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Company Law Reform Bill [HL] (328-331)


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

328

 

Circumstances in which financial assistance prohibited

691     

Assistance for acquisition of shares in public company

(1)   

Where a person is acquiring or proposing to acquire shares in a public

company, it is not lawful for the company or any of its subsidiaries to give

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.

(2)   

Subsection (1) does not prohibit a company from giving financial assistance for

the acquisition of shares in it or its holding company if—

(a)   

the company’s principal purpose in giving the assistance is not to give

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

some larger purpose of the company,

   

and the assistance is given in good faith in the interests of the company.

(3)   

Where—

(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

of the acquisition,

   

it is not lawful for the company or any of its subsidiaries to give financial

assistance directly or indirectly for the purpose of reducing or discharging the

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

if—

(a)   

the company’s principal purpose in giving the assistance is not to

reduce or discharge any liability incurred by a person for the purpose

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

of some larger purpose of the company,

   

and the assistance is given in good faith in the interests of the company.

(5)   

This section has effect subject to sections 694 and 695 (unconditional and

conditional exceptions to prohibition).

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692     

Assistance by public company for acquisition of shares in its private holding

company

(1)   

Where a person is acquiring or proposing to acquire shares in a private

company, it is not lawful for a public company that is a subsidiary of that

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.

(2)   

Subsection (1) does not prohibit a company from giving financial assistance for

the acquisition of shares in its holding company if—

(a)   

the company’s principal purpose in giving the assistance is not to give

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

some larger purpose of the company,

   

and the assistance is given in good faith in the interests of the company.

(3)   

Where—

(a)   

a person has acquired shares in a private company, and

45

 
 

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

329

 

(b)   

a liability has been incurred (by that or another person) for the purpose

of the acquisition,

   

it is not lawful for a public company that is a subsidiary of that company to give

financial assistance directly or indirectly for the purpose of reducing or

discharging the liability.

5

(4)   

Subsection (3) does not prohibit a company from giving financial assistance

if—

(a)   

the company’s principal purpose in giving the assistance is not to

reduce or discharge any liability incurred by a person for the purpose

of the acquisition of shares in its holding company, or

10

(b)   

the reduction or discharge of any such liability is only an incidental part

of some larger purpose of the company,

   

and the assistance is given in good faith in the interests of the company.

(5)   

This section has effect subject to sections 694 and 695 (unconditional and

conditional exceptions to prohibition).

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693     

Prohibited financial assistance an offence

(1)   

If a company contravenes section 691(1) or (3) or section 692(1) or (3)

(prohibited financial assistance) an offence is committed by—

(a)   

the company, and

(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—

(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

25

exceeding twelve months or to a fine not exceeding the

statutory maximum (or both);

(ii)   

in Scotland or Northern Ireland, to imprisonment for a term not

exceeding six months, or to a fine not exceeding the statutory

maximum (or both).

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Exceptions from prohibition

694     

Unconditional exceptions

(1)   

Neither section 691 nor section 692 prohibits a transaction to which this section

applies.

(2)   

Those transactions are—

35

(a)   

a distribution of the company’s assets by way of—

(i)   

dividend lawfully made, or

(ii)   

distribution in the course of a company’s winding up;

(b)   

an allotment of bonus shares;

(c)   

a reduction of capital under Chapter 10 of Part 18;

40

(d)   

a redemption of shares under Chapter 3 or a purchase of shares under

Chapter 4 of this Part;

 
 

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

330

 

(e)   

anything done in pursuance of an order of the court under Part 27

(order sanctioning compromise or arrangement with members or

creditors);

(f)   

any thing done under an arrangement made in pursuance of section

110 of the Insolvency Act 1986 (c. 45) or Article 96 of the Insolvency

5

(Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)) (liquidator in

winding up accepting shares as consideration for sale of company’s

property);

(g)   

anything done under an arrangement made between a company and its

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)

Order 1989 (S.I. 1989/2405 (N.I. 19)).

695     

Conditional exceptions

(1)   

Neither section 691 nor section 692 prohibits a transaction to which this section

applies—

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(a)   

in the case of a private company, or

(b)   

in the case of a public company if—

(i)   

the company has net assets that are not reduced by the giving of

the assistance, or

(ii)   

to the extent that those assets are so reduced, the assistance is

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provided out of distributable profits.

(2)   

The transactions to which this section applies are—

(a)   

the lending of money in the ordinary course of the company’s business;

(b)   

the provision by the company, in good faith in the interests of the

company, of financial assistance for the purposes of an

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employees’ share scheme;

(c)   

the provision of financial assistance by a company or any of its

subsidiaries for the purposes of or in connection with anything done by

the company, or a company in the same group, for the purpose of

enabling or facilitating transactions in shares in the first-mentioned

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company between, and involving the acquisition of beneficial

ownership of those share by—

(i)   

bona fide employees or former employees of that company or of

another company in the same group, or

(ii)   

spouses or civil partners, widows, widowers or surviving civil

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partners, or minor children or step-children of any such

employees or former employees;

(d)   

the making by a company of loans to persons (other than directors)

employed in good faith by the company with a view to enabling those

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.

(3)   

The references in this section to “net assets” are to the amount by which the

aggregate of the company’s assets exceeds the aggregate of its liabilities.

(4)   

For this purpose—

(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

assistance is given, and

(b)   

“liabilities” includes any amount retained as reasonably necessary for

the purpose of providing for a liability the nature of which is clearly

 
 

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 3 — Redeemable shares

331

 

defined and that is either likely to be incurred or certain to be incurred

but uncertain as to amount or as to the date on which it will arise.

(5)   

For the purposes of subsection (2)(c) a company is in the same group as another

company if it is a holding company or subsidiary of that company or a

subsidiary of a holding company of that company.

5

Supplementary

696     

Definitions for this Chapter

(1)   

In this Chapter—

“distributable profits”, in relation to the giving of any financial

assistance—

10

(a)   

means those profits out of which the company could lawfully

make a distribution equal in value to that assistance, and

(b)   

includes, in a case where the financial assistance consists of or

includes, or is treated as arising in consequence of, the sale,

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

would be available for that purpose; and

“distribution” has the same meaning as in Part 24 (distributions) (see

section 832).

(2)   

In this Chapter—

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(a)   

a reference to a person incurring a liability includes his changing his

financial position by making an agreement or arrangement (whether

enforceable or unenforceable, and whether made on his own account or

with any other person) or by any other means, and

(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

of the acquisition of shares includes its giving such assistance for the

purpose of wholly or partly restoring his financial position to what it

was before the acquisition took place.

Chapter 3

30

Redeemable shares

697     

Power of limited company to issue redeemable shares

(1)   

A limited company having a share capital may issue shares that are to be

redeemed or are liable to be redeemed at the option of the company or the

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

redeemable shares.

(3)   

A public limited company may only issue redeemable shares if it is authorised

to do so by its articles.

(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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Revised 28 July 2006