Company Law Reform Bill [HL] (297-303)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (297-303)

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 7 — Share premiums
297

(2)
An order under this section is subject to negative resolution procedure.
Chapter 7
Share premiums
The share premium account
624
Application of share premiums
5
(1)
If a company issues shares at a premium, whether for cash or otherwise, a sum
equal to the aggregate amount or value of the premiums on those shares must
be transferred to an account called “the share premium account”.
(2)
Where, on issuing shares, a company has transferred a sum to the share
premium account, it may use that sum to write off—
10
(a)
the expenses of the issue of those shares;
(b)
any commission paid on the issue of those shares.
(3)
The company may use the share premium account to pay up new shares to be
allotted to members as fully paid bonus shares.
(4)
Subject to subsections (2) and (3), the provisions of the Companies Acts relating
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to the reduction of a company’s share capital apply as if the share premium
account were part of its paid up share capital.
(5)
This section has effect subject to—
section 625 (group reconstruction relief);
section 626 (merger relief);
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section 628 (power to make further provisions by regulations).
(6)
In this Chapter “the issuing company” means the company issuing shares as
mentioned in subsection (1) above.
Relief from requirements as to share premiums
625
Group reconstruction relief
25
(1)
This section applies where the issuing company—
(a)
is a wholly-owned subsidiary of another company (“the holding
company”), and
(b)
allots shares—
(i)
to the holding company or
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(ii)
to another wholly-owned subsidiary of the holding company,

in consideration for the transfer to the issuing company of non-cash
assets of a company (“the transferor company”) that is a member of the
group of companies that comprises the holding company and all its
wholly-owned subsidiaries.
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(2)
Where the shares in the issuing company allotted in consideration for the
transfer are issued at a premium, the issuing company is not required by
section 624 to transfer any amount in excess of the minimum premium value
to the share premium account.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 7 — Share premiums
298

(3)
The minimum premium value means the amount (if any) by which the base
value of the consideration for the shares allotted exceeds the aggregate
nominal value of the shares.
(4)
The base value of the consideration for the shares allotted is the amount by
which the base value of the assets transferred exceeds the base value of any
5
liabilities of the transferor company assumed by the issuing company as part
of the consideration for the assets transferred.
(5)
For the purposes of this section—
(a)
the base value of assets transferred is taken as—
(i)
the cost of those assets to the transferor company, or
10
(ii)
if less, the amount at which those assets are stated in the
transferor company’s accounting records immediately before
the transfer;
(b)
the base value of the liabilities assumed is taken as the amount at which
they are stated in the transferor company’s accounting records
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immediately before the transfer.
626
Merger relief
(1)
This section applies where the issuing company has secured at least a 90%
equity holding in another company in pursuance of an arrangement providing
for the allotment of equity shares in the issuing company on terms that the
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consideration for the shares allotted is to be provided—
(a)
by the issue or transfer to the issuing company of equity shares in the
other company, or
(b)
by the cancellation of any such shares not held by the issuing company.
(2)
If the equity shares in the issuing company allotted in pursuance of the
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arrangement in consideration for the acquisition or cancellation of equity
shares in the other company are issued at a premium, section 624 does not
apply to the premiums on those shares.
(3)
Where the arrangement also provides for the allotment of any shares in the
issuing company on terms that the consideration for those shares is to be
30
provided—
(a)
by the issue or transfer to the issuing company of non-equity shares in
the other company, or
(b)
by the cancellation of any such shares in that company not held by the
issuing company,
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relief under subsection (2) extends to any shares in the issuing company
allotted on those terms in pursuance of the arrangement.
(4)
This section does not apply in a case falling within section 625 (group
reconstruction relief).
627
Merger relief: meaning of 90% equity holding
40
(1)
The following provisions have effect to determine for the purposes of section
626 (merger relief) whether a company (“company A”) has secured a 90%
equity holding in another company (“company B”) in pursuance of such an
arrangement as is mentioned in subsection (1) of that section.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 7 — Share premiums
299

(2)
Company A has a 90% equity holding in company B if in consequence of an
acquisition or cancellation of equity shares in company B (in pursuance of that
arrangement) it holds equity shares in company B of an aggregate amount
equal to 90% or more of the nominal value of that company’s equity share
capital.
5
(3)
For this purpose—
(a)
it is immaterial whether any of those shares were acquired in
pursuance of the arrangement; and
(b)
shares in company B held by the company as treasury shares are
excluded in determining the nominal value of company B’s share
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capital.
(4)
Where the equity share capital of company B is divided into different classes of
shares, company A is not regarded as having a 90% equity holding in company
B unless the requirements of subsection (2) are met in relation to each of those
classes of shares taken separately.
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(5)
For the purposes of this section shares held by—
(a)
a company that is company A’s holding company or subsidiary, or
(b)
a subsidiary of company A’s holding company, or
(c)
its or their nominees,

are treated as held by company A.
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628
Power to make further provision by regulations
(1)
The Secretary of State may by regulations make such provision as he thinks
appropriate—
(a)
for relieving companies from the requirements of section 624
(application of share premiums) in relation to premiums other than
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cash premiums;
(b)
for restricting or otherwise modifying any relief from those
requirements provided by this Chapter.
(2)
Regulations under this section are subject to affirmative resolution procedure.
629
Relief may be reflected in company’s balance sheet
30
An amount corresponding to the amount representing the premiums, or part
of the premiums, on shares issued by a company that by virtue of any relief
under this Chapter is not included in the company’s share premium account
may also be disregarded in determining the amount at which any shares or
other consideration provided for the shares issued is to be included in the
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company’s balance sheet.
Supplementary provisions
630
Interpretation of this Chapter
(1)
In this Chapter—
“arrangement” means any agreement, scheme or arrangement (including
40
an arrangement sanctioned in accordance with—
(a)
Part 27 (arrangements and reconstructions), or

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 8 — Alteration of share capital
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(b)
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));
“company”, except in reference to the issuing company, includes any
5
body corporate;
“equity shares” means shares comprised in a company’s equity share
capital, and “non-equity shares” means shares (of any class) that are not
so comprised;
“the issuing company” has the meaning given by section 624(6).
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(2)
References in this Chapter (however expressed) to—
(a)
the acquisition by a company of shares in another company, and
(b)
the issue or allotment of shares to, or the transfer of shares to or by, a
company,

include (respectively) the acquisition of shares by, and the issue or allotment or
15
transfer of shares to or by, a nominee of that company.

The reference in section 625 to the transferor company shall be read
accordingly.
(3)
References in this Chapter to the transfer of shares in a company include the
transfer of a right to be included in the company’s register of members in
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respect of those shares.
Chapter 8
Alteration of share capital
How share capital may be altered
631
Alteration of share capital of limited company
25
(1)
A limited company having a share capital may not alter its share capital except
in the following ways.
(2)
The company may—
(a)
increase its share capital by allotting new shares in accordance with this
Part, or
30
(b)
reduce its share capital in accordance with Chapter 10 of this Part.
(3)
The company may—
(a)
sub-divide or consolidate all or any of its share capital in accordance
with section 632, or
(b)
reconvert stock into shares in accordance with section 634.
35
(4)
The company may redenominate all or any of its shares in accordance with
section 636, and may reduce its share capital in accordance with section 640 in
connection with such a redenomination.
(5)
Nothing in this section affects—
(a)
the power of a company to purchase its own shares, or to redeem
40
shares, in accordance with Part 19;
(b)
the power of a company to purchase its own shares in pursuance of an
order of the court under—

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 8 — Alteration of share capital
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(i)
section 98 (application to court to cancel resolution for re-
registration as a private company),
(ii)
section 734(6) (powers of court on objection to redemption or
purchase of shares out of capital),
(iii)
section 772 (remedial order in case of breach of prohibition of
5
public offers by private company), or
(iv)
Part 30 (protection of members against unfair prejudice);
(c)
the forfeiture of shares, or the acceptance of shares surrendered in lieu,
in pursuance of the company’s articles, for failure to pay any sum
payable in respect of the shares;
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(d)
the cancellation of shares under section 675 (duty to cancel shares held
by or for a public company);
(e)
the power of a company—
(i)
to enter into a compromise or arrangement in accordance with
Part 27 (arrangements and reconstructions), or
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(ii)
to do anything required to comply with an order of the court on
an application under that Part.
Subdivision or consolidation of shares
632
Sub-division or consolidation of shares
(1)
A limited company having a share capital may—
20
(a)
sub-divide its shares, or any of them, into shares of a smaller nominal
amount than its existing shares, or
(b)
consolidate and divide all or any of its share capital into shares of a
larger nominal amount than its existing shares.
(2)
In any sub-division, consolidation or division of shares under this section, the
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proportion between the amount paid and the amount (if any) unpaid on each
resulting share must be the same as it was in the case of the share from which
that share is derived.
(3)
A company may exercise a power conferred by this section only if its members
have passed an ordinary resolution authorising it to do so.
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(4)
A resolution under subsection (3) may authorise a company—
(a)
to exercise more than one of the powers conferred by this section;
(b)
to exercise a power on more than one occasion;
(c)
to exercise a power at a specified time or in specified circumstances.
(5)
The company’s articles may exclude or restrict the exercise of any power
35
conferred by this section.
633
Notice to registrar of sub-division or consolidation
(1)
If a company exercises the power conferred by section 632 (sub-division or
consolidation of shares) it must within one month after doing so give notice to
the registrar, specifying the shares affected.
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(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 exercise of the power—

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
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Chapter 8 — Alteration of share capital
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(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
5
(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—
10
(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
15
3 on the standard scale.
Reconversion of stock into shares
634
Re-conversion of stock into shares
(1)
A limited company that has converted paid-up shares into stock (before the
repeal by this Act of the power to do so) may re-convert that stock into paid-
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up shares of any nominal value.
(2)
A company may exercise the power conferred by this section only if its
members have passed an ordinary resolution authorising it to do so.
(3)
A resolution under subsection (2) may authorise a company to exercise the
power conferred by this section—
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(a)
on more than one occasion;
(b)
at a specified time or in specified circumstances.
635
Notice to registrar of reconversion of stock into shares
(1)
If a company exercises a power conferred by section 634 (reconversion of stock
into shares) it must within one month after doing so give notice to the registrar,
30
specifying the stock affected.
(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 exercise of the power—
(a)
the total number of shares of the company,
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(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
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Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 8 — Alteration of share capital
303

(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
5
(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.
10
Redenomination of share capital
636
Redenomination of share capital
(1)
A limited company having a share capital may by ordinary resolution
redenominate its share capital or any class of its share capital.

“Redenominate” means convert shares from having a fixed nominal value in
15
one currency to having a fixed nominal value in another currency.
(2)
The conversion must be made at an appropriate spot rate of exchange specified
in the resolution.
(3)
The rate must be either—
(a)
a rate prevailing on a day specified in the resolution, or
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(b)
a rate determined by taking the average of rates prevailing on each
consecutive day of a period specified in the resolution.

The day or period specified for the purposes of paragraph (a) or (b) must be
within the period of 28 days ending on the day before the resolution is passed.
(4)
A resolution under this section may specify conditions which must be met
25
before the redenomination takes effect.
(5)
Redenomination in accordance with a resolution under this section takes
effect—
(a)
on the day on which the resolution is passed, or
(b)
on such later day as may be determined in accordance with the
30
resolution.
(6)
A resolution under this section lapses if the redenomination for which it
provides has not taken effect at the end of the period of 28 days beginning on
the date on which it is passed.
(7)
A company’s articles may prohibit or restrict the exercise of the power
35
conferred by this section.
637
Calculation of new nominal values

For each class of share the new nominal value of each share is calculated as
follows:

Step One
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Take the aggregate of the old nominal values of all the shares of that class.

Step Two