sc1902007.472-478

House of Commons

Session 2005 - 06
Internet Publications
Other Bills before Parliament

S.C.D.  Standing Committee Proceedings: 20th July 2006
472

Company Law Reform Bill–[ [], continued

(b)
in a case within subsection (1)(b), no such purchase following the

variation may be made under this Chapter;

(c)
in a case within subsection (1)(c), the purported release is void.’.

Treatment of shares purchased

Margaret Hodge

Added  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

Added  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.

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Company Law Reform Bill–[ [], continued

(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

Added  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,

(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

(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

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

Added  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

Added  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

Added  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)).

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

(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

Added  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;

(c)
share capital and reserves (including undistributable reserves).

(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).

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

(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

Added  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

Added  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,

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Company Law Reform Bill–[ [], continued


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

Added  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).’,

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Company Law Reform Bill–[ [], continued

Payment to be approved by special resolution

Margaret Hodge

Added  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

Added  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.’.