Company Law Reform Bill [HL] (332-335)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (332-335)

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 3 — Redeemable shares
332

698
Terms and manner of redemption
(1)
The directors of a limited company may determine the terms, conditions and
manner of redemption of shares if they are authorised to do so—
(a)
by the company’s articles, or
(b)
by a resolution of the company.
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(2)
A resolution under subsection (1)(b) may be an ordinary resolution, even
though it amends the company’s articles.
(3)
Where the directors are authorised under subsection (1) to determine the
terms, conditions and manner of redemption of shares—
(a)
they must do so before the shares are allotted, and
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(b)
any obligation of the company to state in a statement of capital the
rights attached to the shares extends to the terms, conditions and
manner of redemption.
(4)
Where the directors are not so authorised, the terms, conditions and manner of
redemption of any redeemable shares must be stated in the company’s articles.
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699
Payment for redeemable shares
(1)
Redeemable shares in a limited company may not be redeemed unless they are
fully paid.
(2)
The terms of redemption of shares in a limited company may provide that the
amount payable on redemption may, by agreement between the company and
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the holder of the shares, be paid on a date later than the redemption date.
(3)
Unless redeemed in accordance with provision authorised by subsection (2),
the shares must be paid for on redemption.
700
Financing of redemption
(1)
A private limited company may redeem redeemable shares out of capital in
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accordance with Chapter 5 of this Part.
(2)
Subject to that, redeemable shares in a limited company may only be redeemed
out of—
(a)
distributable profits of the company, or
(b)
the proceeds of a fresh issue of shares made for the purposes of the
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redemption.
(3)
Any premium payable on redemption of shares in a limited company must be
paid out of distributable profits of the company, subject to the following
provision.
(4)
If the redeemable shares were issued at a premium, any premium payable on
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their redemption may be paid out of the proceeds of a fresh issue of shares
made for the purposes of the redemption, up to an amount equal to—
(a)
the aggregate of the premiums received by the company on the issue of
the shares redeemed, or
(b)
the current amount of the company’s share premium account
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(including any sum transferred to that account in respect of premiums
on the new shares),

whichever is the less.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 4 — Purchase of own shares
333

(5)
The amount of the company’s share premium account is reduced by a sum
corresponding (or by sums in the aggregate corresponding) to the amount of
any payment made under subsection (3).
(6)
This section is subject to section 748(4) (terms of redemption enforceable in a
winding up).
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701
Redeemed shares treated as cancelled
Where shares in a limited company are redeemed—
(a)
the shares are treated as cancelled, and
(b)
the amount of the company’s issued share capital is diminished
accordingly by the nominal value of the shares redeemed.
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702
Notice to registrar of redemption
(1)
If a limited company redeems any redeemable shares it must within one month
after doing so give notice to the registrar, specifying the shares redeemed.
(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
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immediately following the redemption—
(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,
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(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
premium).
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(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
conviction to a fine not exceeding level 3 on the standard scale and, for
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continued contravention, a daily default fine not exceeding one-tenth of level
3 on the standard scale.
Chapter 4
Purchase of own shares
General provisions
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703
Power of limited company to purchase own shares
(1)
A limited company having a share capital may purchase its own shares
(including any redeemable shares), subject to—
(a)
the following provisions of this Chapter, and

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 4 — Purchase of own shares
334

(b)
any restriction or prohibition in the company’s articles.
(2)
A limited company may not purchase its own shares if as a result of the
purchase there would no longer be any issued shares of the company other
than redeemable shares or shares held as treasury shares.
704
Payment for purchase of own shares
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(1)
A limited company may not purchase its own shares unless they are fully paid.
(2)
Where a limited company purchases its own shares, the shares must be paid
for on purchase.
705
Financing of purchase of own shares
(1)
A private limited company may purchase its own shares out of capital in
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accordance with Chapter 5 of this Part.
(2)
Subject to that—
(a)
a limited company may only purchase its own shares out of—
(i)
distributable profits of the company, or
(ii)
the proceeds of a fresh issue of shares made for the purpose of
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financing the purchase, and
(b)
any premium payable on the purchase by a limited company of its own
shares must be paid out of distributable profits of the company, subject
to subsection (3).
(3)
If the shares to be purchased were issued at a premium, any premium payable
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on their purchase by the company may be paid out of the proceeds of a fresh
issue of shares made for the purpose of financing the purchase, up to an
amount equal to—
(a)
the aggregate of the premiums received by the company on the issue of
the shares purchased, or
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(b)
the current amount of the company’s share premium account
(including any sum transferred to that account in respect of premiums
on the new shares),

whichever is the less.
(4)
The amount of the company’s share premium account is reduced by a sum
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corresponding (or by sums in the aggregate corresponding) to the amount of
any payment made under subsection (3).
(5)
This section has effect subject to section 748(4) (terms of purchase enforceable
in a winding up).
Authority for purchase of own shares
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706
Authority for purchase of own shares
(1)
A limited company may only purchase its own shares—
(a)
by an off-market purchase, in pursuance of a contract approved in
advance in accordance with section 707;
(b)
by a market purchase, authorised in accordance with section 714.
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(2)
A purchase is “off-market” if the shares either—

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 4 — Purchase of own shares
335

(a)
are purchased otherwise than on a recognised investment exchange, or
(b)
are purchased on a recognised investment exchange but are not subject
to a marketing arrangement on the exchange.
(3)
For this purpose a company’s shares are subject to a marketing arrangement
on a recognised investment exchange if—
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(a)
they are listed under Part 6 of the Financial Services and Markets Act
2000 (c. 8), or
(b)
the company has been afforded facilities for dealings in the shares to
take place on the exchange—
(i)
without prior permission for individual transactions from the
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authority governing that investment exchange, and
(ii)
without limit as to the time during which those facilities are to
be available.
(4)
A purchase is a “market purchase” if it is made on a recognised investment
exchange and is not an off-market purchase by virtue of subsection (2)(b).
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(5)
In this section “recognised investment exchange” means a recognised
investment exchange (within the meaning of Part 18 of the Financial Services
and Markets Act 2000) other than an overseas exchange (within the meaning of
that Part).
Authority for off-market purchase
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707
Authority for off-market purchase
(1)
A company may only make an off-market purchase of its own shares in
pursuance of a contract approved in advance in accordance with this section.
(2)
Either—
(a)
the terms of the proposed contract must be authorised by special
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resolution of the company before the contract is entered into, or
(b)
the purchase must be in pursuance of a contingent purchase contract
authorised by special resolution of the company before it was entered
into.
(3)
A “contingent purchase contract” means a contract, entered into by the
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company and relating to shares in the company, that does not amount to a
contract to purchase the shares but under which the company may (subject to
any conditions) become entitled or obliged to purchase the shares.
(4)
The authority conferred by a resolution under this section may be varied,
revoked or from time to time renewed by a special resolution of the company.
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(5)
In the case of a public company a resolution conferring, varying or renewing
authority must specify a date on which the authority is to expire, which must
not be later than 18 months after the date on which the resolution is passed.
(6)
A resolution conferring, varying, revoking or renewing authority under this
section is subject to—
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section 708 (exercise of voting rights), and
section 709 (disclosure of details of contract).