Company Law Reform Bill [HL] (290-296)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (290-296)

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
290

(i)
by the consideration;
(ii)
in cash.
(3)
The valuer’s report must contain or be accompanied by a note by him—
(a)
in the case of a valuation made by a person other than himself, that it
appeared to himself reasonable to arrange for it to be so made or to
5
accept a valuation so made,
(b)
whoever made the valuation that the method of valuation was
reasonable in all the circumstances,
(c)
that it appears to the valuer that there has been no material change in
the value of the consideration in question since the valuation, and
10
(d)
that, on the basis of the valuation, the value of the consideration,
together with any cash by which the nominal value of the shares or any
premium payable on them is to be paid up, is not less than so much of
the aggregate of the nominal value and the whole of any such premium
as is treated as paid up by the consideration and any such cash.
15
(4)
Where the consideration to be valued is accepted partly in payment up of the
nominal value of the shares and any premium and partly for some other
consideration given by the company, section 607 and the preceding provisions
of this section apply as if references to the consideration accepted by the
company included the proportion of that consideration that is properly
20
attributable to the payment up of that value and any premium.
(5)
In such a case—
(a)
the valuer must carry out, or arrange for, such other valuations as will
enable him to determine that proportion, and
(b)
his report must state what valuations have been made under this
25
subsection and also the reason for, and method and date of, any such
valuation and any other matters which may be relevant to that
determination.
611
Copy of report to be delivered to registrar
(1)
A company to which a report is made under section 607 as to the value of any
30
consideration for which, or partly for which, it proposes to allot shares must
deliver a copy of the report to the registrar for registration.
(2)
The copy must be delivered at the same time that the company files the return
of the allotment of those shares under section 569 (return of allotment by
limited company).
35
(3)
If default is made in complying with subsection (1) or (2), an offence is
committed by every officer of the company who is in default.
(4)
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
40
and, for continued contravention, a daily default fine not exceeding
one-tenth of the statutory maximum.
(5)
In the case of default in delivering to the registrar any document as required by
this section, any person liable for the default may apply to the court for relief.
(6)
The court, if satisfied—
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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
291

(a)
that the omission to deliver the document was accidental or due to
inadvertence, or
(b)
that it is just and equitable to grant relief,

may make an order extending the time for delivery of the document for such
period as the court thinks proper.
5
Transfer of non-cash asset in initial period
612
Public company: agreement for transfer of non-cash asset in initial period
(1)
A public company formed as such must not enter into an agreement —
(a)
with a person who is a subscriber to the company’s memorandum,
(b)
for the transfer by him to the company, or another, before the end of the
10
company’s initial period of one or more non-cash assets, and
(c)
under which the consideration for the transfer to be given by the
company is at the time of the agreement equal in value to one-tenth or
more of the company’s issued share capital.

unless the conditions referred to below have been complied with.
15
(2)
The company’s “initial period” means the period of two years beginning with
the date of the company being issued with a certificate under section 774
(trading certificate).
(3)
The conditions are those specified in—
section 613 (requirement of independent valuation), and
20
section 615 (requirement of approval by members).
(4)
This section does not apply where—
(a)
it is part of the company’s ordinary business to acquire, or arrange for
other persons to acquire, assets of a particular description, and
(b)
the agreement is entered into by the company in the ordinary course of
25
that business.
(5)
This section does not apply to an agreement entered into by the company
under the supervision of the court or of an officer authorised by the court for
the purpose.
613
Agreement for transfer of non-cash asset: requirement of independent
30
valuation
(1)
The following conditions must have been complied with—
(a)
the consideration to be received by the company, and any
consideration other than cash to be given by the company, must have
been independently valued in accordance with the provisions of this
35
Chapter,
(b)
the valuer’s report must have been made to the company during the six
months immediately preceding the date of the agreement, and
(c)
a copy of the report must have been sent to the other party to the
proposed agreement not later than the date on which copies have to be
40
circulated to members under section 615(3).
(2)
The reference in subsection (1)(a) to the consideration to be received by the
company is to the asset to be transferred to it or, as the case may be, to the
advantage to the company of the asset’s transfer to another person.

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
292

(3)
The reference in subsection (1)(c) to the other party to the proposed agreement
is to the person referred to in section 612(1)(a).

If he has received a copy of the report under section 615 in his capacity as a
member of the company, it is not necessary to send another copy under this
section.
5
(4)
This section does not affect any requirement to value any consideration for
purposes of section 607 (valuation of non-cash consideration for shares).
614
Agreement for transfer of non-cash asset: requirements as to valuation and
report
(1)
The provisions of sections 1116 to 1119 (general provisions as to independent
10
valuation and report) apply to the valuation and report required by section 613
(public company: transfer of non-cash asset).
(2)
The valuer’s report must state—
(a)
the consideration to be received by the company, describing the asset
in question (specifying the amount to be received in cash) and the
15
consideration to be given by the company (specifying the amount to be
given in cash), and
(b)
the method and date of valuation.
(3)
The valuer’s report must contain or be accompanied by a note by him—
(a)
in the case of a valuation made by a person other than himself, that it
20
appeared to himself reasonable to arrange for it to be so made or to
accept a valuation so made,
(b)
whoever made the valuation, that the method of valuation was
reasonable in all the circumstances,
(c)
that it appears to the valuer that there has been no material change in
25
the value of the consideration in question since the valuation, and
(d)
that, on the basis of the valuation, the value of the consideration to be
received by the company is not less than the value of the consideration
to be given by it.
(4)
Any reference in section 613 or this section to consideration given for the
30
transfer of an asset includes consideration given partly for its transfer.
(5)
In such a case—
(a)
the value of any consideration partly so given is to be taken as the
proportion of the consideration properly attributable to its transfer,
(b)
the valuer must carry out or arrange for such valuations of anything
35
else as will enable him to determine that proportion, and
(c)
his report must state what valuations have been made for that purpose
and also the reason for and method and date of any such valuation and
any other matters which may be relevant to that determination.
615
Agreement for transfer of non-cash asset: requirement of approval by
40
members
(1)
The following conditions must have been complied with—
(a)
the terms of the agreement must have been approved by an ordinary
resolution of the company,

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
293

(b)
the requirements of this section must have been complied with as
respects the circulation to members of copies of the valuer’s report
under section 613, and
(c)
a copy of the proposed resolution must have been sent to the other
party to the proposed agreement.
5
(2)
The reference in subsection (1)(c) to the other party to the proposed agreement
is to the person referred to in section 612(1)(a).
(3)
The requirements of this section as to circulation of copies of the valuer’s report
are as follows—
(a)
if the resolution is proposed as a written resolution, copies of the
10
valuer’s report must 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, copies of the valuer’s
report must be circulated to the members entitled to notice of the
15
meeting not later than the date on which notice of the meeting is given.
616
Copy of resolution to be delivered to registrar
(1)
A company that has passed a resolution under section 615 with respect to the
transfer of an asset must, within 15 days of doing so, deliver to the registrar a
copy of the resolution together with the valuer’s report required by that
20
section.
(2)
If a company fails to comply with subsection (1), an offence is committed by—
(a)
the company, and
(b)
every officer of the company who is in default.
(3)
A person guilty of an offence under this section is liable on summary
25
conviction to a fine not exceeding level 3 on the standard scale and, for
continued contravention, to a daily default fine not exceeding one-tenth of
level 3 on the standard scale.
617
Adaptation of provisions in relation to company re-registering as public
The provisions of sections 612 to 616 (public companies: transfer of non-cash
30
assets) apply with the following adaptations in relation to a company re-
registered as a public company—
(a)
the reference in section 612(1)(a) to a person who is a subscriber to the
company’s memorandum shall be read as a reference to a person who
is a member of the company on the date of re-registration;
35
(b)
the reference in section 612(2) to the date of the company being issued
with a certificate under section 774 (trading certificate) shall be read as
a reference to the date of re-registration.
618
Agreement for transfer of non-cash asset: effect of contravention
(1)
This section applies where a public company enters into an agreement in
40
contravention of section 612 and either—
(a)
the other party to the agreement has not received the valuer’s report
required to be sent to him, or

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
294

(b)
there has been some other contravention of the requirements of this
Chapter that the other party to the agreement knew or ought to have
known amounted to a contravention.
(2)
In those circumstances—
(a)
the company is entitled to recover from that person any consideration
5
given by it under the agreement, or an amount equal to the value of the
consideration at the time of the agreement, and
(b)
the agreement, so far as not carried out, is void.
(3)
If the agreement is or includes an agreement for the allotment of shares in the
company, then—
10
(a)
whether or not the agreement also contravenes section 607 (valuation
of non-cash consideration for shares), this section does not apply to it in
so far as it is for the allotment of shares, and
(b)
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
15
premium (or, if the case so requires, so much of that aggregate as is
treated as paid up by the consideration), with interest at the
appropriate rate.
Supplementary provisions
619
Liability of subsequent holders of shares
20
(1)
If a person becomes a holder of shares in respect of which—
(a)
there has been a contravention of section 607 (public company:
valuation of non-cash consideration for shares), and
(b)
by virtue of that contravention another is liable to pay any amount
under the provision contravened,
25

that person is also liable to pay that amount (jointly and severally with any
other person so liable), unless he is exempted from liability under subsection
(3) below.
(2)
If a company enters into an agreement in contravention of section 612 and—
(a)
the agreement is or includes an agreement for the allotment of shares in
30
the company,
(b)
a person becomes a holder of shares allotted under the agreement, and
(c)
by virtue of the agreement and allotment under it another person is
liable to pay an amount under section 618,
the person who becomes the holder of the shares is also liable to pay that
35
amount (jointly and severally with any other person so liable), unless he is
exempted from liability under subsection (3) below.
This applies whether or not the agreement also contravenes section 607.
(3)
A person otherwise liable under subsection (1) or (2) is exempted from that
liability if either—
40
(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
(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).
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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
295

(4)
References in this section to a holder, in relation to shares in a company,
include any person who 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 the shares executed in his favour.
5
620
Power of court to grant relief
(1)
A person who—
(a)
is liable to a company under any provision of this Chapter in relation to
payment in respect of any shares in the company, or
(b)
is liable to a company by virtue of an undertaking given to it in, or in
10
connection with, payment for any shares in the company,
may apply to the court to be exempted in whole or in part from the liability.
(2)
In the case of a liability within subsection (1)(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—
15
(a)
whether the applicant has paid, or is liable to pay, any amount in
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
20
connection with payment for those shares;
(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—
25
(i)
has performed in whole or in part, or is likely so to perform any
such undertaking, or
(ii)
has done or is likely to do any other thing in payment or part
payment for the shares.
(3)
In the case of a liability within subsection (1)(b), the court may exempt the
30
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 respect
of liability arising in relation to the shares under any provision of this
Chapter;
35
(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.
(4)
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
40
principles—
(a)
that 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 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;
45
(b)
subject to this, that where such a company would, if the court did not
grant the exemption, have more than one remedy against a particular

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
296

person, it should be for the company to decide which remedy it should
remain entitled to pursue.
(5)
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
5
such a contribution, the court may, if and to the extent that it appears to it, just
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
10
such a contribution, or
(b)
order the contributor to make a larger contribution than, but for this
subsection, he would be liable to make.
(6)
Where a person is liable to a company under section 618(2) (agreement for
transfer of non-cash asset: effect of contravention), the court may, on
15
application, exempt him in whole or in part from that liability if and to the
extent that it appears to the court to be just and equitable to do so having
regard to any benefit accruing to the company by virtue of anything done by
him towards the carrying out of the agreement mentioned in that subsection.
621
Penalty for contravention of this Chapter
20
(1)
This section applies where a company contravenes—
section 607 (public company allotting shares for non-cash consideration),
or
section 612 (public company entering into agreement for transfer of non-
cash asset).
25
(2)
An offence is committed by—
(a)
the company, and
(b)
every officer of the company who is in default.
(3)
A person guilty of an offence under this section is liable—
(a)
on conviction on indictment, to a fine;
30
(b)
on summary conviction, to a fine not exceeding the statutory
maximum.
622
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,
35
if it is enforceable by the company apart from this Chapter, is so enforceable
notwithstanding that there has been a contravention in relation to it of a
provision of this Chapter.
(2)
This is without prejudice to section 620 (power of court to grant relief etc in
respect of liabilities).
40
623
The appropriate rate of interest
(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.