) (public companies: independent valuation of non-cash

consideration),

Chapter (Share premiums) (share premiums),

sections (Redenomination of share capital) to (Redenomination reserve)

(redenomination of share capital),

Chapter (Reduction of share capital) (reduction of capital), and

section (Public companies: duty of directors to call meeting on serious loss

of capital) (public companies: duty of directors to call meeting on serious

loss of capital).

(2)
The regulations may—

(a)
amend or repeal any of those provisions, or

S.C.D.  Standing Committee Proceedings: 20th July 2006
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Company Law Reform Bill–[ [], continued

(b)
make such other provision as appears to the Secretary of State

appropriate in place of any of those provisions.

(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.’.

General rule against limited company acquiring its own shares

Margaret Hodge

Added  NC162

To move the following Clause:—

‘(1)
A limited company must not acquire its own shares, whether by purchase,

subscription or otherwise, except in accordance with the provisions of this Part.

(2)
If a company purports to act in contravention of this section—

(a)
an offence is committed by—

(i)
the company, and

(ii)
every officer of the company who is in default, and

(b)
the purported acquisition is void.

(3)
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).’.

Exceptions to general rule

Margaret Hodge

Added  NC163

To move the following Clause:—

‘(1)
A limited company may acquire any of its own fully paid shares otherwise than

for valuable consideration.

(2)
Section (General rule against limited company acquiring its own shares) does not

prohibit—

(a)
the acquisition of shares in a reduction of capital duly made;

(b)
the purchase of shares in pursuance of an order of the court under—

(i)
section 98 (application to court to cancel resolution for re-

registration as a private company),

S.C.D.  Standing Committee Proceedings: 20th July 2006
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Company Law Reform Bill–[ [], continued

(ii)
section (Application to court to cancel resolution)(6) (powers of

court on objection to redemption or purchase of shares out of

capital),

(iii)
section 534 (remedial order in case of breach of prohibition of

public offers by private company), or

(iv)
Part (Protection of members against unfair prejudice)

(protection of members against unfair prejudice);

(c)
the forfeiture of shares, or the acceptance of shares surrendered in lieu, in

pursuance of the company’s articles, for failure to pay any sum payable

in respect of the shares.’.

Treatment of shares held by nominee

Margaret Hodge

Added  NC164

To move the following Clause:—

‘(1)
This section applies where shares in a limited company—

(a)
are taken by a subscriber to the memorandum as nominee of the

company,

(b)
are issued to a nominee of the company, or

(c)
are acquired by a nominee of the company, partly paid up, from a third

person.

(2)
For all purposes—

(a)
the shares are to be treated as held by the nominee on his own account,

and

(b)
the company is to be regarded as having no beneficial interest in them.

(3)
This section does not apply—

(a)
to shares acquired otherwise than by subscription by a nominee of the

public company, where—

(i)
a person acquires shares in the company with financial assistance

given to him, directly or indirectly, by the company for the

purpose of or in connection with the acquisition, and

(ii)
the company has a beneficial interest in the shares;

(b)
to shares acquired by a nominee of the company when the company has

no beneficial interest in the shares.’.

Liability of others where nominee fails to make payment in respect of shares

Margaret Hodge

Added  NC165

To move the following Clause:—

‘(1)
This section applies where shares in a limited company—

S.C.D.  Standing Committee Proceedings: 20th July 2006
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Company Law Reform Bill–[ [], continued

(a)
are taken by a subscriber to the memorandum as nominee of the

company,

(b)
are issued to a nominee of the company, or

(c)
are acquired by a nominee of the company, partly paid up, from a third

person.

(2)
If the nominee, having been called on to pay any amount for the purposes of

paying up, or paying any premium on, the shares, fails to pay that amount within

21 days from being called on to do so, then—

(a)
in the case of shares that he agreed to take as subscriber to the

memorandum, the other subscribers to the memorandum, and

(b)
in any other case, the directors of the company when the shares were

issued to or acquired by him,


are jointly and severally liable with him to pay that amount.

(3)
If in proceedings for the recovery of an amount under subsection (3) it appears to

the court that the subscriber or director—

(a)
has acted honestly and reasonably, and

(b)
having regard to all the circumstances of the case, ought fairly to be

relieved from liability,


the court may relieve him, either wholly or in part, from his liability on such terms

as the court thinks fit.

(4)
If a subscriber to a company’s memorandum or a director of a company has

reason to apprehend that a claim will or might be made for the recovery of any

such amount from him—

(a)
he may apply to the court for relief, and

(b)
the court has the same power to relieve him as it would have had in

proceedings for recovery of that amount.

(5)
This section does not apply to shares acquired by a nominee of the company when

the company has no beneficial interest in the shares.’.

Duty to cancel shares in public company held by or for the company

Margaret Hodge

Added  Nc166

To move the following Clause:—

‘(1)
This section applies in the case of a public company—

(a)
where shares in the company are forfeited, or surrendered to the company

in lieu of forfeiture, in pursuance of the articles, for failure to pay any sum

payable in respect of the shares;

(b)
where shares in the company are surrendered to the company in

pursuance of section 102C(1)(b) of the Building Societies Act 1986

(c. 53);

(c)
where shares in the company are acquired by it (otherwise than in

accordance with this Part) and the company has a beneficial interest in

the shares;

(d)
where a nominee of the company acquires shares in the company from a

third party without financial assistance being given directly or indirectly

by the company and the company has a beneficial interest in the shares;

or

S.C.D.  Standing Committee Proceedings: 20th July 2006
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Company Law Reform Bill–[ [], continued

(e)
where a person acquires shares in the company, with financial assistance

given to him, directly or indirectly, by the company for the purpose of or

in connection with the acquisition, and the company has a beneficial

interest in the shares.

(2)
Unless the shares or any interest of the company in them are previously disposed

of, the company must—

(a)
cancel the shares and diminish the amount of the company’s share capital

by the nominal value of the shares cancelled, and

(b)
where the effect is that the nominal value of the company’s allotted share

capital is brought below the authorised minimum (see section 538), apply

for re-registration as a private company, stating the effect of the

cancellation.

(3)
It must do so no later than—

(a)
in a case within subsection (1)(a) or (b), three years from the date of the

forfeiture or surrender;

(b)
in a case within subsection (1)(c) or (d), three years from the date of the

acquisition;

(c)
in a case within subsection (1)(e), one year from the date of the

acquisition.

(4)
The directors of the company may take any steps necessary to enable the

company to comply with this section, and may do so without complying with the

provisions of Chapter (Reduction of capital) of Part (A company’s share capital).


See also section (Re-registration as private company in consequence of

cancellation) (re-registration as private company in consequence of

cancellation).

(5)
Neither the company nor, in a case within subsection (1)(d) or (e), the nominee or

other shareholder may exercise any voting rights in respect of the shares.

(6)
Any purported exercise of those rights is void.’.

Notice of cancellation of shares

Margaret Hodge

Added  Nc167

To move the following Clause:—

‘(1)
Where a company cancels shares in order to comply with section (Duty to cancel

shares in public company held by or for the company), it must within one month

after the shares are cancelled give notice to the registrar, 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,

(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

(iii)
the aggregate nominal value of shares of that class, and

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Company Law Reform Bill–[ [], continued

(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—

(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.’.

Re-registration as private company in consequence of cancellation

Margaret Hodge

Added  Nc168

To move the following Clause:—

‘(1)
Where a company is obliged to re-register as a private company to comply with

section (Duty to cancel shares in public company held by or for the company), the

directors may resolve that the company should be so re-registered.


Any such resolution is subject to Chapter 3 of Part 3 (resolutions affecting

company’s constitution: copy to be forwarded to the registrar, etc).

(2)
The resolution may make such changes—

(a)
in the company’s name, and

(b)
in the company’s articles,


as are necessary in connection with its becoming a private company.

(3)
The application for re-registration must contain a statement of the company’s

proposed name on re-registration.

(4)
The application must be accompanied by—

(a)
a copy of the resolution (unless a copy has already been forwarded under

Chapter 3 of Part 3),

(b)
a copy of the company’s articles as amended by the resolution, and

(c)
a statement of compliance.

(5)
The statement of compliance required is a statement that the requirements of this

section as to re-registration as a private company have been complied with.

(6)
The registrar may accept the statement of compliance as sufficient evidence that

the company is entitled to be re-registered as a private company.’.

S.C.D.  Standing Committee Proceedings: 20th July 2006
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Company Law Reform Bill–[ [], continued

Issue of certificate of incorporation on re-registration

Margaret Hodge

Added  Nc169

To move the following Clause:—

‘(1)
If on an application under section (Re-registration as private company in

consequence of cancellation) the registrar is satisfied that the company is entitled

to be re-registered as a private company, the company shall be re-registered

accordingly.

(2)
The registrar must issue a certificate of incorporation altered to meet the

circumstances of the case.

(3)
The certificate must state that it is issued on re-registration and the date on which

it is issued.

(4)
On the issue of the certificate—

(a)
the company by virtue of the issue of the certificate becomes a private

company, and

(b)
the changes in the company’s name and articles take effect.

(5)
The certificate is conclusive evidence that the requirements of this Act as to re-

registration have been complied with.’.

Effect of failure to register

Margaret Hodge

Added  NC170

To move the following Clause:—

‘(1)
If a public company that is required by section (Duty to cancel shares in public

company held by or for the company) to apply to be re-registered as a private

company fails to do so before the end of the period specified in subsection (3) of

that section, Chapter 1 of Part 17 (prohibition of public offers by private

company) applies to it as if it were a private company.

(2)
Subject to that, the company continues to be treated as a public company until it

is so registered.’.

Offence in case of failure to cancel shares or re-register

Margaret Hodge

Added  NC171

To move the following Clause:—

‘(1)
This section applies where a company, when required to do by section (Duty to

cancel shares in public company held by or for the company)—

(a)
fails to cancel any shares, or

(b)
fails to make an application for re-registration as a private company,


within the time specified in subsection (3) of that section.