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Circumstances in which financial assistance prohibited |
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691 | Assistance for acquisition of shares in public company |
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(1) | Where a person is acquiring or proposing to acquire shares in a public |
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company, it is not lawful for the company or any of its subsidiaries to give |
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financial assistance directly or indirectly for the purpose of the acquisition |
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before or at the same time as the acquisition takes place. |
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(2) | Subsection (1) does not prohibit a company from giving financial assistance for |
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the acquisition of shares in it or its holding company if— |
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(a) | the company’s principal purpose in giving the assistance is not to give |
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it for the purpose of any such acquisition, or |
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(b) | the giving of the assistance for that purpose is only an incidental part of |
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some larger purpose of the company, |
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| and the assistance is given in good faith in the interests of the company. |
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(a) | a person has acquired shares in a company, and |
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(b) | a liability has been incurred (by that or another person) for the purpose |
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| it is not lawful for the company or any of its subsidiaries to give financial |
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assistance directly or indirectly for the purpose of reducing or discharging the |
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liability if, at the time the assistance is given, the company is a public company. |
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(4) | Subsection (3) does not prohibit a company from giving financial assistance |
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(a) | the company’s principal purpose in giving the assistance is not to |
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reduce or discharge any liability incurred by a person for the purpose |
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of the acquisition of shares in the company or its holding company, or |
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(b) | the reduction or discharge of any such liability is only an incidental part |
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of some larger purpose of the company, |
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| and the assistance is given in good faith in the interests of the company. |
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(5) | This section has effect subject to sections 694 and 695 (unconditional and |
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conditional exceptions to prohibition). |
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692 | Assistance by public company for acquisition of shares in its private holding |
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(1) | Where a person is acquiring or proposing to acquire shares in a private |
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company, it is not lawful for a public company that is a subsidiary of that |
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company to give financial assistance directly or indirectly for the purpose of |
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the acquisition before or at the same time as the acquisition takes place. |
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(2) | Subsection (1) does not prohibit a company from giving financial assistance for |
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the acquisition of shares in its holding company if— |
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(a) | the company’s principal purpose in giving the assistance is not to give |
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it for the purpose of any such acquisition, or |
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(b) | the giving of the assistance for that purpose is only an incidental part of |
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some larger purpose of the company, |
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| and the assistance is given in good faith in the interests of the company. |
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(a) | a person has acquired shares in a private company, and |
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(b) | a liability has been incurred (by that or another person) for the purpose |
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| it is not lawful for a public company that is a subsidiary of that company to give |
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financial assistance directly or indirectly for the purpose of reducing or |
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discharging the liability. |
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(4) | Subsection (3) does not prohibit a company from giving financial assistance |
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(a) | the company’s principal purpose in giving the assistance is not to |
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reduce or discharge any liability incurred by a person for the purpose |
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of the acquisition of shares in its holding company, or |
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(b) | the reduction or discharge of any such liability is only an incidental part |
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of some larger purpose of the company, |
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| and the assistance is given in good faith in the interests of the company. |
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(5) | This section has effect subject to sections 694 and 695 (unconditional and |
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conditional exceptions to prohibition). |
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693 | Prohibited financial assistance an offence |
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(1) | If a company contravenes section 691(1) or (3) or section 692(1) or (3) |
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(prohibited financial assistance) an offence is committed by— |
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(b) | every officer of the company who is in default. |
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(2) | A person guilty of an offence under this section is liable— |
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(a) | on conviction on indictment, to imprisonment for a term not exceeding |
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two years or a fine (or both); |
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(b) | on summary conviction— |
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(i) | in England and Wales, to imprisonment for a term not |
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exceeding twelve months or to a fine not exceeding the |
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statutory maximum (or both); |
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(ii) | in Scotland or Northern Ireland, to imprisonment for a term not |
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exceeding six months, or to a fine not exceeding the statutory |
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Exceptions from prohibition |
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694 | Unconditional exceptions |
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(1) | Neither section 691 nor section 692 prohibits a transaction to which this section |
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(2) | Those transactions are— |
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(a) | a distribution of the company’s assets by way of— |
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(i) | dividend lawfully made, or |
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(ii) | distribution in the course of a company’s winding up; |
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(b) | an allotment of bonus shares; |
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(c) | a reduction of capital under Chapter 10 of Part 18; |
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(d) | a redemption of shares under Chapter 3 or a purchase of shares under |
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(e) | anything done in pursuance of an order of the court under Part 27 |
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(order sanctioning compromise or arrangement with members or |
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(f) | any thing done under an arrangement made in pursuance of section |
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110 of the Insolvency Act 1986 (c. 45) or Article 96 of the Insolvency |
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(Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)) (liquidator in |
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winding up accepting shares as consideration for sale of company’s |
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(g) | anything done under an arrangement made between a company and its |
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creditors that is binding on the creditors by virtue of Part 1 of the |
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Insolvency Act 1986 or Part 2 of the Insolvency (Northern Ireland) |
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Order 1989 (S.I. 1989/2405 (N.I. 19)). |
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695 | Conditional exceptions |
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(1) | Neither section 691 nor section 692 prohibits a transaction to which this section |
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(a) | in the case of a private company, or |
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(b) | in the case of a public company if— |
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(i) | the company has net assets that are not reduced by the giving of |
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(ii) | to the extent that those assets are so reduced, the assistance is |
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provided out of distributable profits. |
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(2) | The transactions to which this section applies are— |
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(a) | the lending of money in the ordinary course of the company’s business; |
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(b) | the provision by the company, in good faith in the interests of the |
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company, of financial assistance for the purposes of an |
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(c) | the provision of financial assistance by a company or any of its |
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subsidiaries for the purposes of or in connection with anything done by |
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the company, or a company in the same group, for the purpose of |
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enabling or facilitating transactions in shares in the first-mentioned |
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company between, and involving the acquisition of beneficial |
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ownership of those share by— |
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(i) | bona fide employees or former employees of that company or of |
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another company in the same group, or |
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(ii) | spouses or civil partners, widows, widowers or surviving civil |
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partners, or minor children or step-children of any such |
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employees or former employees; |
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(d) | the making by a company of loans to persons (other than directors) |
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employed in good faith by the company with a view to enabling those |
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persons to acquire fully paid shares in the company or its holding |
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company to be held by them by way of beneficial ownership. |
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(3) | The references in this section to “net assets” are to the amount by which the |
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aggregate of the company’s assets exceeds the aggregate of its liabilities. |
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(a) | the amount of both assets and liabilities shall be taken to be as stated in |
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the company’s accounting records immediately before the financial |
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(b) | “liabilities” includes any amount retained as reasonably necessary for |
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the purpose of providing for a liability the nature of which is clearly |
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defined and that is either likely to be incurred or certain to be incurred |
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but uncertain as to amount or as to the date on which it will arise. |
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(5) | For the purposes of subsection (2)(c) a company is in the same group as another |
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company if it is a holding company or subsidiary of that company or a |
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subsidiary of a holding company of that company. |
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696 | Definitions for this Chapter |
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“distributable profits”, in relation to the giving of any financial |
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(a) | means those profits out of which the company could lawfully |
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make a distribution equal in value to that assistance, and |
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(b) | includes, in a case where the financial assistance consists of or |
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includes, or is treated as arising in consequence of, the sale, |
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transfer or other disposition of a non-cash asset, any profit that, |
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if the company were to make a distribution of that character |
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would be available for that purpose; and |
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“distribution” has the same meaning as in Part 24 (distributions) (see |
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(a) | a reference to a person incurring a liability includes his changing his |
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financial position by making an agreement or arrangement (whether |
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enforceable or unenforceable, and whether made on his own account or |
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with any other person) or by any other means, and |
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(b) | a reference to a company giving financial assistance for the purposes of |
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reducing or discharging a liability incurred by a person for the purpose |
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of the acquisition of shares includes its giving such assistance for the |
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purpose of wholly or partly restoring his financial position to what it |
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was before the acquisition took place. |
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697 | Power of limited company to issue redeemable shares |
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(1) | A limited company having a share capital may issue shares that are to be |
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redeemed or are liable to be redeemed at the option of the company or the |
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shareholder (“redeemable shares”), subject to the following provisions. |
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(2) | The articles of a private limited company may exclude or restrict the issue of |
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(3) | A public limited company may only issue redeemable shares if it is authorised |
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to do so by its articles. |
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(4) | No redeemable shares may be issued at a time when there are no issued shares |
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of the company that are not redeemable. |
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