Company Law Reform Bill [HL] (278-282)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (278-282)

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 3 — Allotment of equity securities: existing shareholders’ right of pre-emption
278

Disapplication of pre-emption rights
583
Disapplication of pre-emption rights: private company with only one class of
shares
(1)
The directors of a private company that has only one class of shares may be
given power by the articles, or by a special resolution of the company, to allot
5
equity securities of that class as if section 575 (existing shareholders’ right of
pre-emption)—
(a)
did not apply to the allotment, or
(b)
applied to the allotment with such modifications as the directors may
determine.
10
(2)
Where the directors make an allotment under this section, the provisions of this
Chapter have effect accordingly.
584
Disapplication of pre-emption rights: directors acting under general
authorisation
(1)
Where the directors of a company are generally authorised for the purposes of
15
section 565 (power of directors to allot shares etc: authorisation by company),
they may be given power by the articles, or by a special resolution of the
company, to allot equity securities pursuant to that authorisation as if section
575 (existing shareholders’ right of pre-emption)—
(a)
did not apply to the allotment, or
20
(b)
applied to the allotment with such modifications as the directors may
determine.
(2)
Where the directors make an allotment under this section, the provisions of this
Chapter have effect accordingly.
(3)
The power conferred by this section ceases to have effect when the
25
authorisation to which it relates—
(a)
is revoked, or
(b)
would (if not renewed) expire.

But if the authorisation is renewed the power may also be renewed, for a
period not longer than that for which the authorisation is renewed, by a special
30
resolution of the company.
(4)
Notwithstanding that the power conferred by this section has expired, the
directors may allot equity securities in pursuance of an offer or agreement
previously made by the company if the power enabled the company to make
an offer or agreement that would or might require equity securities to be
35
allotted after it expired.
585
Disapplication of pre-emption rights by special resolution
(1)
Where the directors of a company are authorised for the purposes of section
565 (power of directors to allot shares etc: authorisation by company), whether
generally or otherwise, the company may by special resolution resolve that
40
section 575 (existing shareholders’ right of pre-emption)—
(a)
does not apply to a specified allotment of equity securities to be made
pursuant to that authorisation, or

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 3 — Allotment of equity securities: existing shareholders’ right of pre-emption
279

(b)
applies to such an allotment with such modifications as may be
specified in the resolution.
(2)
Where such a resolution is passed the provisions of this Chapter have effect
accordingly.
(3)
A special resolution under this section ceases to have effect when the
5
authorisation to which it relates—
(a)
is revoked or
(b)
would (if not renewed) expire.

But if the authorisation is renewed the resolution may also be renewed, for a
period not longer than that for which the authorisation is renewed, by a special
10
resolution of the company.
(4)
Notwithstanding that any such resolution has expired, the directors may allot
equity securities in pursuance of an offer or agreement previously made by the
company if the resolution enabled the company to make an offer or agreement
that would or might require equity securities to be allotted after it expired.
15
(5)
A special resolution under this section, or a special resolution to renew such a
resolution, must not be proposed unless—
(a)
it is recommended by the directors, and
(b)
the directors have complied with the following provisions.
(6)
Before such a resolution is proposed, the directors must make a written
20
statement setting out—
(a)
their reasons for making the recommendation,
(b)
the amount to be paid to the company in respect of the equity securities
to be allotted, and
(c)
the directors’ justification of that amount.
25
(7)
The directors’ statement must—
(a)
if the resolution is proposed as a written resolution, be sent or
submitted to every eligible member at or before the time at which the
proposed resolution is sent or submitted to him;
(b)
if the resolution is proposed at a general meeting, be circulated to the
30
members entitled to notice of the meeting with that notice.
586
Liability for false statement in directors’ statement
(1)
This section applies in relation to a directors’ statement under section 585
(special resolution disapplying pre-emption rights) that is sent, submitted or
circulated under subsection (7) of that section.
35
(2)
A person who knowingly or recklessly authorises or permits the inclusion of
any matter that is misleading, false or deceptive in a material particular in such
a statement commits an offence.
(3)
A person guilty of an offence under this section is liable—
(a)
on conviction on indictment, to imprisonment for a term not exceeding
40
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);
45

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 3 — Allotment of equity securities: existing shareholders’ right of pre-emption
280

(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).
587
Disapplication of pre-emption rights: sale of treasury shares
(1)
This section applies in relation to a sale of shares that is an allotment of equity
5
securities by virtue of section 574(2)(b) (sale of shares held by company as
treasury shares).
(2)
The directors of a company may be given power by the articles, or by a special
resolution of the company, to allot equity securities as if section 575 (existing
shareholders’ right of pre-emption)—
10
(a)
did not apply to the allotment, or
(b)
applied to the allotment with such modifications as the directors may
determine.
(3)
The provisions of section 584(2) and (4) apply in that case as they apply to a
case within subsection (1) of that section.
15
(4)
The company may by special resolution resolve that section 575—
(a)
shall not apply to a specified allotment of securities, or
(b)
shall apply to the allotment with such modifications as may be
specified in the resolution.
(5)
The provisions of section 585(2) and (4) to (7) apply in that case as they apply
20
to a case within subsection (1) of that section.
Supplementary
588
References to holder of shares in relation to offer
(1)
In this Chapter, in relation to an offer to allot securities required by—
(a)
section 575 (existing shareholders’ right of pre-emption), or
25
(b)
any provision to which section 582 applies (articles conferring
corresponding right),

a reference (however expressed) to the holder of shares of any description is to
whoever was the holder of shares of that description at the close of business on
a date to be specified in the offer.
30
(2)
The specified date must fall within the period of 28 days immediately before
the date of the offer.
589
Saving for other restrictions on offer or allotment
(1)
The provisions of this Chapter are without prejudice to any other enactment by
virtue of which a company is prohibited (whether generally or in specified
35
circumstances) from offering or allotting equity securities to any person.
(2)
Where a company cannot by virtue of such an enactment offer or allot equity
securities to a holder of ordinary shares of the company, those shares are
disregarded for the purposes of section 575 (existing shareholders’ right of pre-
emption), so that—
40
(a)
the person is not treated as a person who holds ordinary shares, and

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 4 — Public companies: allotment where issue not fully subscribed
281

(b)
the shares are not treated as forming part of the ordinary share capital
of the company.
590
Saving for certain older pre-emption requirements
(1)
In the case of a public company the provisions of this Chapter do not apply to
an allotment of equity securities that are subject to a pre-emption requirement
5
in relation to which section 96(1) of the Companies Act 1985 (c. 6) or Article
106(1) of the Companies (Northern Ireland) Order 1986 applied immediately
before the commencement of this Chapter.
(2)
In the case of a private company a pre-emption requirement to which section
96(3) of the Companies Act 1985 or Article 106(3) of the Companies (Northern
10
Ireland) Order 1986, Order applied immediately before the commencement of
this Chapter shall have effect, so long as the company remains a private
company, as if it were contained in the company’s articles.
(3)
A pre-emption requirement to which section 96(4) of the Companies Act 1985
or Article 106(4) of the Companies (Northern Ireland) Order 1986 applied
15
immediately before the commencement of this section shall be treated for the
purposes of this Chapter as if it were contained in the company’s articles.
591
Provisions about pre-emption not applicable to shares taken on formation
The provisions of this Chapter have no application in relation to the taking of
shares by the subscribers to the memorandum on the formation of the
20
company.
Chapter 4
Public companies: allotment where issue not fully subscribed
592
Public companies: allotment where issue not fully subscribed
(1)
No allotment shall be made of shares of a public company offered for
25
subscription unless—
(a)
the issue is subscribed for in full, or
(b)
the offer is made on terms that the shares subscribed for may be
allotted—
(i)
in any event, or
30
(ii)
if specified conditions are met (and those conditions are met).
(2)
If shares are prohibited from being allotted by subsection (1) and 40 days have
elapsed after the first making of the offer, all money received from applicants
for shares must be repaid to them forthwith, without interest.
(3)
If any of the money is not repaid within 48 days after the first making of the
35
offer, the directors of the company are jointly and severally liable to repay it,
with interest at the rate for the time being specified under section 17 of the
Judgments Act 1838 (c. 110) from the expiration of the 48th day.

A director is not so liable if he proves that the default in the repayment of the
money was not due to any misconduct or negligence on his part.
40

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 5 — Payment for shares
282

(4)
This section applies in the case of shares offered as wholly or partly payable
otherwise than in cash as it applies in the case of shares offered for
subscription.
(5)
In that case—
(a)
the references in subsection (1) to subscription shall be construed
5
accordingly;
(b)
references in subsections (2) and (3) to the repayment of money
received from applicants for shares include—
(i)
the return of any other consideration so received (including, if
the case so requires, the release of the applicant from any
10
undertaking), or
(ii)
if it is not reasonably practicable to return the consideration, the
payment of money equal to its value at the time it was so
received;
(c)
references to interest apply accordingly.
15
(6)
Any condition requiring or binding an applicant for shares to waive
compliance with any requirement of this section is void.
593
Public companies: effect of irregular allotment where issue not fully
subscribed
(1)
An allotment made by a public company to an applicant in contravention of
20
section 592 (public companies: allotment where issue not fully subscribed) is
voidable at the instance of the applicant within one month after the date of the
allotment, and not later.
(2)
It is so voidable even if the company is in the course of being wound up.
(3)
A director of a public company who knowingly contravenes, or permits or
25
authorises the contravention of, any provision of section 592 with respect to
allotment is liable to compensate the company and the allottee respectively for
any loss, damages, costs or expenses that the company or allottee may have
sustained or incurred by the contravention.
(4)
Proceedings to recover any such loss, damages, costs or expenses may not be
30
brought more than two years after the date of the allotment.
Chapter 5
Payment for shares
General rules
594
Shares not to be allotted at a discount
35
(1)
A company’s shares must not be allotted at a discount.
(2)
If shares are allotted in contravention of this section, the allottee is liable to pay
the company an amount equal to the amount of the discount, with interest at
the appropriate rate.