Company Law Reform Bill [HL] (316-322)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (316-322)

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 10 — Reduction of share capital
316

(b)
is conclusive evidence—
(i)
that the requirements of this Act with respect to the reduction of
share capital have been complied with, and
(ii)
that the company’s share capital is as stated in the statement of
capital.
5
Public company reducing capital below authorised minimum
664
Public company reducing capital below authorised minimum
(1)
This section applies where the court makes an order confirming a reduction of
a public company’s capital that has the effect of bringing the nominal value of
its allotted share capital below the authorised minimum (see section 776).
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(2)
The registrar must not register the order unless either—
(a)
the court so directs, or
(b)
the company is first re-registered as a private company.
(3)
Section 665 provides an expedited procedure for re-registration in these
circumstances.
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665
Expedited procedure for re-registration as a private company
(1)
The court may authorise the company to be re-registered as a private company
without its having passed the special resolution required by section 97.
(2)
If it does so, the court must specify in the order the changes to the company’s
name and articles to be made in connection with the re-registration.
20
(3)
The company may then be re-registered as a private company if an application
to that effect is delivered to the registrar together with—
(a)
a copy of the court’s order, and
(b)
notice of the company’s name, and a copy of the company’s articles, as
altered by the court’s order.
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(4)
On receipt of such an application the registrar must issue a certificate of
incorporation altered to meet the circumstances of the case.
(5)
The certificate must state that it is issued on re-registration and the date on
which it is issued.
(6)
On the issue of the certificate—
30
(a)
the company by virtue of the issue of the certificate becomes a private
company, and
(b)
the changes in the company’s name and articles take effect.
(7)
The certificate is conclusive evidence that the requirements of this Act as to re-
registration have been complied with.
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Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 10 — Reduction of share capital
317

Effect of reduction of capital
666
Liability of members following reduction of capital
(1)
Where a company’s share capital is reduced a member of the company (past or
present) is not liable in respect of any share to any call or contribution
exceeding in amount the difference (if any) between—
5
(a)
the nominal amount of the share as notified to the registrar in the
statement of capital delivered under section 658 or 663, and
(b)
the amount paid on the share or the reduced amount (if any) which is
deemed to have been paid on it, as the case may be.
(2)
This is subject to section 667 (liability to creditor in case of omission from list).
10
(3)
Nothing in this section affects the rights of the contributories among
themselves.
667
Liability to creditor in case of omission from list of creditors
(1)
This section applies where, in the case of a reduction of capital confirmed by
the court—
15
(a)
a creditor entitled to object to the reduction of share capital is by reason
of his ignorance—
(i)
of the proceedings for reduction of share capital, or
(ii)
of their nature and effect with respect to his debt or claim,

not entered on the list of creditors, and
20
(b)
after the reduction of capital the company is unable to pay the amount
of his debt or claim.
(2)
Every person who was a member of the company at the date on which the
resolution for reducing capital took effect under section 663(3) is liable to
contribute for the payment of the debt or claim an amount not exceeding that
25
which he would have been liable to contribute if the company had commenced
to be wound up on the day before that date.
(3)
If the company is wound up, the court on the application of the creditor in
question, and proof of ignorance as mentioned in subsection (1)(a), may (if it
thinks fit)—
30
(a)
settle accordingly a list of persons liable to contribute under this
section, and
(b)
make and enforce calls and orders on them as if they were ordinary
contributories in a winding up.
(4)
The reference in subsection (1)(b) to a company being unable to pay the
35
amount of a debt or claim has the same meaning as in section 123 of the
Insolvency Act 1986 (c. 45) or Article 103 of the Insolvency (Northern Ireland)
Order 1989 (S.I. 1989/2405 (N.I. 19)).

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 11 — Miscellaneous and supplementary provisions
318

Chapter 11
Miscellaneous and supplementary provisions
668
Shares no bar to damages against company
A person is not debarred from obtaining damages or other compensation from
a company by reason only of his holding or having held shares in the company
5
or any right to apply or subscribe for shares or to be included in the company’s
register of members in respect of shares.
669
Public companies: duty of directors to call meeting on serious loss of capital
(1)
Where the net assets of a public company are half or less of its called-up share
capital, the directors must call a general meeting of the company to consider
10
whether any, and if so what, steps should be taken to deal with the situation.
(2)
They must do so not later than 28 days from the earliest day on which that fact
is known to a director of the company.
(3)
The meeting must be convened for a date not later than 56 days from that day.
(4)
If there is a failure to convene a meeting as required by this section, each of the
15
directors of the company who—
(a)
knowingly authorises or permits the failure, or
(b)
after the period during which the meeting should have been convened,
knowingly authorises or permits the failure to continue,

commits an offence.
20
(5)
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.
(6)
Nothing in this section authorises the consideration at a meeting convened in
25
pursuance of subsection (1) of any matter that could not have been considered
at that meeting apart from this section.
670
General power to make further provision by regulations
(1)
The Secretary of State may by regulations modify the following provisions of
this Part—
30
sections 566 and 567 (prohibited commissions, discounts and allowances),
Chapter 5 (payment for shares),
Chapter 6 (public companies: independent valuation of non-cash
consideration),
Chapter 7 (share premiums),
35
sections 636 to 642 (redenomination of share capital),
Chapter 10 (reduction of capital), and
section 669 (public companies: duty of directors to call meeting on serious
loss of capital).
(2)
The regulations may—
40
(a)
amend or repeal any of those provisions, or

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 1 — General provisions
319

(b)
make such other provision as appears to the Secretary of State
appropriate in place of any of those provisions.
(3)
Regulations under this section may make consequential amendments or
repeals in other provisions of this Act, or in other enactments.
(4)
Regulations under this section are subject to affirmative resolution procedure.
5
Part 19
Acquisition by limited company of its own shares
Chapter 1
General provisions
Introductory
10
671
General rule against limited company acquiring its own shares
(1)
A limited company must not acquire its own shares, whether by purchase,
subscription or otherwise, except in accordance with the provisions of this
Part.
(2)
If a company purports to act in contravention of this section—
15
(a)
an offence is committed by—
(i)
the company, and
(ii)
every officer of the company who is in default, and
(b)
the purported acquisition is void.
(3)
A person guilty of an offence under this section is liable—
20
(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
25
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).
672
Exceptions to general rule
30
(1)
A limited company may acquire any of its own fully paid shares otherwise
than for valuable consideration.
(2)
Section 671 does not prohibit—
(a)
the acquisition of shares in a reduction of capital duly made;
(b)
the purchase of shares in pursuance of an order of the court under—
35
(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),

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 1 — General provisions
320

(iii)
section 772 (remedial order in case of breach of prohibition of
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
5
payable in respect of the shares.
Shares held by company’s nominee
673
Treatment of shares held by nominee
(1)
This section applies where shares in a limited company—
(a)
are taken by a subscriber to the memorandum as nominee of the
10
company,
(b)
are issued to a nominee of the company, or
(c)
are acquired by a nominee of the company, partly paid up, from a third
person.
(2)
For all purposes—
15
(a)
the shares are to be treated as held by the nominee on his own account,
and
(b)
the company is to be regarded as having no beneficial interest in them.
(3)
This section does not apply—
(a)
to shares acquired otherwise than by subscription by a nominee of the
20
public company, where—
(i)
a person acquires shares in the company with financial
assistance given to him, directly or indirectly, by the company
for the purpose of or in connection with the acquisition, and
(ii)
the company has a beneficial interest in the shares;
25
(b)
to shares acquired by a nominee of the company when the company has
no beneficial interest in the shares.
674
Liability of others where nominee fails to make payment in respect of shares
(1)
This section applies where shares in a limited company—
(a)
are taken by a subscriber to the memorandum as nominee of the
30
company,
(b)
are issued to a nominee of the company, or
(c)
are acquired by a nominee of the company, partly paid up, from a third
person.
(2)
If the nominee, having been called on to pay any amount for the purposes of
35
paying up, or paying any premium on, the shares, fails to pay that amount
within 21 days from being called on to do so, then—
(a)
in the case of shares that he agreed to take as subscriber to the
memorandum, the other subscribers to the memorandum, and
(b)
in any other case, the directors of the company when the shares were
40
issued to or acquired by him,

are jointly and severally liable with him to pay that amount.
(3)
If in proceedings for the recovery of an amount under subsection (3) it appears
to the court that the subscriber or director—

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 1 — General provisions
321

(a)
has acted honestly and reasonably, and
(b)
having regard to all the circumstances of the case, ought fairly to be
relieved from liability,

the court may relieve him, either wholly or in part, from his liability on such
terms as the court thinks fit.
5
(4)
If a subscriber to a company’s memorandum or a director of a company has
reason to apprehend that a claim will or might be made for the recovery of any
such amount from him—
(a)
he may apply to the court for relief, and
(b)
the court has the same power to relieve him as it would have had in
10
proceedings for recovery of that amount.
(5)
This section does not apply to shares acquired by a nominee of the company
when the company has no beneficial interest in the shares.
Shares held by or for public company
675
Duty to cancel shares in public company held by or for the company
15
(1)
This section applies in the case of a public company—
(a)
where shares in the company are forfeited, or surrendered to the
company in lieu of forfeiture, in pursuance of the articles, for failure to
pay any sum payable in respect of the shares;
(b)
where shares in the company are surrendered to the company in
20
pursuance of section 102C(1)(b) of the Building Societies Act 1986
(c. 53);
(c)
where shares in the company are acquired by it (otherwise than in
accordance with this Part) and the company has a beneficial interest in
the shares;
25
(d)
where a nominee of the company acquires shares in the company from
a third party without financial assistance being given directly or
indirectly by the company and the company has a beneficial interest in
the shares; or
(e)
where a person acquires shares in the company, with financial
30
assistance given to him, directly or indirectly, by the company for the
purpose of or in connection with the acquisition, and the company has
a beneficial interest in the shares.
(2)
Unless the shares or any interest of the company in them are previously
disposed of, the company must—
35
(a)
cancel the shares and diminish the amount of the company’s share
capital by the nominal value of the shares cancelled, and
(b)
where the effect is that the nominal value of the company’s allotted
share capital is brought below the authorised minimum (see section
776), apply for re-registration as a private company, stating the effect of
40
the cancellation.
(3)
It must do so no later than—
(a)
in a case within subsection (1)(a) or (b), three years from the date of the
forfeiture or surrender;
(b)
in a case within subsection (1)(c) or (d), three years from the date of the
45
acquisition;

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 1 — General provisions
322

(c)
in a case within subsection (1)(e), one year from the date of the
acquisition.
(4)
The directors of the company may take any steps necessary to enable the
company to comply with this section, and may do so without complying with
the provisions of Chapter 10 of Part 18 (reduction of capital).
5

See also section 677 (re-registration as private company in consequence of
cancellation).
(5)
Neither the company nor, in a case within subsection (1)(d) or (e), the nominee
or other shareholder may exercise any voting rights in respect of the shares.
(6)
Any purported exercise of those rights is void.
10
676
Notice of cancellation of shares
(1)
Where a company cancels shares in order to comply with section 675, it must
within one month after the shares are cancelled give notice to the registrar,
specifying the shares cancelled.
(2)
The notice must be accompanied by a statement of capital.
15
(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—
20
(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
25
premium).
(4)
If default is made in complying with 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
30
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.
677
Re-registration as private company in consequence of cancellation
(1)
Where a company is obliged to re-register as a private company to comply with
35
section 675, the directors may resolve that the company should be so re-
registered.

Any such resolution is subject to Chapter 3 of Part 3 (resolutions affecting
company’s constitution: copy to be forwarded to the registrar, etc).
(2)
The resolution may make such changes—
40
(a)
in the company’s name, and
(b)
in the company’s articles,

as are necessary in connection with its becoming a private company.