Company Law Reform Bill [HL] (283-289)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (283-289)

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 5 — Payment for shares
283

595
Provision for different amounts to be paid on shares
A company, if so authorised by its articles, may—
(a)
make arrangements on the issue of shares for a difference between the
shareholders in the amounts and times of payment of calls on their
shares;
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(b)
accept from any member the whole or part of the amount remaining
unpaid on any shares held by him, although no part of that amount has
been called up;
(c)
pay dividend in proportion to the amount paid up on each share where
a larger amount is paid up on some shares than on others.
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596
General rule as to means of payment
(1)
Shares allotted by a company, and any premium on them, may be paid up in
money or money’s worth (including goodwill and know-how).
(2)
This section does not prevent a company—
(a)
from allotting bonus shares to its members, or
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(b)
from paying up, with sums available for the purpose, any amounts for
the time being unpaid on any of its shares (whether on account of the
nominal value of the shares or by way of premium).
(3)
This section has effect subject to the following provisions of this Chapter
(additional rules for public companies).
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597
Meaning of payment in cash
(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—
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(a)
cash received by the company,
(b)
a cheque received 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.
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(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 3 (allotment of equity
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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.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 5 — Payment for shares
284

Additional rules for public companies
598
Public companies: shares taken by subscribers of memorandum
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.
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599
Public companies: must not accept undertaking to do work or perform
services
(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.
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(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
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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
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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.
600
Public companies: shares must be at least one-quarter paid up
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(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—
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(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
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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.
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Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 5 — Payment for shares
285

601
Public companies: payment by long-term undertaking
(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
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.
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(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.
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(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
15
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
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(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
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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.
Supplementary provisions
602
Liability of subsequent holders of shares
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(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
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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
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(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—
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Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 5 — Payment for shares
286

(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.
(4)
This section applies in relation to a failure to carry out a term of a contract as
mentioned in section 601(4) (public companies: payment by long-term
5
undertaking) as they apply in relation to a contravention of a provision of this
Chapter.
603
Power of court to grant relief
(1)
This section applies in relation to liability under—
section 599(2) (liability of allottee in case of breach by public company: of
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prohibition on accepting undertaking to do work or perform services),
section 601(2) or (4) (liability of allottee in case of breach by public
company of prohibition on payment by long-term undertaking), or
section 602 (liability of subsequent holders of shares) as it applies in
relation to a contravention of those sections.
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(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,
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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
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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;
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(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
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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
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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 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,
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whether in pursuance of any order of the court or otherwise, any such
amount.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 5 — Payment for shares
287

(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
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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
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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
15
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
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(b)
order the contributor to make a larger contribution than, but for this
subsection, he would be liable to make.
604
Penalty for contravention of this Chapter
(1)
If a company contravenes any of the provisions of this Chapter, an offence is
committed by—
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(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
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maximum.
605
Enforceability of undertakings to do work etc
(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
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notwithstanding that there has been a contravention in relation to it of a
provision of this Chapter.
(2)
This is without prejudice to section 603 (power of court to grant relief etc in
respect of liabilities).
606
The appropriate rate of interest
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(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.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 6 — Public companies: independent valuation of non-cash consideration
288

Chapter 6
Public companies: independent valuation of non-cash consideration
Non-cash consideration for shares
607
Public company: valuation of non-cash consideration for shares
(1)
A public company must not allot shares as fully or partly paid up (as to their
5
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
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(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
15
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
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(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
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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 608 (exception to valuation requirement: arrangement with
another company), and
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section 609 (exception to valuation requirement: merger).
608
Exception to valuation requirement: arrangement with another company
(1)
Section 607 (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.
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(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,
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of all or some of the shares, or of all or some of the shares of a particular class,
in another company (“company B”).

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 6 — Public companies: independent valuation of non-cash consideration
289

(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
5
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
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(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—
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(i)
Part 27 (arrangements and reconstructions), or
(ii)
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 property), and
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(b)
“company”, except in reference to company A, includes any body
corporate.
609
Exception to valuation requirement: merger
(1)
Section 607 (valuation of non-cash consideration) does not apply to the
allotment of shares by a company in connection with a proposed merger with
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another company.
(2)
A proposed merger is where one of the companies proposes to acquire all the
assets and liabilities of the other in exchange for the issue of shares or other
securities of that one to shareholders of the other, with or without any cash
payment to shareholders.
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(3)
In this section “company”, in reference to the other company, includes any
body corporate.
610
Non-cash consideration for shares: requirements as to valuation and report
(1)
The provisions of sections 1116 to 1119 (general provisions as to independent
valuation and report) apply to the valuation and report required by section 607
35
(public company: valuation of non-cash consideration for shares).
(2)
The valuer’s report must state—
(a)
the nominal value of the shares to be wholly or partly paid for by the
consideration in question;
(b)
the amount of any premium payable on the shares;
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(c)
the description of the consideration and, as respects so much of the
consideration as he himself has valued, a description of that part of the
consideration, the method used to value it and the date of the valuation;
(d)
the extent to which the nominal value of the shares and any premium
are to be treated as paid up—
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