Company Law Reform Bill [HL] (336-342)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (336-342)

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
336

708
Resolution authorising off-market purchase: exercise of voting rights
(1)
This section applies to a resolution to confer, vary, revoke or renew authority
for the purposes of section 707 (authority for off-market purchase of own
shares).
(2)
Where the resolution is proposed as a written resolution, a member who holds
5
shares to which the resolution relates is not an eligible member.
(3)
Where the resolution is proposed at a meeting of the company, it is not
effective if—
(a)
any member of the company holding shares to which the resolution
relates exercises the voting rights carried by any of those shares in
10
voting on the resolution, and
(b)
the resolution would not have been passed if he had not done so.
(4)
For this purpose—
(a)
a member who holds shares to which the resolution relates is regarded
as exercising the voting rights carried by those shares not only if he
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votes in respect of them on a poll on the question whether the
resolution shall be passed, but also if he votes on the resolution
otherwise than on a poll;
(b)
notwithstanding anything in the company’s articles, any member of the
company may demand a poll on that question;
20
(c)
a vote and a demand for a poll by a person as proxy for a member are
the same respectively as a vote and a demand by the member.
709
Resolution authorising off-market purchase: disclosure of details of contract
(1)
This section applies in relation to a resolution to confer, vary, revoke or renew
authority for the purposes of section 707 (authority for off-market purchase of
25
own shares).
(2)
A copy of the proposed contract (if it is in writing) or a memorandum setting
out its terms (if it is not) must be made available to members—
(a)
in the case of a written resolution, by being sent or submitted to every
eligible member at or before the time at which the proposed resolution
30
is sent or submitted to him;
(b)
in the case of a resolution at a meeting, by being made available for
inspection by members of the company both—
(i)
at the company’s registered office for not less than 15 days
ending with the date of the meeting, and
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(ii)
at the meeting itself.
(3)
A memorandum of contract terms so made available must include the names
of the members holding shares to which the contract relates.
(4)
A copy of the contract so made available must have annexed to it a written
memorandum specifying such of those names as do not appear in the contract
40
itself.
(5)
The resolution is not validly passed if the requirements of this section are not
complied with

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
337

710
Variation of contract for off-market purchase
(1)
A company may only agree to a variation of a contract authorised under
section 707 (authority for off-market purchase) if the variation is approved in
advance in accordance with this section.
(2)
The terms of the variation must be authorised by a special resolution of the
5
company before it is agreed to.
(3)
That authority may be varied, revoked or from time to time renewed by a
special resolution of the company.
(4)
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
10
not be later than 18 months after the date on which the resolution is passed.
(5)
A resolution conferring, varying, revoking or renewing authority under this
section is subject to—
section 711 (exercise of voting rights), and
section 712 (disclosure of details of variation).
15
711
Resolution authorising variation: exercise of voting rights
(1)
This section applies to a resolution to confer, vary, revoke or renew authority
for the purposes of section 710 (variation of contract for off-market purchase of
own shares).
(2)
Where the resolution is proposed as a written resolution, a member who holds
20
shares to which the resolution relates is not an eligible member.
(3)
Where the resolution is proposed at a meeting of the company, it is not
effective if—
(a)
any member of the company holding shares to which the resolution
relates exercises the voting rights carried by any of those shares in
25
voting on the resolution, and
(b)
the resolution would not have been passed if he had not done so.
(4)
For this purpose—
(a)
a member who holds shares to which the resolution relates is regarded
as exercising the voting rights carried by those shares not only if he
30
votes in respect of them on a poll on the question whether the
resolution shall be passed, but also if he votes on the resolution
otherwise than on a poll;
(b)
notwithstanding anything in the company’s articles, any member of the
company may demand a poll on that question; and
35
(c)
a vote and a demand for a poll by a person as proxy for a member are
the same respectively as a vote and a demand by the member.
712
Resolution authorising variation: disclosure of details of variation
(1)
This section applies in relation to a resolution under section 710 (variation of
contract for off-market purchase of own shares).
40
(2)
A copy of the proposed variation (if it is in writing) or a written memorandum
giving details of the proposed variation (if it is not) must be made available to
members—

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
338

(a)
in the case of a written resolution, by being sent or submitted to every
eligible member at or before the time at which the proposed resolution
is sent or submitted to him;
(b)
in the case of a resolution at a meeting, by being made available for
inspection by members of the company both—
5
(i)
at the company’s registered office for not less than 15 days
ending with the date of the meeting, and
(ii)
at the meeting itself.
(3)
There must also be made available as mentioned in subsection (2) a copy of the
original contract or, as the case may be, a memorandum of its terms, together
10
with any variations previously made.
(4)
A memorandum of the proposed variation so made available must include the
names of the members holding shares to which the variation relates.
(5)
A copy of the proposed variation so made available must have annexed to it a
written memorandum specifying such of those names as do not appear in the
15
variation itself.
(6)
The resolution is not validly passed if the requirements of this section are not
complied with.
713
Release of company’s rights under contract for off-market purchase
(1)
An agreement by a company to release its rights under a contract approved
20
under section 707 (authorisation of off-market purchase) is void unless the
terms of the release agreement are approved in advance in accordance with
this section.
(2)
The terms of the proposed agreement must be authorised by a special
resolution of the company before the agreement is entered into.
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(3)
That authority may be varied, revoked or from time to time renewed by a
special resolution of the company.
(4)
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.
30
(5)
The provisions of—
section 711 (exercise of voting rights), and
section 712 (disclosure of details of variation),

apply to a resolution authorising a proposed release agreement as they apply
to a resolution authorising a proposed variation.
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Authority for market purchase
714
Authority for market purchase
(1)
A company may only make a market purchase of its own shares if the purchase
has first been authorised by a resolution of the company.
(2)
That authority—
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(a)
may be general or limited to the purchase of shares of a particular class
or description, 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
339

(b)
may be unconditional or subject to conditions.
(3)
The authority must—
(a)
specify the maximum number of shares authorised to be acquired, and
(b)
determine both the maximum and minimum prices that may be paid
for the shares.
5
(4)
The authority may be varied, revoked or from time to time renewed by a
resolution of the company.
(5)
A resolution conferring, varying or renewing authority must specify a date on
which it is to expire, which must not be later than 18 months after the date on
which the resolution is passed.
10
(6)
A company may make a purchase of its own shares after the expiry of the time
limit specified if—
(a)
the contract of purchase was concluded before the authority expired,
and
(b)
the terms of the authority permitted the company to make a contract of
15
purchase that would or might be executed wholly or partly after its
expiration.
(7)
A resolution to confer or vary authority under this section may determine
either or both the maximum and minimum price for purchase by—
(a)
specifying a particular sum, or
20
(b)
providing a basis or formula for calculating the amount of the price (but
without reference to any person’s discretion or opinion).
Supplementary provisions
715
Copy of contract or memorandum to be available for inspection
(1)
This section applies where a company has entered into—
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(a)
a contract approved under section 707 (authorisation of contract for off-
market purchase), or
(b)
a contract for a purchase authorised under section 714 (authorisation of
market purchase).
(2)
The company must keep available for inspection at its registered office—
30
(a)
a copy of the contract, or
(b)
if the contract is not in writing, a written memorandum setting out its
terms.
(3)
The copy or memorandum must be kept available for inspection from the
conclusion of the contract until the end of the period of ten years beginning
35
with—
(a)
the date on which the purchase of all the shares in pursuance of the
contract is completed or,
(b)
the date on which the contract otherwise determines.
(4)
Every copy or memorandum required to be kept under this section must be
40
kept open to inspection without charge—
(a)
by any member of the company, and
(b)
in the case of a public company, by any other person.

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
340

(5)
The provisions of this section apply to a variation of a contract as they apply to
the original contract.
716
Enforcement of right to inspect copy or memorandum
(1)
If default is made in complying with section 715(2) or (3), or an inspection
required under section 715(4) is refused, an offence is committed by every
5
officer of the company who is in default.
(2)
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.
10
(3)
In the case of refusal of an inspection required under section 715(4) the court
may by order compel an immediate inspection.
717
No assignment of company’s right to purchase own shares
The rights of a company under a contract authorised under—
(a)
section 707 (authority for off-market purchase), or
15
(b)
section 714 (authority for market purchase)
are not capable of being assigned.
718
Payments apart from purchase price to be made out of distributable profits
(1)
A payment made by a company in consideration of—
(a)
acquiring any right with respect to the purchase of its own shares in
20
pursuance of a contingent purchase contract approved under section
707 (authorisation of off-market purchase),
(b)
the variation of any contract approved under that section, or
(c)
the release of any of the company’s obligations with respect to the
purchase of any of its own shares under a contract—
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(i)
approved under section 707, or
(ii)
authorised under section 714 (authorisation of market
purchase),

must be made out of the company’s distributable profits.
(2)
If this requirement is not met in relation to a contract, then—
30
(a)
in a case within subsection (1)(a), no purchase by the company of its
own shares in pursuance of that contract may be made under this
Chapter;
(b)
in a case within subsection (1)(b), no such purchase following the
variation may be made under this Chapter;
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(c)
in a case within subsection (1)(c), the purported release is void.
719
Treatment of shares purchased
Where a limited company makes a purchase of its own shares in accordance
with this Chapter, then—
(a)
if section 737 (treasury shares) applies, the shares may be held and dealt
40
with in accordance with Chapter 6 of this Part;
(b)
if that section does not apply—

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
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(i)
the shares are treated as cancelled, and
(ii)
the amount of the company’s issued share capital is diminished
accordingly by the nominal value of the shares cancelled.
720
Return to registrar of purchase of own shares
(1)
Where a company purchases shares under this Chapter, it must deliver a
5
return to the registrar within the period of 28 days beginning with the date on
which the shares are delivered to it.
(2)
The return must distinguish—
(a)
shares in relation to which section 737 (treasury shares) applies and
shares in relation to which that section does not apply, and
10
(b)
shares in relation to which that section applies—
(i)
that are cancelled forthwith (under section 742 (cancellation of
treasury shares)), and
(ii)
that are not so cancelled.
(3)
The return must state, with respect to shares of each class purchased—
15
(a)
the number and nominal value of the shares, and
(b)
the date on which they were delivered to the company.
(4)
In the case of a public company the return must also state—
(a)
the aggregate amount paid by the company for the shares, and
(b)
the maximum and minimum prices paid in respect of shares of each
20
class purchased.
(5)
Particulars of shares delivered to the company on different dates and under
different contracts may be included in a single return.

In such a case the amount required to be stated under subsection (4)(a) is the
aggregate amount paid by the company for all the shares to which the return
25
relates.
(6)
If default is made in complying with this section an offence is committed by
every officer of the company who is in default.
(7)
A person guilty of an offence under this section is liable—
(a)
on conviction on indictment, to a fine;
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(b)
on summary conviction to a fine not exceeding the statutory maximum
and, for continued contravention, a daily default fine not exceeding
one-tenth of the statutory maximum.
721
Notice to registrar of cancellation of shares
(1)
If on the purchase by a company of any of its own shares in accordance with
35
this Part—
(a)
section 737 (treasury shares) does not apply (so that the shares are
treated as cancelled), or
(b)
that section applies but the shares are cancelled forthwith (under
section 742 (cancellation of treasury shares)),
40

the company must give notice of cancellation to the registrar, within the period
of 28 days beginning with the date on which the shares are delivered to it,
specifying the shares cancelled.
(2)
The notice must be accompanied by a statement of capital.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 5 — Redemption or purchase by private company out of capital
342

(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—
5
(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
10
premium).
(4)
If default is made in complying 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
15
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.
Chapter 5
Redemption or purchase by private company out of capital
20
Introductory
722
Power of private limited company to redeem or purchase own shares out of
capital
(1)
A private limited company may in accordance with this Chapter, but subject to
any restriction or prohibition in the company’s articles, make a payment in
25
respect of the redemption or purchase of its own shares otherwise than out of
distributable profits or the proceeds of a fresh issue of shares.
(2)
References below in this Chapter to payment out of capital are to any payment
so made, whether or not it would be regarded apart from this section as a
payment out of capital.
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The permissible capital payment
723
The permissible capital payment
(1)
The payment that may, in accordance with this Chapter, be made by a
company out of capital in respect of the redemption or purchase of its own
shares is such amount as, after applying for that purpose—
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(a)
any available profits of the company, and
(b)
the proceeds of any fresh issue of shares made for the purposes of the
redemption or purchase,

is required to meet the price of redemption or purchase.
(2)
That is referred to below in this Chapter as “the permissible capital payment”
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for the shares.