Company Law Reform Bill [HL] (347-353)

House of Commons

Session 2005 - 06
Internet Publications
Other Bills before Parliament

Company Law Reform Bill [HL] (347-353)

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
347

733
Directors’ statement and auditor’s report to be available for inspection
(1)
The directors’ statement and auditor’s report must be kept available for
inspection at the company’s registered office throughout the period—
(a)
beginning with the day on which the company—
(i)
first publishes the notice required by section 732(1), or
5
(ii)
if earlier, first publishes or gives the notice required by section
732(2), and
(b)
ending five weeks after the date of the resolution for payment out of
capital.
(2)
They must be open to the inspection of any member or creditor of the company
10
without charge.
(3)
If an inspection under subsection (2) is refused, an offence is committed by—
(a)
the company, and
(b)
every officer of the company who is in default.
(4)
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.
(5)
In the case of a refusal of an inspection required by subsection (2), the court
may by order compel an immediate inspection.
20
Objection to payment by members or creditors
734
Application to court to cancel resolution
(1)
Where a private company passes a special resolution approving a payment out
of capital for the redemption or purchase of any of its shares—
(a)
any member of the company (other than one who consented to or voted
25
in favour of the resolution), and
(b)
any creditor of the company,

may apply to the court for the cancellation of the resolution.
(2)
The application—
(a)
must be made within five weeks after the passing of the resolution, and
30
(b)
may be made on behalf of the persons entitled to make it by such one
or more of their number as they may appoint in writing for the purpose.
(3)
On an application under this section the court may if it thinks fit—
(a)
adjourn the proceedings in order that an arrangement may be made to
the satisfaction of the court—
35
(i)
for the purchase of the interests of dissentient members, or
(ii)
for the protection of dissentient creditors, and
(b)
give such directions and make such orders as it thinks expedient for
facilitating or carrying into effect any such arrangement.
(4)
Subject to that, the court must make an order either cancelling or confirming
40
the resolution, and may do so on such terms and conditions as it thinks fit.
(5)
If the court confirms the resolution, it may by order alter or extend any date or
period of time specified—

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
348

(a)
in the resolution, or
(b)
in any provision of this Chapter applying to the redemption or
purchase to which the resolution relates.
(6)
The court’s order may, if the court thinks fit—
(a)
provide for the purchase by the company of the shares of any of its
5
members and for the reduction accordingly of the company’s capital,
and
(b)
make any alteration in the company’s articles that may be required in
consequence of that provision.
(7)
The court’s order may, if the court thinks fit, require the company not to make
10
any, or any specified, amendments of its articles without the leave of the court.
735
Notice to registrar of court application or order
(1)
On making an application under section 734 (application to court to cancel
resolution) the applicants, or the person making the application on their behalf,
must immediately give notice to the registrar.
15

This is without prejudice to any provision of rules of court as to service of
notice of the application.
(2)
On being served with notice of any such application, the company must
immediately give notice to the registrar.
(3)
Within 15 days of the making of the court’s order on the application, or such
20
longer period as the court may at any time direct, the company must deliver to
the registrar a copy of the order.
(4)
If a company fails to comply with subsection (2) or (3) an offence is committed
by—
(a)
the company, and
25
(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
continued contravention, a daily default fine not exceeding one-tenth of level
3 on the standard scale.
30
Supplementary provisions
736
When payment out of capital to be made
(1)
The payment out of capital must be made—
(a)
no earlier than five weeks after the date on which the resolution under
section 729 is passed, and
35
(b)
no more than seven weeks after that date.
(2)
This is subject to any exercise of the court’s powers under section 734(5) (power
to alter or extend time where resolution confirmed after objection).

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 6 — Treasury shares
349

Chapter 6
Treasury shares
737
Treasury shares
(1)
This section applies where—
(a)
a limited company makes a purchase of its own shares in accordance
5
with Chapter 4,
(b)
the purchase is made out of distributable profits, and
(c)
the shares are qualifying shares.
(2)
For this purpose “qualifying shares” means shares that—
(a)
are included in the official list in accordance with the provisions of Part
10
6 of the Financial Services and Markets Act 2000 (c. 8),
(b)
are traded on the market known as the Alternative Investment Market
established under the rules of London Stock Exchange plc,
(c)
are officially listed in an EEA State, or
(d)
are traded on a regulated market.
15

In paragraph (a) “the official list” has the meaning given in section 103(1) of the
Financial Services and Markets Act 2000.
(3)
Where this section applies the company may—
(a)
hold the shares (or any of them), or
(b)
deal with any of them, at any time, in accordance with section 740 or
20
742.
(4)
Where shares are held by the company, the company must be entered in its
register of members as the member holding the shares.
(5)
In the Companies Acts references to a company holding shares as treasury
shares are to the company holding shares that—
25
(a)
were (or are treated as having been) purchased by it in circumstances
in which this section applies, and
(b)
have been held by the company continuously since they were so
purchased (or treated as purchased).
738
Treasury shares: maximum holdings
30
(1)
Where a company has shares of only one class, the aggregate nominal value of
shares held as treasury shares must not at any time exceed 10% of the nominal
value of the issued share capital of the company at that time.
(2)
Where the share capital of a company is divided into shares of different classes,
the aggregate nominal value of the shares of any class held as treasury shares
35
must not at any time exceed 10% of the nominal value of the issued share
capital of the shares of that class at that time.
(3)
If subsection (1) or (2) is contravened by a company, the company must dispose
of or cancel the excess shares, in accordance with section 740, before the end of
the period of twelve months beginning with the date on which that
40
contravention occurs.

The “excess shares” means such number of the shares held by the company as
treasury shares at the time in question as resulted in the limit being exceeded.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 6 — Treasury shares
350

(4)
Where a company purchases qualifying shares out of distributable profits in
accordance with section 737, a contravention by the company of subsection (1)
or (2) above does not render the acquisition void under section 671 (general
rule against limited company acquiring its own shares).
739
Treasury shares: exercise of rights
5
(1)
This section applies where shares are held by a company as treasury shares.
(2)
The company must not exercise any right in respect of the treasury shares, and
any purported exercise of such a right is void.

This applies, in particular, to any right to attend or vote at meetings.
(3)
No divided may be paid, and no other distribution (whether in cash or
10
otherwise) of the company’s assets (including any distribution of assets to
members on a winding up) may be made to the company, in respect of the
treasury shares.
(4)
Nothing in this section prevents—
(a)
an allotment of shares as fully paid bonus shares in respect of the
15
treasury shares, or
(b)
the payment of any amount payable on the redemption of the treasury
shares (if they are redeemable shares).
(5)
Shares allotted as fully paid bonus shares in respect of the treasury shares are
treated as if purchased by the company, at the time they were allotted, in
20
circumstances in which section 737(1) (treasury shares) applied.
740
Treasury shares: disposal
(1)
Where shares are held as treasury shares, the company may at any time—
(a)
sell the shares (or any of them) for a cash consideration, or
(b)
transfer the shares (or any of them) for the purposes of or pursuant to
25
an employees’ share scheme.
(2)
In subsection (1)(a) “cash consideration” means—
(a)
cash received by the company, or
(b)
a cheque received by the company in good faith that the directors have
no reason for suspecting will not be paid, or
30
(c)
a release of a liability of the company for a liquidated sum, or
(d)
an undertaking to pay cash to the company on or before a date not more
than 90 days after the date on which the company agrees to sell the
shares.

For this purpose “cash” includes foreign currency.
35
(3)
If the company receives a notice under section 946 (takeover offers: right of
offeror to buy out minority shareholders) that a person desires to acquire
shares held by the company as treasury shares, the company must not sell or
transfer the shares to which the notice relates except to that person.
741
Treasury shares: notice of disposal
40
(1)
Where shares held by a company as treasury shares—
(a)
are sold, or
(b)
are transferred for the purposes of an employees’ share scheme,

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 6 — Treasury shares
351


the company must deliver a return to the registrar not later than 28 days after
the shares are disposed of.
(2)
The return must state with respect to shares of each class disposed of—
(a)
the number and nominal value of the shares, and
(b)
the date on which they were disposed of.
5
(3)
Particulars of shares disposed of on different dates may be included in a single
return.
(4)
If default is made in complying with this section an offence is committed by
every officer of the company who is in default.
(5)
A person guilty of an offence under this section is liable—
10
(a)
on conviction on indictment, to a fine;
(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.
742
Treasury shares: cancellation
15
(1)
Where shares are held as treasury shares, the company may at any time cancel
the shares (or any of them).
(2)
If shares held as treasury shares cease to be qualifying shares, the company
must forthwith cancel the shares.
(3)
For this purpose shares are not to be regarded as ceasing to be qualifying
20
shares by virtue only of—
(a)
the suspension of their listing in accordance with the applicable rules in
the EEA state in which the shares are officially listed, or
(b)
the suspension of their trading in accordance with—
(i)
in the case of shares traded on the market known as the
25
Alternative Investment Market, the rules of London Stock
Exchange plc, and
(ii)
in any other case, the rules of the regulated market on which
they are traded.
(4)
If company cancels shares held as treasury shares, the amount of the
30
company’s share capital is reduced accordingly by the nominal amount of the
shares cancelled.
(5)
The directors may take any steps required to enable the company to cancel its
shares under this section without complying with the provisions of Chapter 10
of Part 18 (reduction of share capital).
35
743
Treasury shares: notice of cancellation
(1)
Where shares held by a company as treasury shares are cancelled, the company
must deliver a return to the registrar not later than 28 days after the shares are
cancelled.

This does not apply to shares that are cancelled forthwith on their acquisition
40
by the company (see section 721).
(2)
The return must state with respect to shares of each class cancelled—
(a)
the number and nominal value of the shares, and

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 6 — Treasury shares
352

(b)
the date on which they were cancelled.
(3)
Particulars of shares cancelled on different dates may be included in a single
return.
(4)
The notice must be accompanied by a statement of capital.
(5)
The statement of capital must state with respect to the company’s share capital
5
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—
(i)
prescribed particulars of the rights attached to the shares,
10
(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).
15
(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;
(b)
on summary conviction, to a fine not exceeding the statutory maximum
20
and, for continued contravention, a daily default fine not exceeding
one-tenth of the statutory maximum.
744
Treasury shares: treatment of proceeds of sale
(1)
Where shares held as treasury shares are sold, the proceeds of sale must be
dealt with in accordance with this section.
25
(2)
If the proceeds of sale are equal to or less than the purchase price paid by the
company for the shares, the proceeds are treated for the purposes of Part 24
(distributions) as a realised profit of the company.
(3)
If the proceeds of sale exceed the purchase price paid by the company—
(a)
an amount equal to the purchase price paid is treated as a realised profit
30
of the company for the purposes of that Part, and
(b)
the excess must be transferred to the company’s share premium
account.
(4)
For the purposes of this section—
(a)
the purchase price paid by the company must be determined by the
35
application of a weighted average price method, and
(b)
if the shares were allotted to the company as fully paid bonus shares,
the purchase price paid for them is treated as nil.
745
Treasury shares: offences
(1)
If a company contravenes any of the provisions of this Chapter (except section
40
743 (notice of cancellation)), an offence is committed by—
(a)
the company, and
(b)
every officer of the company who is in default.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 19 — Acquisition by limited company of its own shares
Chapter 7 — Supplementary provisions
353

(2)
A person guilty of an offence under this section is liable—
(a)
on conviction on indictment, to a fine;
(b)
on summary conviction to a fine not exceeding the statutory maximum.
Chapter 7
Supplementary provisions
5
746
The capital redemption reserve
(1)
Where under this Part shares of a limited company are redeemed or purchased
wholly out of the company’s profits, the amount by which the company’s
issued share capital is diminished—
(a)
on cancellation of the shares redeemed or purchased (see section 701 or
10
719(3)), or
(b)
on cancellation of shares held as treasury shares (see section 742),

must be transferred to a reserve, called the “capital redemption reserve”.
(2)
Where—
(a)
the shares are redeemed or purchased wholly or partly out of the
15
proceeds of a fresh issue, and
(b)
the aggregate amount of the proceeds is less than the aggregate
nominal value of the shares redeemed or purchased,

the amount of the difference must be transferred to the capital redemption
reserve.
20
(3)
Subsection (2) does not apply in the case of a private company if, in addition to
the proceeds of the fresh issue, the company applies a payment out of capital
under Chapter 5 in making the purchase of shares.
(4)
The company may use the capital redemption reserve to pay up new shares to
be allotted to members as fully paid bonus shares.
25
(5)
Subject to that, the provisions of the Companies Acts relating to the reduction
of a company’s share capital apply as if the capital redemption reserve were
part of its paid up share capital.
747
Accounting consequences of payment out of capital
(1)
This section applies where a payment out of capital is made in accordance with
30
Chapter 5 (redemption or purchase of own shares by private company out of
capital).
(2)
If the permissible capital payment is less than the nominal amount of the shares
redeemed or purchased, the amount of the difference must be transferred to
the company’s capital redemption reserve.
35
(3)
If the permissible capital payment is greater than the nominal amount of the
shares redeemed or purchased—
(a)
the amount of any capital redemption reserve, share premium account
or fully paid share capital of the company, and
(b)
any amount representing unrealised profits of the company for the
40
time being standing to the credit of any revaluation reserve maintained
by the company,