sc1902007.458-464

House of Commons

Session 2005 - 06
Internet Publications
Other Bills before Parliament

S.C.D.  Standing Committee Proceedings: 20th July 2006
458

Company Law Reform Bill–[ [], continued

(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 to 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 to a fine not exceeding the statutory

maximum (or both).’.

Unconditional exceptions

Margaret Hodge

Added  NC185

To move the following Clause:—

‘(1)
Neither section (Assistance for acquisition of shares in public company) nor

section (Assistance by public company for acquisition of shares in its private

holding company) prohibits a transaction to which this section applies.

(2)
Those transactions are—

(a)
a distribution of the company’s assets by way of—

(i)
dividend lawfully made, or

(ii)
distribution in the course of a company’s winding up;

(b)
an allotment of bonus shares;

(c)
a reduction of capital under Chapter (Reduction of capital) of Part (A

company’s share capital);

(d)
a redemption of shares under Chapter (Redeemable shares) or a purchase

of shares under Chapter (Purchase of own shares) of this Part;

(e)
anything done in pursuance of an order of the court under Part

(Arrangements and reconstructions) (order sanctioning compromise or

arrangement with members or creditors);

(f)
any thing done under an arrangement made in pursuance of section 110

of the Insolvency Act 1986 (c. 45) or Article 96 of the Insolvency

(Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)) (liquidator in

winding up accepting shares as consideration for sale of company’s

property);

(g)
anything done under an arrangement made between a company and its

creditors that is binding on the creditors by virtue of Part 1 of the

Insolvency Act 1986 (c. 45) or Part 2 of the Insolvency (Northern

Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)).’.

S.C.D.  Standing Committee Proceedings: 20th July 2006
459

Company Law Reform Bill–[ [], continued

Conditional exceptions

Margaret Hodge

Added  Nc186

To move the following Clause:—

‘(1)
Neither section (Assistance for acquisition of shares in public company) nor

section (Assistance by public company for acquisition of shares in its private

holding company) prohibits a transaction to which this section applies—

(a)
in the case of a private company, or

(b)
in the case of a public company if—

(i)
the company has net assets that are not reduced by the giving of

the assistance, or

(ii)
to the extent that those assets are so reduced, the assistance is

provided out of distributable profits.

(2)
The transactions to which this section applies are—

(a)
the lending of money in the ordinary course of the company’s business;

(b)
the provision by the company, in good faith in the interests of the

company, of financial assistance for the purposes of an employees’ share

scheme;

(c)
the provision of financial assistance by a company or any of its

subsidiaries for the purposes of or in connection with anything done by

the company, or a company in the same group, for the purpose of

enabling or facilitating transactions in shares in the first-mentioned

company between, and involving the acquisition of beneficial ownership

of those share by—

(i)
bona fide employees or former employees of that company or of

another company in the same group, or

(ii)
spouses or civil partners, widows, widowers or surviving civil

partners, or minor children or step-children of any such

employees or former employees;

(d)
the making by a company of loans to persons (other than directors)

employed in good faith by the company with a view to enabling those

persons to acquire fully paid shares in the company or its holding

company to be held by them by way of beneficial ownership.

(3)
The references in this section to “net assets” are to the amount by which the

aggregate of the company’s assets exceeds the aggregate of its liabilities.

(4)
For this purpose—

(a)
the amount of both assets and liabilities shall be taken to be as stated in

the company’s accounting records immediately before the financial

assistance is given, and

(b)
“liabilities” includes any amount retained as reasonably necessary for the

purpose of providing for a liability the nature of which is clearly defined

and that is either likely to be incurred or certain to be incurred but

uncertain as to amount or as to the date on which it will arise.

(5)
For the purposes of subsection (2)(c) a company is in the same group as another

company if it is a holding company or subsidiary of that company or a subsidiary

of a holding company of that company.’.

S.C.D.  Standing Committee Proceedings: 20th July 2006
460

Company Law Reform Bill–[ [], continued

Definitions for this Chapter

Margaret Hodge

Added  NC187

To move the following Clause:—

‘(1)
In this Chapter—

“distributable profits”, in relation to the giving of any financial assistance—

(g)
means those profits out of which the company could lawfully

make a distribution equal in value to that assistance, and

(h)
includes, in a case where the financial assistance consists of or

includes, or is treated as arising in consequence of, the sale,

transfer or other disposition of a non-cash asset, any profit that,

if the company were to make a distribution of that character

would be available for that purpose in accordance with section

(Distributions in kind: determination of amount); and

“distribution” has the same meaning as in Part (Distributions)

(distributions) (see section (Meaning of “distribution”)).

(2)
In this Chapter—

(a)
a reference to a person incurring a liability includes his changing his

financial position by making an agreement or arrangement (whether

enforceable or unenforceable, and whether made on his own account or

with any other person) or by any other means, and

(b)
a reference to a company giving financial assistance for the purposes of

reducing or discharging a liability incurred by a person for the purpose of

the acquisition of shares includes its giving such assistance for the

purpose of wholly or partly restoring his financial position to what it was

before the acquisition took place.’.

Power of limited company to issue redeemable shares

Margaret Hodge

Added  NC188

To move the following Clause:—

‘(1)
A limited company having a share capital may issue shares that are to be

redeemed or are liable to be redeemed at the option of the company or the

shareholder (“redeemable shares”), subject to the following provisions.

(2)
The articles of a private limited company may exclude or restrict the issue of

redeemable shares.

(3)
A public limited company may only issue redeemable shares if it is authorised to

do so by its articles.

(4)
No redeemable shares may be issued at a time when there are no issued shares of

the company that are not redeemable.’.

S.C.D.  Standing Committee Proceedings: 20th July 2006
461

Company Law Reform Bill–[ [], continued

Terms and manner of redemption

Margaret Hodge

Added  NC189

To move the following Clause:—

‘(1)
The directors of a limited company may determine the terms, conditions and

manner of redemption of shares if they are authorised to do so—

(a)
by the company’s articles, or

(b)
by a resolution of the company.

(2)
A resolution under subsection (1)(b) may be an ordinary resolution, even though

it amends the company’s articles.

(3)
Where the directors are authorised under subsection (1) to determine the terms,

conditions and manner of redemption of shares—

(a)
they must do so before the shares are allotted, and

(b)
any obligation of the company to state in a statement of capital the rights

attached to the shares extends to the terms, conditions and manner of

redemption.

(4)
Where the directors are not so authorised, the terms, conditions and manner of

redemption of any redeemable shares must be stated in the company’s articles.’.

Payment for redeemable shares

Margaret Hodge

Added  NC190

To move the following Clause:—

‘(1)
Redeemable shares in a limited company may not be redeemed unless they are

fully paid.

(2)
The terms of redemption of shares in a limited company may provide that the

amount payable on redemption may, by agreement between the company and the

holder of the shares, be paid on a date later than the redemption date.

(3)
Unless redeemed in accordance with provision authorised by subsection (2), the

shares must be paid for on redemption.’.

Financing of redemption

Margaret Hodge

Added  NC191

To move the following Clause:—

‘(1)
A private limited company may redeem redeemable shares out of capital in

accordance with Chapter (Redemption or purchase by private company out of

capital) of this Part.

(2)
Subject to that, redeemable shares in a limited company may only be redeemed

out of—

S.C.D.  Standing Committee Proceedings: 20th July 2006
462

Company Law Reform Bill–[ [], continued

(a)
distributable profits of the company, or

(b)
the proceeds of a fresh issue of shares made for the purposes of the

redemption.

(3)
Any premium payable on redemption of shares in a limited company must be paid

out of distributable profits of the company, subject to the following provision.

(4)
If the redeemable shares were issued at a premium, any premium payable on their

redemption may be paid out of the proceeds of a fresh issue of shares made for

the purposes of the redemption, up to an amount equal to—

(a)
the aggregate of the premiums received by the company on the issue of

the shares redeemed, or

(b)
the current amount of the company’s share premium account (including

any sum transferred to that account in respect of premiums on the new

shares),


whichever is the less.

(5)
The amount of the company’s share premium account is reduced by a sum

corresponding (or by sums in the aggregate corresponding) to the amount of any

payment made under subsection (3).

(6)
This section is subject to section (Effect of company’s failure to redeem or

purchase)(4) (terms of redemption enforceable in a winding up).’.

Redeemed shares treated as cancelled

Margaret Hodge

Added  NC192

To move the following Clause:—

‘Where shares in a limited company are redeemed—

(a)
the shares are treated as cancelled, and

(b)
the amount of the company’s issued share capital is diminished

accordingly by the nominal value of the shares redeemed.’.

Notice to registrar of redemption

Margaret Hodge

Added  NC193

To move the following Clause:—

‘(1)
If a limited company redeems any redeemable shares it must within one month

after doing so give notice to the registrar, specifying the shares redeemed.

(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 redemption—

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

(b)
the aggregate nominal value of those shares,

(c)
for each class of shares—

S.C.D.  Standing Committee Proceedings: 20th July 2006
463

Company Law Reform Bill–[ [], continued

(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 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.’.

Power of limited company to purchase own shares

Margaret Hodge

Added  NC194

To move the following Clause:—

‘(1)
A limited company having a share capital may purchase its own shares (including

any redeemable shares), subject to—

(a)
the following provisions of this Chapter, and

(b)
any restriction or prohibition in the company’s articles.

(2)
A limited company may not purchase its own shares if as a result of the purchase

there would no longer be any issued shares of the company other than redeemable

shares or shares held as treasury shares.’.

Payment for purchase of own shares

Margaret Hodge

Added  NC195

To move the following Clause:—

‘(1)
A limited company may not purchase its own shares unless they are fully paid.

(2)
Where a limited company purchases its own shares, the shares must be paid for

on purchase.’.

S.C.D.  Standing Committee Proceedings: 20th July 2006
464

Company Law Reform Bill–[ [], continued

Financing of purchase of own shares

Margaret Hodge

Added  Nc196

To move the following Clause:—

‘(1)
A private limited company may purchase its own shares out of capital in

accordance with Chapter (Redemption or purchase by private company out of

capital) of this Part.

(2)
Subject to that—

(a)
a limited company may only purchase its own shares out of—

(i)
distributable profits of the company, or

(ii)
the proceeds of a fresh issue of shares made for the purpose of

financing the purchase, and

(b)
any premium payable on the purchase by a limited company of its own

shares must be paid out of distributable profits of the company, subject

to subsection (3).

(3)
If the shares to be purchased were issued at a premium, any premium payable on

their purchase by the company may be paid out of the proceeds of a fresh issue of

shares made for the purpose of financing the purchase, up to an amount equal to—

(a)
the aggregate of the premiums received by the company on the issue of

the shares purchased, or

(b)
the current amount of the company’s share premium account (including

any sum transferred to that account in respect of premiums on the new

shares),


whichever is the less.

(4)
The amount of the company’s share premium account is reduced by a sum

corresponding (or by sums in the aggregate corresponding) to the amount of any

payment made under subsection (3).

(5)
This section has effect subject to section (Effect of company’s failure to redeem

or purchase)(4) (terms of purchase enforceable in a winding up).’.

Authority for purchase of own shares

Margaret Hodge

Added  NC197

To move the following Clause:—

‘(1)
A limited company may only purchase its own shares—

(a)
by an off-market purchase, in pursuance of a contract approved in

advance in accordance with section (Authority for off-market purchase);

(b)
by a market purchase, authorised in accordance with section (Authority

for market purchase).

(2)
A purchase is “off-market” if the shares either—

(a)
are purchased otherwise than on a recognised investment exchange, or

(b)
are purchased on a recognised investment exchange but are not subject to

a marketing arrangement on the exchange.

(3)
For this purpose a company’s shares are subject to a marketing arrangement on a

recognised investment exchange if—