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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.

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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—

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(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,

 
 

 
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