Company Law Reform Bill [HL] (343-346)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (343-346)

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
343

724
Available profits
(1)
For the purposes of this Chapter the available profits of the company, in
relation to the redemption or purchase of any shares, are the profits of the
company that are available for distribution (within the meaning of Part 24).
(2)
But the question whether a company has any profits so available, and the
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amount of any such profits, shall be determined in accordance with section 725
instead of in accordance with sections 839 to 845 in that Part.
725
Determination of available profits
(1)
The available profits of the company are determined as follows.
(2)
First, determine the profits of the company by reference to the following items
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as stated in the relevant accounts—
(a)
profits, losses, assets and liabilities,
(b)
provisions of the following kinds—
(i)
where the relevant accounts are Companies Act accounts,
provisions of a kind specified for the purposes of this subsection
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by regulations under section 402;
(ii)
where the relevant accounts are IAS accounts, provisions of any
kind;
(c)
share capital and reserves (including undistributable reserves).
(3)
Second, reduce the amount so determined by the amount of—
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(a)
any distribution lawfully made by the company, and
(b)
any other relevant payment lawfully made by the company out of
distributable profits,

after the date of the relevant accounts and before the end of the relevant period.
(4)
For this purpose “other relevant payment lawfully made” includes—
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(a)
financial assistance lawfully given out of distributable profits in
accordance with Chapter 2 of this Part,
(b)
payments lawfully made out of distributable profits in respect of the
purchase by the company of any shares in the company, and
(c)
payments of any description specified in section 718 (payments other
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than purchase price to be made out of distributable profits) lawfully
made by the company.
(5)
The resulting figure is the amount of available profits.
(6)
For the purposes of this section “the relevant accounts” are any accounts that—
(a)
are prepared as at a date within the relevant period, and
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(b)
are such as to enable a reasonable judgment to be made as to the
amounts of the items mentioned in subsection (2).
(7)
In this section “the relevant period” means the period of three months ending
with the date on which the directors’ statement is made in accordance with
section 727.
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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
344

Requirements for payment out of capital
726
Requirements for payment out of capital
(1)
A payment out of capital by a private company for the redemption or purchase
of its own shares is not lawful unless the requirements of the following sections
are met—
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section 727 (directors’ statement and auditor’s report);
section 729 (approval by special resolution);
section 732 (public notice of proposed payment);
section 733 (directors’ statement and auditor’s report to be available for
inspection)
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(2)
This is subject to any order of the court under section 734 (power of court to
extend period for compliance on application by persons objecting to payment).
727
Directors’ statement and auditor’s report
(1)
The company’s directors must make a statement in accordance with this
section.
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(2)
The statement must specify the amount of the permissible capital payment for
the shares in question.
(3)
It must state that, having made full inquiry into the affairs and prospects of the
company, the directors have formed the opinion—
(a)
as regards its initial situation immediately following the date on which
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the payment out of capital is proposed to be made, that there will be no
grounds on which the company could then be found unable to pay its
debts, and
(b)
as regards its prospects for the year immediately following that date,
that having regard to—
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(i)
their intentions with respect to the management of the company
business during that year, and
(ii)
the amount and character of the financial resources that will in
their view be available to the company during that year,

the company will be able to continue to carry on business as a going
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concern (and will accordingly be able to pay its debts as they fall due)
throughout that year.
(4)
In forming their opinion for the purposes of subsection (3)(a), the directors
must take into account all of the company’s liabilities (including any
contingent or prospective liabilities).
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(5)
The directors’ statement must be in the prescribed form and must contain such
information with respect to the nature of the company’s business as may be
prescribed.
(6)
It must in addition have annexed to it a report addressed to the directors by the
company’s auditor stating that—
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(a)
he has inquired into the company’s state of affairs,
(b)
the amount specified in the statement as the permissible capital
payment for the shares in question is in his view properly determined
in accordance with sections 723 to 725, and

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
345

(c)
he is not aware of anything to indicate that the opinion expressed by the
directors in their statement as to any of the matters mentioned in
subsection (3) above is unreasonable in all the circumstances.
728
Directors’ statement: offence if no reasonable grounds for opinion
(1)
If the directors make a statement under section 727 without having reasonable
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grounds for the opinion expressed in it, an offence is committed by every
director who is in default.
(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);
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(b)
on summary conviction—
(i)
in England and Wales, to imprisonment for a term not
exceeding twelve months or a fine not exceeding the statutory
maximum (or both);
(ii)
in Scotland or Northern Ireland, to imprisonment for a term not
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exceeding six months or a fine not exceeding the statutory
maximum (or both).
729
Payment to be approved by special resolution
(1)
The payment out of capital must be approved by a special resolution of the
company.
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(2)
The resolution must be passed on, or within the week immediately following,
the date on which the directors make the statement required by section 727.
(3)
A resolution under this section is subject to—
section 730 (exercise of voting rights), and
section 731 (disclosure of directors’ statement and auditors’ report).
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730
Resolution authorising payment: exercise of voting rights
(1)
This section applies to a resolution under section 729 (authority for payment
out of capital for redemption or purchase of own shares).
(2)
Where the resolution is proposed as a written resolution, a member who holds
shares to which the resolution relates is not an eligible member.
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(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
voting on the resolution, and
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(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
votes in respect of them on a poll on the question whether the
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resolution shall be passed, but also if he votes on the resolution
otherwise than on a poll;

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
346

(b)
notwithstanding anything in the company’s articles, any member of the
company may demand a poll on that question;
(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.
731
Resolution authorising payment: disclosure of directors’ statement and
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auditors’ report
(1)
This section applies to a resolution under section 729 (resolution authorising
payment out of capital for redemption or purchase of own shares).
(2)
The directors’ statement and auditors’ report under section 727 must be made
available to members—
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(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 at the meeting.
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(3)
The resolution is ineffective if this requirement is not complied with.
732
Public notice of proposed payment
(1)
Within the week immediately following the date of the resolution under
section 729 the company must cause to be published in the Gazette a notice—
(a)
stating that the company has approved a payment out of capital for the
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purpose of acquiring its own shares by redemption or purchase or both
(as the case may be),
(b)
specifying—
(i)
the amount of the permissible capital payment for the shares in
question, and
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(ii)
the date of the resolution,
(c)
stating that the directors’ statement and auditor’s report required by
section 727 are available for inspection at the company’s registered
office, and
(d)
stating that any creditor of the company may at any time within the five
30
weeks immediately following the date of the resolution apply to the
court under section 734 for an order preventing the payment.
(2)
Within the week immediately following the date of the resolution the company
must also either—
(a)
cause a notice to the same effect as that required by subsection (1) to be
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published in an appropriate national newspaper, or
(b)
give notice in writing to that effect to each of its creditors.
(3)
“An appropriate national newspaper” means a newspaper circulating
throughout the part of the United Kingdom in which the company is
registered.
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(4)
Not later than the day on which the company—
(a)
first publishes the notice required by subsection (1), or
(b)
if earlier, first publishes or gives the notice required by subsection (2),

the company must deliver to the registrar a copy of the directors’ statement
and auditor’s report required by section 727.
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