Company Law Reform Bill [HL] (323-327)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (323-327)

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 1 — General provisions
323

(3)
The application for re-registration must contain a statement of the company’s
proposed name on re-registration.
(4)
The application must be accompanied by—
(a)
a copy of the resolution (unless a copy has already been forwarded
under Chapter 3 of Part 3),
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(b)
a copy of the company’s articles as amended by the resolution, and
(c)
a statement of compliance.
(5)
The statement of compliance required is a statement that the requirements of
this section as to re-registration as a private company have been complied
with.
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(6)
The registrar may accept the statement of compliance as sufficient evidence
that the company is entitled to be re-registered as a private company.
678
Issue of certificate of incorporation on re-registration
(1)
If on an application under section 677 the registrar is satisfied that the company
is entitled to be re-registered as a private company, the company shall be re-
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registered accordingly.
(2)
The registrar must issue a certificate of incorporation altered to meet the
circumstances of the case.
(3)
The certificate must state that it is issued on re-registration and the date on
which it is issued.
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(4)
On the issue of the certificate—
(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.
(5)
The certificate is conclusive evidence that the requirements of this Act as to re-
25
registration have been complied with.
679
Effect of failure to re-register
(1)
If a public company that is required by section 675 to apply to be re-registered
as a private company fails to do so before the end of the period specified in
subsection (3) of that section, Chapter 1 of Part 21 (prohibition of public offers
30
by private company) applies to it as if it were a private company.
(2)
Subject to that, the company continues to be treated as a public company until
it is so registered.
680
Offence in case of failure to cancel shares or re-register
(1)
This section applies where a company, when required to do by section 675—
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(a)
fails to cancel any shares, or
(b)
fails to make an application for re-registration as a private company,

within the time specified in subsection (3) of that section.
(2)
An offence is committed by—
(a)
the company, and
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(b)
every officer of the company who is in default.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 1 — General provisions
324

(3)
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.
681
Application of provisions to company re-registering as public company
5
(1)
This section applies where, after shares in a private company—
(a)
are forfeited in pursuance of the company’s articles or are surrendered
to the company in lieu of forfeiture,
(b)
are acquired by the company (otherwise than by any of the methods
permitted by this Part), the company having a beneficial interest in the
10
shares,
(c)
are acquired by a nominee of the company from a third party without
financial assistance being given directly or indirectly by the company,
the company having a beneficial interest in the shares, or
(d)
are acquired by a person with financial assistance given to him, directly
15
or indirectly, by the company for the purpose of or in connection with
the acquisition, the company having a beneficial interest in the shares,

the company is re-registered as a public company.
(2)
In that case the provisions of sections 675 to 680 apply to the company as if it
had been a public company at the time of the forfeiture, surrender or
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acquisition, subject to the following modification.
(3)
The modification is that the period specified in section 675(3)(a), (b) or (c)
(period for complying with obligations under that section) runs from the date
of the re-registration of the company as a public company.
682
Accounting treatment of shares held by public company or nominee
25
(1)
Where—
(a)
a public company, or a nominee of a public company, acquires shares
in the company, and
(b)
those shares are shown in a balance sheet of the company as an asset,

an amount equal to the value of the shares must be transferred out of profits
30
available for dividend to a reserve fund and is not then available for
distribution.
(2)
Subsection (1) applies to an interest in shares as it applies to shares.

As it so applies the reference to the value of the shares shall be read as a
reference to the value to the company of its interest in the shares.
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Charges of public company on own shares
683
Public companies: general rule against lien or charge on own shares
(1)
A lien or other charge of a public company on its own shares (whether taken
expressly or otherwise) is void, except as permitted by this section.
(2)
In the case of any description of company, a charge is permitted if the shares
40
are not fully paid up and the charge is for an amount payable in respect of the
shares.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 1 — General provisions
325

(3)
In the case of a company whose ordinary business—
(a)
includes the lending of money, or
(b)
consists of the provision of credit or the bailment (in Scotland, hiring)
of goods under a hire purchase agreement, or both,

a charge is permitted (whether the shares are fully paid or not) if it arises in
5
connection with a transaction entered into by the company in the ordinary
course of that business.
(4)
In the case of a company that has been re-registered as a public company, a
charge is permitted if it was in existence immediately before the application for
re-registration.
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Supplementary provisions
684
Interests to be disregarded in determining whether company has beneficial
interest
In determining for the purposes of this Chapter whether a company has a
beneficial interest in shares, there shall be disregarded any such interest as is
15
mentioned in—
section 685 (residual interest under pension scheme or employees’ share
scheme),
section 686 (employer’s charges and other rights of recovery) or
section 687 (rights as personal representative or trustee).
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685
Residual interest under pension scheme or employees’ share scheme
(1)
Where the shares are held on trust for the purposes of a pension scheme or
employees’ share scheme, there shall be disregarded any residual interest of
the company that has not vested in possession.
(2)
A “residual interest” means a right of the company to receive any of the trust
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property in the event of—
(a)
all the liabilities arising under the scheme having been satisfied or
provided for, or
(b)
the company ceasing to participate in the scheme, or
(c)
the trust property at any time exceeding what is necessary for satisfying
30
the liabilities arising or expected to arise under the scheme.
(3)
In subsection (2)—
(a)
the reference to a right includes a right dependent on the exercise of a
discretion vested by the scheme in the trustee or another person, and
(b)
the reference to liabilities arising under a scheme includes liabilities
35
that have resulted, or may result, from the exercise of any such
discretion.
(4)
For the purposes of this section a residual interest vests in possession—
(a)
in a case within subsection (2)(a), on the occurrence of the event
mentioned there (whether or not the amount of the property receivable
40
pursuant to the right is ascertained);
(b)
in a case within subsection (2)(b) or (c), when the company becomes
entitled to require the trustee to transfer to it any of the property
receivable pursuant to that right.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 1 — General provisions
326

(5)
Where by virtue of this section shares are exempt from section 673 or 674
(shares held by company’s nominee) at the time they are taken, issued or
acquired but the residual interest in question vests in possession before they
are disposed of or fully paid up, those sections apply to the shares as if they had
been taken, issued or acquired on the date on which that interest vests in
5
possession.
(6)
Where by virtue of this section shares are exempt from sections 675 to 681
(shares held by or for public company) at the time they are acquired but the
residual interest in question vests in possession before they are disposed of,
those sections apply to the shares as if they had been acquired on the date on
10
which the interest vests in possession.
686
Employer’s charges and other rights of recovery
(1)
Where the shares are held on trust for the purposes of a pension scheme there
shall be disregarded—
(a)
any charge or lien on, or set-off against, any benefit or other right or
15
interest under the scheme for the purpose of enabling the employer or
former employer of a member of the scheme to obtain the discharge of
a monetary obligation due to him from the member;
(b)
any right to receive from the trustee of the scheme, or as trustee of the
scheme to retain, an amount that can be recovered or retained under
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section 61 of the Pension Schemes Act 1993 (c. 48) or section 57 of the
Pension Schemes (Northern Ireland) Act 1993 (deduction of
contributions equivalent premium from refund of scheme
contributions), or otherwise, as reimbursement or partial
reimbursement for any contributions equivalent premium paid in
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connection with the scheme under Part 3 of that Act.
(2)
Where the shares are held on trust for the purposes of an employees’ share
scheme, there shall be disregarded any charge or lien on, or set-off against, any
benefit or other right or interest under the scheme for the purpose of enabling
the employer or former employer of a member of the scheme to obtain the
30
discharge of a monetary obligation due to him from the member.
687
Rights as personal representative or trustee
Where the company is a personal representative or trustee, there shall be
disregarded any rights that the company has in that capacity including, in
particular—
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(a)
any right to recover its expenses or be remunerated out of the estate or
trust property, and
(b)
any right to be indemnified out of that property for any liability
incurred by reason of any act or omission of the company in the
performance of its duties as personal representative or trustee.
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688
Meaning of “pension scheme”
(1)
In this Chapter “pension scheme” means a scheme for the provision of benefits
consisting of or including relevant benefits for or in respect of employees or
former employees.
(2)
In subsection (1) “relevant benefits” means any pension, lump sum, gratuity or
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other like benefit given or to be given on retirement or on death or in

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 2 — Financial assistance for purchase of own shares
327

anticipation of retirement or, in connection with past service, after retirement
or death.
689
Application of provisions to directors
For the purposes of this Chapter references to “employer” and “employee”, in
the context of a pension scheme or employees’ share scheme, shall be read as
5
if a director of a company were employed by it.
Chapter 2
Financial assistance for purchase of own shares
Introductory
690
Meaning of “financial assistance”
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(1)
In this Chapter “financial assistance” means—
(a)
financial assistance given by way of gift,
(b)
financial assistance given—
(i)
by way of guarantee, security or indemnity (other than an
indemnity in respect of the indemnifier’s own neglect or
15
default), or
(ii)
by way of release or waiver,
(c)
financial assistance given—
(i)
by way of a loan or any other agreement under which any of the
obligations of the person giving the assistance are to be fulfilled
20
at a time when in accordance with the agreement any obligation
of another party to the agreement remains unfulfilled, or
(ii)
by way of the novation of, or the assignment (in Scotland,
assignation) of rights arising under, a loan or such other
agreement, or
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(d)
any other financial assistance given by a company where—
(i)
the net assets of the company are reduced to a material extent
by the giving of the assistance, or
(ii)
the company has no net assets.
(2)
“Net assets” here means the aggregate amount of the company’s assets less the
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aggregate amount of its liabilities.
(3)
For this purpose a company’s liabilities include—
(a)
where the company draws up Companies Act individual accounts, any
provision of a kind specified for the purposes of this subsection by
regulations under section 402, and
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(b)
where the company draws up IAS individual accounts, any provision
made in those accounts.