Company Law Reform Bill [HL] (456-462)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (456-462)

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 28 — Takeovers etc
Chapter 3 — “Squeeze-out” and “Sell-out”
456

956
Convertible securities
(1)
For the purposes of this Chapter securities of a company are treated as shares
in the company if they are convertible into or entitle the holder to subscribe for
such shares.

References to the holder of shares or a shareholder are to be read accordingly.
5
(2)
Subsection (1) is not to be read as requiring any securities to be treated—
(a)
as shares of the same class as those into which they are convertible or
for which the holder is entitled to subscribe, or
(b)
as shares of the same class as other securities by reason only that the
shares into which they are convertible or for which the holder is
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entitled to subscribe are of the same class.
957
Debentures carrying voting rights
(1)
For the purposes of this Chapter debentures issued by a company to which
subsection (2) applies are treated as shares in the company if they carry voting
rights.
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(2)
This subsection applies to a company that has voting shares, or debentures
carrying voting rights, which are admitted to trading on a regulated market.
(3)
In this Chapter, in relation to debentures treated as shares by virtue of
subsection (1)—
(a)
references to the holder of shares or a shareholder are to be read
20
accordingly;
(b)
references to shares being allotted are to be read as references to
debentures being issued.
958
Interpretation
(1)
In this Chapter—
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“the company” means the company whose shares are the subject of a
takeover offer;
“date of the offer” means—
(a)
where the offer is published, the date of publication;
(b)
where the offer is not published, or where any notices of the
30
offer are given before the date of publication, the date when
notices of the offer (or the first such notices) are given;
“non-voting shares” means shares that are not voting shares;
“offeror” means (subject to section 954) the person making a takeover
offer;
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“voting rights” means rights to vote at general meetings of the company,
including rights that arise only in certain circumstances;
“voting shares” means shares carrying voting rights.
(2)
For the purposes of this Chapter a person contracts unconditionally to acquire
shares if his entitlement under the contract to acquire them is not (or is no
40
longer) subject to conditions or if all conditions to which it was subject have
been met.

A reference to a contract becoming unconditional is to be read accordingly.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 28 — Takeovers etc
Chapter 4 — Amendments to Part 7 of the Companies Act 1985
457

Chapter 4
Amendments to Part 7 of the Companies Act 1985
959
Matters to be dealt with in directors’ report
(1)
Part 7 of the Companies Act 1985 (c. 6) (accounts and audit) is amended as
follows.
5
(2)
In Schedule 7 (matters to be dealt with in directors’ report), after Part 6 insert—
“Part 7
Disclosure required by certain publicly-traded companies
13    (1)
This Part of this Schedule applies to the directors’ report for a
financial year if the company had securities carrying voting rights
10
admitted to trading on a regulated market at the end of that year.
      (2)
The report shall contain detailed information, by reference to the end
of that year, on the following matters—
(a)
the structure of the company’s capital, including in
particular—
15
(i)
the rights and obligations attaching to the shares or,
as the case may be, to each class of shares in the
company, and
(ii)
where there are two or more such classes, the
percentage of the total share capital represented by
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each class;
(b)
any restrictions on the transfer of securities in the company,
including in particular—
(i)
limitations on the holding of securities, and
(ii)
requirements to obtain the approval of the company,
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or of other holders of securities in the company, for a
transfer of securities;
(c)
in the case of each person with a significant direct or indirect
holding of securities in the company, such details as are
known to the company of—
30
(i)
the identity of the person,
(ii)
the size of the holding, and
(iii)
the nature of the holding;
(d)
in the case of each person who holds securities carrying
special rights with regard to control of the company—
35
(i)
the identity of the person, and
(ii)
the nature of the rights;
(e)
where—
(i)
the company has an employees’ share scheme, and
(ii)
shares to which the scheme relates have rights with
40
regard to control of the company that are not
exercisable directly by the employees,

how those rights are exercisable;
(f)
any restrictions on voting rights, including in particular—

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 28 — Takeovers etc
Chapter 4 — Amendments to Part 7 of the Companies Act 1985
458

(i)
limitations on voting rights of holders of a given
percentage or number of votes,
(ii)
deadlines for exercising voting rights, and
(iii)
arrangements by which, with the company’s co-
operation, financial rights carried by securities are
5
held by a person other than the holder of the
securities;
(g)
any agreements between holders of securities that are known
to the company and may result in restrictions on the transfer
of securities or on voting rights;
10
(h)
any rules that the company has about—
(i)
appointment and replacement of directors, or
(ii)
amendment of the company’s articles of association;
(i)
the powers of the company’s directors, including in
particular any powers in relation to the issuing or buying
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back by the company of its shares;
(j)
any significant agreements to which the company is a party
that take effect, alter or terminate upon a change of control of
the company following a takeover bid, and the effects of any
such agreements;
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(k)
any agreements between the company and its directors or
employees providing for compensation for loss of office or
employment (whether through resignation, purported
redundancy or otherwise) that occurs because of a takeover
bid.
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      (3)
For the purposes of sub-paragraph (2)(a) a company’s capital
includes any securities in the company that are not admitted to
trading on a regulated market.
      (4)
For the purposes of sub-paragraph (2)(c) a person has an indirect
holding of securities if—
30
(a)
they are held on his behalf, or
(b)
he is able to secure that rights carried by the securities are
exercised in accordance with his wishes.
      (5)
Sub-paragraph (2)(j) does not apply to an agreement if—
(a)
disclosure of the agreement would be seriously prejudicial to
35
the company, and
(b)
the company is not under any other obligation to disclose it.
      (6)
In this paragraph—
“securities” means shares or debentures;
“takeover bid” has the same meaning as in the Takeovers
40
Directive;
“the Takeovers Directive” means Directive 2004/25/EC of the
European Parliament and of the Council;
“voting rights” means rights to vote at general meetings of the
company in question, including rights that arise only in
45
certain circumstances.”.
(3)
In section 234ZZA (requirements of directors’ reports), at the end of subsection

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 29 — Fraudulent trading
459

(4) (contents of Schedule 7) insert—
“Part 7 specifies information to be disclosed by certain publicly-
traded companies.”.
(4)
After that subsection insert—
“(5)
A directors’ report shall also contain any necessary explanatory
5
material with regard to information that is required to be included in
the report by Part 7 of Schedule 7.”.
(5)
In section 251 (summary financial statements), after subsection (2ZA) insert—
“(2ZB)
A company that sends to an entitled person a summary financial
statement instead of a copy of its directors’ report shall—
10
(a)
include in the statement the explanatory material required to be
included in the directors’ report by section 234ZZA(5), or
(b)
send that material to the entitled person at the same time as it
sends the statement.

For the purposes of paragraph (b), subsections (2A) to (2E) apply in
15
relation to the material referred to in that paragraph as they apply in
relation to a summary financial statement.”.
(6)
The amendments made by this section apply in relation to directors’ reports for
financial years beginning on or after 20th May 2006.
Part 29
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Fraudulent trading
960
Offence of fraudulent trading
(1)
If any business of a company is carried on with intent to defraud creditors of
the company or creditors of any other person, or for any fraudulent purpose,
every person who is knowingly a party to the carrying on of the business in
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that manner commits an offence.
(2)
This applies whether or not the company has been, or is in the course of being,
wound up.
(3)
A person guilty of an offence under this section is liable—
(a)
on conviction on indictment, to imprisonment for a term not exceeding
30
ten years or a fine (or both);
(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);
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(ii)
in Scotland or Northern Ireland, to imprisonment for a term not
exceeding six months or a fine not exceeding the statutory
maximum (or both).

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 30 — Protection of members against unfair prejudice
460

Part 30
Protection of members against unfair prejudice
Main provisions
961
Petition by company member
(1)
A member of a company may apply to the court by petition for an order under
5
this Part on the ground—
(a)
that the company’s affairs are being or have been conducted in a
manner that is unfairly prejudicial to the interests of members generally
or of some part of its members (including at least himself), or
(b)
that an actual or proposed act or omission of the company (including
10
an act or omission on its behalf) is or would be so prejudicial.
(2)
The provisions of this Part apply to a person who is not a member of a
company but to whom shares in the company have been transferred or
transmitted by operation of law as they apply to a member of a company.
(3)
In this section, and so far as applicable for the purposes of this section in the
15
other provisions of this Part, “company” means—
(a)
a company within the meaning of this Act, or
(b)
a company that is not such a company but is a statutory water company
within the meaning of the Statutory Water Companies Act 1991 (c. 58).
962
Petition by Secretary of State
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(1)
This section applies to a company in respect of which—
(a)
the Secretary of State has received a report under section 437 of the
Companies Act 1985 (c. 6) (inspector’s report);
(b)
the Secretary of State has exercised his powers under section 447 or 448
of that Act (powers to require documents and information or to enter
25
and search premises);
(c)
the Secretary of State or the Financial Services Authority has exercised
his or its powers under Part 11 of the Financial Services and Markets
Act 2000 (c. 8) (information gathering and investigations); or
(d)
the Secretary of State has received a report from an investigator
30
appointed by him or the Financial Services Authority under that Part.
(2)
If it appears to the Secretary of State that in the case of such a company—
(a)
the company’s affairs are being or have been conducted in a manner
that is unfairly prejudicial to the interests of members generally or of
some part of its members, or
35
(b)
an actual or proposed act or omission of the company (including an act
or omission on its behalf) is or would be so prejudicial,

he may apply to the court by petition for an order under this Part.
(3)
The Secretary of State may do this in addition to, or instead of, presenting a
petition for the winding up of the company.
40
(4)
In this section, and so far as applicable for the purposes of this section in the
other provisions of this Part, “company” means any body corporate that is

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 30 — Protection of members against unfair prejudice
461

liable to be wound up under the Insolvency Act 1986 (c. 45) or the Insolvency
(Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)).
963
Powers of the court under this Part
(1)
If the court is satisfied that a petition under this Part is well founded, it may
make such order as it thinks fit for giving relief in respect of the matters
5
complained of.
(2)
Without prejudice to the generality of subsection (1), the court’s order may—
(a)
regulate the conduct of the company’s affairs in the future;
(b)
require the company—
(i)
to refrain from doing or continuing an act complained of, or
10
(ii)
to do an act that the petitioner has complained it has omitted to
do;
(c)
authorise civil proceedings to be brought in the name and on behalf of
the company by such person or persons and on such terms as the court
may direct;
15
(d)
require the company not to make any, or any specified, alterations in its
articles without the leave of the court;
(e)
provide for the purchase of the shares of any members of the company
by other members or by the company itself and, in the case of a
purchase by the company itself, the reduction of the company’s capital
20
accordingly.
Supplementary provisions
964
Application of rule-making powers
The power to make rules under section 411 of the Insolvency Act 1986 (c. 45) or
Article 359 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405
25
(N.I. 19)), so far as relating to a winding-up petition, applies for the purposes
of a petition under this Part.
965
Copy of order affecting company’s articles to be delivered to registrar
(1)
Where an order of the court under this Part—
(a)
alters the company’s articles, or
30
(b)
gives leave for the company to make any, or any specified, alterations
in its articles,

the company must deliver a copy of the order to the registrar.
(2)
It must do so within 14 days from the making of the order or such longer period
as the court may allow.
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(3)
If a company makes default in complying with this section, 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
40
conviction to a fine not exceeding level 3 on the standard scale and, for

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 31 — Dissolution and restoration to the register
Chapter 1 — Striking off
462

continued contravention, a daily default fine not exceeding one-tenth of level
3 on the standard scale.
Part 31
Dissolution and restoration to the register
Chapter 1
5
Striking off
Registrar’s power to strike off defunct company
966
Power to strike off company not carrying on business or in operation
(1)
If the registrar has reasonable cause to believe that a company is not carrying
on business or in operation, the registrar may send to the company by post a
10
letter inquiring whether the company is carrying on business or in operation.
(2)
If the registrar does not within one month of sending the letter receive any
answer to it, the registrar must within 14 days after the expiration of that
month send to the company by post a registered letter referring to the first
letter, and stating—
15
(a)
that no answer to it has been received, and
(b)
that if an answer is not received to the second letter within one month
from its date, a notice will be published in the Gazette with a view to
striking the company’s name off the register.
(3)
If the registrar—
20
(a)
receives an answer to the effect that the company is not carrying on
business or in operation, or
(b)
does not within one month after sending the second letter receive any
answer,

the registrar may publish in the Gazette, and send to the company by post, a
25
notice that at the expiration of three months from the date of the notice the
name of the company mentioned in it will, unless cause is shown to the
contrary, be struck off the register and the company will be dissolved.
(4)
At the expiration of the time mentioned in the notice the registrar may, unless
cause to the contrary is previously shown by the company, strike its name off
30
the register.
(5)
The registrar must publish notice in the Gazette of the company’s name having
been struck off the register.
(6)
On the publication of the notice in the Gazette the company is dissolved.
(7)
However—
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(a)
the liability (if any) of every director, managing officer and member of
the company continues and may be enforced as if the company had not
been dissolved, and
(b)
nothing in this section affects the power of the court to wind up a
company the name of which has been struck off the register.
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