Companies Act 2006

But special notice is not required under this subsection if the auditor is to cease to hold office by virtue of section 510 , 511A or 516.

• (1A) Special notice is required for a resolution at a general meeting of a public company whose effect would be to appoint a person as auditor in place of a person (the “outgoing auditor”) who, at the time the notice is given, is an auditor of the company and who is to cease to hold office at the end of an accounts meeting.

But special notice is not required under this subsection if the auditor is to cease to hold office by virtue of section 510 , 511A or 516.

• (2) Special notice is required for a resolution at a general meeting of a company whose effect would be to appoint a person as auditor where, at the time the notice is given, the company does not have an auditor and the person proposed to be appointed is not a person (the “outgoing auditor”) who was an auditor of the company when the company last had an auditor.

But this is subject to subsection (2A).

• (2A) Special notice is not required under subsection (2) if—

• (a) a period for appointing auditors has ended or (as the case may be) an accounts meeting of the company has been held since the outgoing auditor ceased to hold office,

• (b) the outgoing auditor ceased to hold office by virtue of section 510 , 511A or 516, or

• (c) the outgoing auditor has previously had the opportunity to make representations with respect to an intended resolution under subsection (4) of this section or a proposed resolution under section 514(4).

• (3) On receipt of notice of ... an intended resolutionmentioned in subsection (1), (1A) or (2) the company shall forthwith send a copy of it to the person proposed to be appointed and to the outgoing auditor.

• (4) The outgoing auditor may make with respect to the intended resolution representations in writing to the company (not exceeding a reasonable length) and request their notification to members of the company.

• (5) The company must (unless the representations are received by it too late for it to do so)—

• (a) in any notice of the resolution given to members of the company, state the fact of the representations having been made, and

• (b) send a copy of the representations to every member of the company to whom notice of the meeting is or has been sent.

• (6) If a copy of any such representations is not sent out as required because received too late or because of the company's default, the outgoing auditor may (without prejudice to his right to be heard orally) require that the representations be read out at the meeting.

• (7) Copies of the representations need not be sent out and the representations need not be read at the meeting if, on the application either of the company or of any other person claiming to be aggrieved, the court is satisfied that the auditor is using the provisions of this section to secure needless publicity for defamatory matter.

The court may order the company's costs (in Scotland, expenses) on the application to be paid in whole or in part by the outgoing auditor, notwithstanding that he is not a party to the application.

Resignation of auditor

Resignation of auditor

516

• (1) An auditor of a company may resign his office by sending a notice to that effect to the company.

• (2) Where the company is a public interest company, the notice is not effective unless it is accompanied by the statement required by section 519.

• (3) An effective notice of resignation operates to bring the auditor's term of office to an end as of the date on which the notice is received or on such later date as may be specified in it.

Notice to registrar of resignation of auditor

517

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Rights of resigning auditor

518

• (1) This section applies where an auditor's (A's) notice of resignation is accompanied by a statement under section 519 except where—.

• (a) the company is a non-public interest company, and

• (b) the statement includes a statement to the effect that A considers that none of the reasons for A's ceasing to hold office, and no matters (if any) connected with A's ceasing to hold office, need to be brought to the attention of members or creditors of the company (as required by section 519(3B)).

• (2) He may send with the notice an authenticated requisition calling on the directors of the company forthwith duly to convene a general meeting of the company for the purpose of receiving and considering such explanation of the reasons for, and matters connected with, his resignation as he may wish to place before the meeting.

• (3) He may request the company to circulate to its members—

• (a) before the meeting convened on his requisition, or

• (b) before any general meeting at which his term of office would otherwise have expired or at which it is proposed to fill the vacancy caused by his resignation,

a statement in writing (not exceeding a reasonable length) of the reasons for, and matters connected with, his resignation.

• (4) The company must (unless the statement is received too late for it to comply)—

• (a) in any notice of the meeting given to members of the company, state the fact of the statement having been made, and

• (b) send a copy of the statement to every member of the company to whom notice of the meeting is or has been sent.

• (5) The directors must within 21 days from the date on which the company receives a requisition under this section proceed duly to convene a meeting for a day not more than 28 days after the date on which the notice convening the meeting is given.

• (6) If default is made in complying with subsection (5), every director who failed to take all reasonable steps to secure that a meeting was convened commits an offence.

• (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.

• (8) If a copy of the statement mentioned above is not sent out as required because received too late or because of the company's default, the auditor may (without prejudice to his right to be heard orally) require that the statement be read out at the meeting.

• (9) Copies of a statement need not be sent out and the statement need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the court is satisfied that the auditor is using the provisions of this section to secure needless publicity for defamatory matter.

The court may order the company's costs (in Scotland, expenses) on such an application to be paid in whole or in part by the auditor, notwithstanding that he is not a party to the application.

• (10) An auditor who has resigned has, notwithstanding his resignation, the rights conferred by section 502(2) in relation to any such general meeting of the company as is mentioned in subsection (3)(a) or (b) above.

In such a case the references in that section to matters concerning the auditor as auditor shall be construed as references to matters concerning him as a former auditor.

Statement by auditor on ceasing to hold office

Statement by auditor to be sent to company

519

• (1) An auditor of a public interest company who is ceasing to hold office (at any time and for any reason) must send to the company a statement of the reasons for doing so.

• (2) An auditor (“A”) of a non-public interest company who is ceasing to hold office must send to the company a statement of the reasons for doing so unless A satisfies the first or second condition.

• (2A) The first condition is that A is ceasing to hold office—

• (a) in the case of a private company, at the end of a period for appointing auditors;

• (b) in the case of a public company, at the end of an accounts meeting.

• (2B) The second condition is that—

• (a) A's reasons for ceasing to hold office are all exempt reasons (as to which see section 519A(3)), and

• (b) there are no matters connected with A's ceasing to hold office that A considers need to be brought to the attention of members or creditors of the company.

• (3) A statement under this section must include—

• (a) the auditor's name and address;

• (b) the number allocated to the auditor on being entered in the register of auditors kept under section 1239;

• (c) the company's name and registered number.

• (3A) Where there are matters connected with an auditor's ceasing to hold office that the auditor considers need to be brought to the attention of members or creditors of the company, the statement under this section must include details of those matters.

• (3B) Where—

• (a) an auditor (“A”) of a non-public interest company is required by subsection (2) to send a statement, and

• (b) A considers that none of the reasons for A's ceasing to hold office, and no matters (if any) connected with A's ceasing to hold office, need to be brought to the attention of members or creditors of the company,

A's statement under this section must include a statement to that effect.

• (4) A statement under this section must be sent—

• (a) in the case of resignation, along with the notice of resignation;

• (b) in the case of failure to seek re-appointment, not less than 14 days before the end of the time allowed for next appointing an auditor;

• (c) in any other case, not later than the end of the period of 14 days beginning with the date on which he ceases to hold office.

• (5) A person ceasing to hold office as auditor who fails to comply with this section commits an offence.

• (6) In proceedings for such an offence it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence.

• (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.

• (8) Where an offence under this section is committed by a body corporate, every officer of the body who is in default also commits the offence. For this purpose—

• (a) any person who purports to act as director, manager or secretary of the body is treated as an officer of the body, and

• (b) if the body is a company, any shadow director is treated as an officer of the company.

Meaning of “public interest company”, “non-public interest company” and “exempt reasons”

519A

• (1) In this Chapter—

• “public interest company” means a company which is—an issuer whose transferable securities are admitted to trading on a UK regulated market;a credit institution within the meaning given by Article 4(1)(1) of Regulation (EU) No. 575/2013 of the European Parliament and of the Council, which is a CRR firm within the meaning of Article 4(1)(2A) of that Regulation; or a person who would be an insurance undertaking as defined in Article 2(1) of Council Directive 91/674/EEC of 19 December 1991 of the European Parliament and of the Council on the annual accounts and consolidated accounts of insurance undertakings as that Article had effect immediately before IP completion day, were the United Kingdom a member State;

• (2) For the purposes of the definition of “public interest company”—

• “issuer” has the same meaning as in Part 6 of the Financial Services and Markets Act 2000 (see section 102A(6));

• ...

• ...

• (3) In the application of this Chapter to an auditor (“A”) of a company ceasing to hold office, the following are “exempt reasons”—

• (a) A is no longer to carry out statutory audit work within the meaning of Part 42 (see section 1210(1));

• (b) the company is, or is to become, exempt from audit under section 477, 479A or 480, or from the requirements of this Part under section 482, and intends to include in its balance sheet a statement of the type described in section 475(2);

• (c) the company is a subsidiary undertaking of a parent undertaking that is incorporated in the United Kingdom and—

• (i) the parent undertaking prepares group accounts, and

• (ii) A is being replaced as auditor of the company by the auditor who is conducting, or is to conduct, an audit of the group accounts;

• (d) the company is being wound up under Part 4 of the Insolvency Act 1986 or Part 5 of the Insolvency (Northern Ireland) Order 1989 ( S.I. 1989/2405 (N.I. 19)), whether voluntarily or by the court, or a petition under Part 4 of that Act or Part 5 of that Order for the winding up of the company has been presented and not finally dealt with or withdrawn.

• (4) But the reason described in subsection (3)(c) is only an exempt reason if the auditor who is conducting, or is to conduct, an audit of the group accounts is also conducting, or is also to conduct, the audit (if any) of the accounts of each of the subsidiary undertakings (of the parent undertaking) that is incorporated in the United Kingdom and included in the consolidation.

• (5) The Secretary of State may by order amend the definition of “public interest company” in subsection (1).

• (6) An order under subsection (5) is subject to negative resolution procedure.

Company's duties in relation to statement

520

• (1) This section applies where a company receives from an auditor (“A”) who is ceasing to hold office a statement under section 519 except where—

• (a) the company is a non-public interest company, and

• (b) the statement includes a statement to the effect that A considers that none of the reasons for A's ceasing to hold office, and no matters (if any) connected with A's ceasing to hold office, need to be brought to the attention of members or creditors of the company (as required by section 519(3B)).

• (2) Where this section applies, the company must within 14 days of the receipt of the statement either—

• (a) send a copy of it to every person who under section 423 is entitled to be sent copies of the accounts, or

• (b) apply to the court.

• (3) If it applies to the court, the company must notify the auditor of the application.

• (4) If the court is satisfied that the auditor is using the provisions of section 519 to secure needless publicity for defamatory matter—

• (a) it shall direct that copies of the statement need not be sent out, and

• (b) it may further order the company's costs (in Scotland, expenses) on the application to be paid in whole or in part by the auditor, even if he is not a party to the application.

The company must within 14 days of the court's decision send to the persons mentioned in subsection (2)(a) a statement setting out the effect of the order.

• (5) If no such direction is made the company must send copies of the statement to the persons mentioned in subsection (2)(a) within 14 days of the court's decision or, as the case may be, of the discontinuance of the proceedings.

• (6) In the event of default in complying with this section an offence is committed by every officer of the company who is in default.

• (7) In proceedings for such an offence it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence.

• (8) 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.

Copy of statement to be sent to registrar

521

• (A1) This section applies where an auditor (“A”) of a company sends a statement to the company under section 519 except where—

• (a) the company is a non-public interest company, and

• (b) the statement includes a statement to the effect that A considers that none of the reasons for A's ceasing to hold office, and no matters (if any) connected with A's ceasing to hold office, need to be brought to the attention of members or creditors of the company (as required by section 519(3B)).

• (1) Where this section applies, unless within 21 days beginning with the day on which he sent the statement under section 519 the auditor receives notice of an application to the court under section 520, he must within a further seven days send a copy of the statement to the registrar.

• (2) If an application to the court is made under section 520 and the auditor subsequently receives notice under subsection (5) of that section, he must within seven days of receiving the notice send a copy of the statement to the registrar.

• (3) An auditor who fails to comply with subsection (1) or (2) commits an offence.

• (4) In proceedings for such an offence it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence.

• (5) 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.

• (6) Where an offence under this section is committed by a body corporate, every officer of the body who is in default also commits the offence. For this purpose—

• (a) any person who purports to act as director, manager or secretary of the body is treated as an officer of the body, and

• (b) if the body is a company, any shadow director is treated as an officer of the company.

Duty of auditor to send statement to appropriate audit authority

522

• (1) Where an auditor of a company sends a statement under section 519, the auditor must at the same time send a copy of the statement to the appropriate audit authority.

• (5) A person ceasing to hold office as auditor who fails to comply with this section commits an offence.

• (6) If that person is a firm an offence is committed by—

• (a) the firm, and

• (b) every officer of the firm who is in default.

• (7) In proceedings for an offence under this section it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence.

• (8) 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.

Duty of company to notify appropriate audit authority

523

• (1) This section applies if an auditor is ceasing to hold office—

• (a) in the case of a private company, at any time other than at the end of a period for appointing auditors;

• (b) in the case of a public company, at any time other than at the end of an accounts meeting.

• (1A) But this section does not apply if the company reasonably believes that the only reasons for the auditor's ceasing to hold office are exempt reasons (as to which see section 519A(3)).

• (2) Where this section applies, the company must give notice to the appropriate audit authority that the auditor is ceasing to hold office.

• (2A) The notice is to take the form of a statement by the company of what the company believes to be the reasons for the auditor's ceasing to hold office and must include the information listed in section 519(3).

This is subject to subsection (2C).

• (2B) Subsection (2C) applies where—

• (a) the company receives a statement from the auditor under section 519,

• (b) the statement is sent at the time required by section 519(4), and

• (c) the company agrees with the contents of the statement.

• (2C) Where this subsection applies, the notice may instead take the form of a copy of the statement endorsed by the company to the effect that it agrees with the contents of the statement.

• (3) A notice under this section must be given within the period of 28 days beginning with the day on which the auditor ceases to hold office.

• (4) If a company fails to comply with this section, an offence is committed by—

• (a) the company, and

• (b) every officer of the company who is in default.

• (5) In proceedings for such an offence it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence.

• (6) 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.

Provision of information to accounting authorities

524

• (1) Where the appropriate audit authority receives a statement under section 522 or a notice under section 523, the authority may forward to the accounting authorities—

• (a) a copy of the statement or notice, and

• (b) any other information the authority has received from the auditor or the company concerned in connection with the auditor's ceasing to hold office.

• (2) The accounting authorities are—

• (a) the Secretary of State, and

• (b) any person authorised by the Secretary of State for the purposes of section 456 (revision of defective accounts: persons authorised to apply to court).

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) If the court has made an order under section 520(4) directing that copies of the statement need not be sent out by the company, sections 460 and 461 (restriction on further disclosure) apply in relation to the copies sent to the accounting authorities as they apply to information obtained under section 459 (power to require documents etc).

Meaning of “appropriate audit authority” ...

525

• (1) In sections 522, 523 and 524 “appropriate audit authority” means—

• (a) in relation to an auditor of a public interest company (other than an Auditor General)—

• (i) the Secretary of State, or

• (ii) if the Secretary of State has delegated functions under section 1252 to a body whose functions include receiving the statement or notice in question, that body;

• (a) in the case of a major audit (other than one conducted by an Auditor General), the Financial Reporting Council Limited;

• (b) in relation to an auditor of a non-public interest company (other than an Auditor General), the relevant supervisory body.

• (c) in relation to an Auditor General, the Independent Supervisor.

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supplementary

Effect of casual vacancies

526

If an auditor ceases to hold office for any reason, any surviving or continuing auditor or auditors may continue to act.

Chapter 5 — Quoted companies: right of members to raise audit concerns at accounts meeting

Members' power to require website publication of audit concerns

527

• (1) The members of a quoted company may require the company to publish on a website a statement setting out any matter relating to—

• (a) the audit of the company's accounts (including the auditor's report and the conduct of the audit) that are to be laid before the next accounts meeting, or

• (b) any circumstances connected with an auditor of the company ceasing to hold office since the previous accounts meeting,

that the members propose to raise at the next accounts meeting of the company.

• (2) A company is required to do so once it has received requests to that effect from—

• (a) members representing at least 5% of the total voting rights of all the members who have a relevant right to vote (excluding any voting rights attached to any shares in the company held as treasury shares), or

• (b) at least 100 members who have a relevant right to vote and hold shares in the company on which there has been paid up an average sum, per member, of at least £100.

See also section 153 (exercise of rights where shares held on behalf of others).

• (3) In subsection (2) a “relevant right to vote” means a right to vote at the accounts meeting.

• (4) A request—

• (a) may be sent to the company in hard copy or electronic form,

• (b) must identify the statement to which it relates,

• (c) must be authenticated by the person or persons making it, and

• (d) must be received by the company at least one week before the meeting to which it relates.

• (5) A quoted company is not required to place on a website a statement under this section if, on an application by the company or another person who claims to be aggrieved, the court is satisfied that the rights conferred by this section are being abused.

• (6) The court may order the members requesting website publication to pay the whole or part of the company's costs (in Scotland, expenses) on such an application, even if they are not parties to the application.

Requirements as to website availability

528

• (1) The following provisions apply for the purposes of section 527 (website publication of members' statement of audit concerns).

• (2) The information must be made available on a website that—

• (a) is maintained by or on behalf of the company, and

• (b) identifies the company in question.

• (3) Access to the information on the website, and the ability to obtain a hard copy of the information from the website, must not be conditional on the payment of a fee or otherwise restricted.

• (4) The statement—

• (a) must be made available within three working days of the company being required to publish it on a website, and

• (b) must be kept available until after the meeting to which it relates.

• (5) A failure to make information available on a website throughout the period specified in subsection (4)(b) is disregarded if—

• (a) the information is made available on the website for part of that period, and

• (b) the failure is wholly attributable to circumstances that it would not be reasonable to have expected the company to prevent or avoid.

Website publication: company's supplementary duties

529

• (1) A quoted company must in the notice it gives of the accounts meeting draw attention to—

• (a) the possibility of a statement being placed on a website in pursuance of members' requests under section 527, and

• (b) the effect of the following provisions of this section.

• (2) A company may not require the members requesting website publication to pay its expenses in complying with that section or section 528 (requirements in connection with website publication).

• (3) Where a company is required to place a statement on a website under section 527 it must forward the statement to the company's auditor not later than the time when it makes the statement available on the website.

• (4) The business which may be dealt with at the accounts meeting includes any statement that the company has been required under section 527 to publish on a website.

Website publication: offences

530

• (1) In the event of default in complying with

• (a) section 528 (requirements as to website publication), or

• (b) section 529 (companies' supplementary duties in relation to request for website publication),

an offence is committed by every officer of the company who is in default.

• (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.

Meaning of “quoted company”

531

• (1) For the purposes of this Chapter a company is a quoted company if it is a quoted company in accordance with section 385 (quoted and unquoted companies for the purposes of Part 15) in relation to the financial year to which the accounts to be laid at the next accounts meeting relate.

• (2) The provisions of subsections (4) to (6) of that section (power to amend definition by regulations) apply in relation to the provisions of this Chapter as in relation to the provisions of that Part.

Chapter 6 — Auditors' liability

Voidness of provisions protecting auditors from liability

Voidness of provisions protecting auditors from liability

532

• (1) This section applies to any provision—

• (a) for exempting an auditor of a company (to any extent) from any liability that would otherwise attach to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company occurring in the course of the audit of accounts, or

• (b) by which a company directly or indirectly provides an indemnity (to any extent) for an auditor of the company, or of an associated company, against any liability attaching to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company of which he is auditor occurring in the course of the audit of accounts.

• (2) Any such provision is void, except as permitted by—

• (a) section 533 (indemnity for costs of successfully defending proceedings), or

• (b) sections 534 to 536 (liability limitation agreements).

• (3) This section applies to any provision, whether contained in a company's articles or in any contract with the company or otherwise.

• (4) For the purposes of this section companies are associated if one is a subsidiary of the other or both are subsidiaries of the same body corporate.

Indemnity for costs of defending proceedings

Indemnity for costs of successfully defending proceedings

533

Section 532 (general voidness of provisions protecting auditors from liability) does not prevent a company from indemnifying an auditor against any liability incurred by him—

• (a) in defending proceedings (whether civil or criminal) in which judgment is given in his favour or he is acquitted, or

• (b) in connection with an application under section 1157 (power of court to grant relief in case of honest and reasonable conduct) in which relief is granted to him by the court.

Liability limitation agreements

Liability limitation agreements

534

• (1) A “liability limitation agreement” is an agreement that purports to limit the amount of a liability owed to a company by its auditor in respect of any negligence, default, breach of duty or breach of trust, occurring in the course of the audit of accounts, of which the auditor may be guilty in relation to the company.

• (2) Section 532 (general voidness of provisions protecting auditors from liability) does not affect the validity of a liability limitation agreement that—

• (a) complies with section 535 (terms of liability limitation agreement) and of any regulations under that section, and

• (b) is authorised by the members of the company (see section 536).

• (3) Such an agreement—

• (a) is effective to the extent provided by section 537, and

• (b) is not subject—

• (i) in England and Wales or Northern Ireland, to section 2(2) or 3(2)(a) of the Unfair Contract Terms Act 1977 (c. 50);

• (ii) in Scotland, to section 16(1)(b) or 17(1)(a) of that Act.

Terms of liability limitation agreement

535

• (1) A liability limitation agreement—

• (a) must not apply in respect of acts or omissions occurring in the course of the audit of accounts for more than one financial year, and

• (b) must specify the financial year in relation to which it applies.

• (2) The Secretary of State may by regulations—

• (a) require liability limitation agreements to contain specified provisions or provisions of a specified description;

• (b) prohibit liability limitation agreements from containing specified provisions or provisions of a specified description.

• (3) Without prejudice to the generality of the power conferred by subsection (2), that power may be exercised with a view to preventing adverse effects on competition.

• (4) Subject to the preceding provisions of this section, it is immaterial how a liability limitation agreement is framed.

In particular, the limit on the amount of the auditor's liability need not be a sum of money, or a formula, specified in the agreement.

• (5) Regulations under this section are subject to negative resolution procedure.

Authorisation of agreement by members of the company

536

• (1) A liability limitation agreement is authorised by the members of the company if it has been authorised under this section and that authorisation has not been withdrawn.

• (2) A liability limitation agreement between a private company and its auditor may be authorised—

• (a) by the company passing a resolution, before it enters into the agreement, waiving the need for approval,

• (b) by the company passing a resolution, before it enters into the agreement, approving the agreement's principal terms, or

• (c) by the company passing a resolution, after it enters into the agreement, approving the agreement.

• (3) A liability limitation agreement between a public company and its auditor may be authorised—

• (a) by the company passing a resolution in general meeting, before it enters into the agreement, approving the agreement's principal terms, or

• (b) by the company passing a resolution in general meeting, after it enters into the agreement, approving the agreement.

• (4) The “principal terms” of an agreement are terms specifying, or relevant to the determination of—

• (a) the kind (or kinds) of acts or omissions covered,

• (b) the financial year to which the agreement relates, or

• (c) the limit to which the auditor's liability is subject.

• (5) Authorisation under this section may be withdrawn by the company passing an ordinary resolution to that effect—

• (a) at any time before the company enters into the agreement, or

• (b) if the company has already entered into the agreement, before the beginning of the financial year to which the agreement relates.

Paragraph (b) has effect notwithstanding anything in the agreement.

Effect of liability limitation agreement

537

• (1) A liability limitation agreement is not effective to limit the auditor's liability to less than such amount as is fair and reasonable in all the circumstances of the case having regard (in particular) to—

• (a) the auditor's responsibilities under this Part,

• (b) the nature and purpose of the auditor's contractual obligations to the company, and

• (c) the professional standards expected of him.

• (2) A liability limitation agreement that purports to limit the auditor's liability to less than the amount mentioned in subsection (1) shall have effect as if it limited his liability to that amount.

• (3) In determining what is fair and reasonable in all the circumstances of the case no account is to be taken of—

• (a) matters arising after the loss or damage in question has been incurred, or

• (b) matters (whenever arising) affecting the possibility of recovering compensation from other persons liable in respect of the same loss or damage.

Disclosure of agreement by company

538

• (1) A company which has entered into a liability limitation agreement must make such disclosure in connection with the agreement as the Secretary of State may require by regulations.

• (2) The regulations may provide, in particular, that any disclosure required by the regulations shall be made—

• (a) in a note to the company's annual accounts (in the case of its individual accounts) or in such manner as is specified in the regulations (in the case of group accounts), or

• (b) in the directors' report.

• (3) Regulations under this section are subject to negative resolution procedure.

Meaning of “corporate governance statement” etc

538A

• (1) In this Part “ corporate governance statement ” means the statement required by rules 7.2.1 to 7.2.11 in the Disclosure Rules and Transparency Rules sourcebook made by the Financial Conduct Authority .

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) A “separate” corporate governance statement means one that is not included in the directors' report.

Chapter 7 — Supplementary provisions

Minor definitions

539

In this Part—

• “e-money issuer” means— an electronic money institution, within the meaning of the Electronic Money Regulations 2011 ( S.I. 2011/99), or a person who has permission under Part 4A of the Financial Services and Markets Act 2000 (c. 8) to carry on the activity of issuing electronic money within the meaning of article 9B of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544);

• . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• “MiFID investment firm” means an investment firm within the meaning of Article 2(1A) of Regulation (EU) No. 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No. 648/2012, other than— a company which is exempted from the definition of “investment firm” by Schedule 3 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544), ... a company which is an exempt investment firm as defined by regulation 8 (Meaning of “exempt investment firm” in Chapter 1) of the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 (S.I. 2017/701), and any other company which fulfils all the requirements set out in regulation 6(3) of those Regulations;

• “qualified”, in relation to an auditor's report (or a statement contained in an auditor's report), means that the report or statement does not state the auditor's unqualified opinion that the accounts have been properly prepared in accordance with this Act or, in the case of an undertaking not required to prepare accounts in accordance with this Act, under any corresponding legislation under which it is required to prepare accounts;

• “turnover”, in relation to a company, means the amounts derived from the provision of goods and services falling within the company's ordinary activities, after deduction of—trade discounts,value added tax, andany other taxes based on the amounts so derived;

• “UCITS management company” has the meaning given by the Glossary forming part of the Handbook made by the Financial Conduct Authority under the Financial Services and Markets Act 2000.

Part 17 — A company's share capital

Chapter 1 — Shares and share capital of a company

Shares

Shares

540

• (1) In the Companies Acts “share”, in relation to a company, means share in the company's share capital.

• (2) A company's shares may no longer be converted into stock.

• (3) Stock created before the commencement of this Part may be reconverted into shares in accordance with section 620.

• (4) In the Companies Acts—

• (a) references to shares include stock except where a distinction between share and stock is express or implied, and

• (b) references to a number of shares include an amount of stock where the context admits of the reference to shares being read as including stock.

Nature of shares

541

The shares or other interest of a member in a company are personal property (or, in Scotland, moveable property) and are not in the nature of real estate (or heritage).

Nominal value of shares

542

• (1) Shares in a limited company having a share capital must each have a fixed nominal value.

• (2) An allotment of a share that does not have a fixed nominal value is void.

• (3) Shares in a limited company having a share capital may be denominated in any currency, and different classes of shares may be denominated in different currencies.

But see section 765 (initial authorised minimum share capital requirement for public company to be met by reference to share capital denominated in sterling or euros).

• (4) If a company purports to allot shares in contravention of 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—

• (a) on conviction on indictment, to a fine;

• (b) on summary conviction, to a fine not exceeding the statutory maximum.

Numbering of shares

543

• (1) Each share in a company having a share capital must be distinguished by its appropriate number, except in the following circumstances.

• (2) If at any time—

• (a) all the issued shares in a company are fully paid up and rank pari passu for all purposes, or

• (b) all the issued shares of a particular class in a company are fully paid up and rank pari passu for all purposes,

none of those shares need thereafter have a distinguishing number so long as it remains fully paid up and ranks pari passu for all purposes with all shares of the same class for the time being issued and fully paid up.

Transferability of shares

544

• (1) The shares or other interest of any member in a company are transferable in accordance with the company's articles.

• (2) This is subject to—

• (a) the Stock Transfer Act 1963 (c. 18) or the Stock Transfer Act (Northern Ireland) 1963 (c. 24 (N.I.)) (which enables securities of certain descriptions to be transferred by a simplified process), and

• (b) regulations under Chapter 2 of Part 21 of this Act (which enable title to securities to be evidenced and transferred without a written instrument).

• (3) See Part 21 of this Act generally as regards share transfers.

Companies having a share capital

545

References in the Companies Acts to a company having a share capital are to a company that has power under its constitution to issue shares.

Issued and allotted share capital

546

• (1) References in the Companies Acts—

• (a) to “issued share capital” are to shares of a company that have been issued;

• (b) to “allotted share capital” are to shares of a company that have been allotted.

• (2) References in the Companies Acts to issued or allotted shares, or to issued or allotted share capital, include shares taken on the formation of the company by the subscribers to the company's memorandum.

Share capital

Called-up share capital

547

In the Companies Acts—

• “called-up share capital”, in relation to a company, means so much of its share capital as equals the aggregate amount of the calls made on its shares (whether or not those calls have been paid), together with—any share capital paid up without being called, andany share capital to be paid on a specified future date under the articles, the terms of allotment of the relevant shares or any other arrangements for payment of those shares; and

• “uncalled share capital” is to be construed accordingly.

Equity share capital

548

In the Companies Acts“equity share capital”, in relation to a company, means its issued share capital excluding any part of that capital that, neither as respects dividends nor as respects capital, carries any right to participate beyond a specified amount in a distribution.

Chapter 2 — Allotment of shares: general provisions

Power of directors to allot shares

Exercise by directors of power to allot shares etc

549

• (1) The directors of a company must not exercise any power of the company—

• (a) to allot shares in the company, or

• (b) to grant rights to subscribe for, or to convert any security into, shares in the company,

except in accordance with section 550 (private company with single class of shares) or section 551 (authorisation by company).

• (2) Subsection (1) does not apply—

• (a) to the allotment of shares in pursuance of an employees' share scheme, or

• (b) to the grant of a right to subscribe for, or to convert any security into, shares so allotted.

• (3) Subsection (1) does not apply to the allotment of shares pursuant to a right to subscribe for, or to convert any security into, shares in the company.

• (3A) Subsection (1) does not apply to anything done for the purposes of a compromise or arrangement sanctioned in accordance with Part 26A (arrangements and reconstructions: companies in financial difficulty).

• (4) A director who knowingly contravenes, or permits or authorises a contravention of, this section commits an offence.

• (5) 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.

• (6) Nothing in this section affects the validity of an allotment or other transaction.

Power of directors to allot shares etc: private company with only one class of shares

550

Where a private company has only one class of shares, the directors may exercise any power of the company—

• (a) to allot shares of that class, or

• (b) to grant rights to subscribe for or to convert any security into such shares,

except to the extent that they are prohibited from doing so by the company's articles.

Power of directors to allot shares etc: authorisation by company

551

• (1) The directors of a company may exercise a power of the company—

• (a) to allot shares in the company, or

• (b) to grant rights to subscribe for or to convert any security into shares in the company,

if they are authorised to do so by the company's articles or by resolution of the company.

• (2) Authorisation may be given for a particular exercise of the power or for its exercise generally, and may be unconditional or subject to conditions.

• (3) Authorisation must—

• (a) state the maximum amount of shares that may be allotted under it, and

• (b) specify the date on which it will expire, which must be not more than five years from—

• (i) in the case of authorisation contained in the company's articles at the time of its original incorporation, the date of that incorporation;

• (ii) in any other case, the date on which the resolution is passed by virtue of which the authorisation is given.

• (4) Authorisation may—

• (a) be renewed or further renewed by resolution of the company for a further period not exceeding five years, and

• (b) be revoked or varied at any time by resolution of the company.

• (5) A resolution renewing authorisation must—

• (a) state (or restate) the maximum amount of shares that may be allotted under the authorisation or, as the case may be, the amount remaining to be allotted under it, and

• (b) specify the date on which the renewed authorisation will expire.

• (6) In relation to rights to subscribe for or to convert any security into shares in the company, references in this section to the maximum amount of shares that may be allotted under the authorisation are to the maximum amount of shares that may be allotted pursuant to the rights.

• (7) The directors may allot shares, or grant rights to subscribe for or to convert any security into shares, after authorisation has expired if—

• (a) the shares are allotted, or the rights are granted, in pursuance of an offer or agreement made by the company before the authorisation expired, and

• (b) the authorisation allowed the company to make an offer or agreement which would or might require shares to be allotted, or rights to be granted, after the authorisation had expired.

• (8) A resolution of a company to give, vary, revoke or renew authorisation under this section may be an ordinary resolution, even though it amends the company's articles.

• (9) Chapter 3 of Part 3 (resolutions affecting a company's constitution) applies to a resolution under this section.

Prohibition of commissions, discounts and allowances

General prohibition of commissions, discounts and allowances

552

• (1) Except as permitted by section 553 (permitted commission), a company must not apply any of its shares or capital money, either directly or indirectly, in payment of any commission, discount or allowance to any person in consideration of his—

• (a) subscribing or agreeing to subscribe (whether absolutely or conditionally) for shares in the company, or

• (b) procuring or agreeing to procure subscriptions (whether absolute or conditional) for shares in the company.

• (2) It is immaterial how the shares or money are so applied, whether by being added to the purchase money of property acquired by the company or to the contract price of work to be executed for the company, or being paid out of the nominal purchase money or contract price, or otherwise.

• (3) Nothing in this section affects the payment of such brokerage as has previously been lawful.

Permitted commission

553

• (1) A company may, if the following conditions are satisfied, pay a commission to a person in consideration of his subscribing or agreeing to subscribe (whether absolutely or conditionally) for shares in the company, or procuring or agreeing to procure subscriptions (whether absolute or conditional) for shares in the company.

• (2) The conditions are that—

• (a) the payment of the commission is authorised by the company's articles; and

• (b) the commission paid or agreed to be paid does not exceed—

• (i) 10% of the price at which the shares are issued, or

• (ii) the amount or rate authorised by the articles,

whichever is the less.

• (3) A vendor to, or promoter of, or other person who receives payment in money or shares from, a company may apply any part of the money or shares so received in payment of any commission the payment of which directly by the company would be permitted by this section.

Registration of allotment

Registration of allotment

554

• (1) A company must register an allotment of shares as soon as practicable and in any event within two months after the date of the allotment.

• (2) This does not apply if the company has issued a share warrant in respect of the shares (see section 779).

• (2A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) If a company fails to comply 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 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) For the company's duties as to the issue of share certificates etc, see Part 21 (certification and transfer of securities).

Return of allotment

Return of allotment by limited company

555

• (1) This section applies to a company limited by shares and to a company limited by guarantee and having a share capital.

• (2) The company must, within one month of making an allotment of shares, deliver to the registrar for registration a return of the allotment.

• (3) The return must—

• (a) contain the prescribed information, and

• (b) be accompanied by a statement of capital.

• (4) The statement of capital must state with respect to the company's share capital at the date to which the return is made up—

• (a) the total number of shares of the company,

• (b) the aggregate nominal value of those shares,

• (ba) the aggregate amount (if any) unpaid on those shares (whether on account of their nominal value or by way of premium), and

• (c) for each class of shares—

• (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, ...

• (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Return of allotment by unlimited company allotting new class of shares

556

• (1) This section applies to an unlimited company that allots shares of a class with rights that are not in all respects uniform with shares previously allotted.

• (2) The company must, within one month of making such an allotment, deliver to the registrar for registration a return of the allotment.

• (3) The return must contain the prescribed particulars of the rights attached to the shares.

• (4) For the purposes of this section shares are not to be treated as different from shares previously allotted by reason only that the former do not carry the same rights to dividends as the latter during the twelve months immediately following the former's allotment.

Offence of failure to make return

557

• (1) If a company makes default in complying with—

• section 555 (return of allotment of shares by limited company), or

• section 556 (return of allotment of new class of shares by unlimited company),

an offence is committed by every officer of the company who is in default.

• (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 and, for continued contravention, a daily default fine not exceeding one-tenth of the statutory maximumone-tenth of the greater of £5,000 or the amount corresponding to level 4 on the standard scale for summary offences.

• (3) In the case of default in delivering to the registrar within one month after the allotment the return required by section 555 or 556—

• (a) any person liable for the default may apply to the court for relief, and

• (b) the court, if satisfied—

• (i) that the omission to deliver the document was accidental or due to inadvertence, or

• (ii) that it is just and equitable to grant relief,

may make an order extending the time for delivery of the document for such period as the court thinks proper.

Supplementary provisions

When shares are allotted

558

For the purposes of the Companies Acts shares in a company are taken to be allotted when a person acquires the unconditional right to be included in the company's register of members ... in respect of the shares.

Provisions about allotment not applicable to shares taken on formation

559

The provisions of this Chapter have no application in relation to the taking of shares by the subscribers to the memorandum on the formation of the company.

Chapter 3 — Allotment of equity securities: existing shareholders' right of pre-emption

Introductory

Meaning of “equity securities” and related expressions

560

• (1) In this Chapter—

• “equity securities” means—ordinary shares in the company, orrights to subscribe for, or to convert securities into, ordinary shares in the company;

• “ordinary shares” means shares other than shares that as respects dividends and capital carry a right to participate only up to a specified amount in a distribution.

• (2) References in this Chapter to the allotment of equity securities—

• (a) include the grant of a right to subscribe for, or to convert any securities into, ordinary shares in the company, and

• (b) do not include the allotment of shares pursuant to such a right.

• (3) References in this Chapter to the allotment of equity securities include the sale of ordinary shares in the company that immediately before the sale were held by the company as treasury shares.

Existing shareholders' right of pre-emption

Existing shareholders' right of pre-emption

561

• (1) A company must not allot equity securities to a person on any terms unless—

• (a) it has made an offer to each person who holds ordinary shares in the company to allot to him on the same or more favourable terms a proportion of those securities that is as nearly as practicable equal to the proportion in nominal value held by him of the ordinary share capital of the company, and

• (b) the period during which any such offer may be accepted has expired or the company has received notice of the acceptance or refusal of every offer so made.

• (2) Securities that a company has offered to allot to a holder of ordinary shares may be allotted to him, or anyone in whose favour he has renounced his right to their allotment, without contravening subsection (1)(b).

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) Shares held by the company as treasury shares are disregarded for the purposes of this section, so that—

• (a) the company is not treated as a person who holds ordinary shares, and

• (b) the shares are not treated as forming part of the ordinary share capital of the company.

• (5) This section is subject to—

• (a) sections 564 to 566A (exceptions to pre-emption right),

• (b) sections 567 and 568 (exclusion of rights of pre-emption),

• (c) sections 569 to 573 (disapplication of pre-emption rights), and

• (d) section 576 (saving for certain older pre-emption procedures).

Communication of pre-emption offers to shareholders

562

• (1) This section has effect as to the manner in which offers required by section 561 are to be made to holders of a company's shares.

• (2) The offer may be made in hard copy or electronic form.

• (3) If the holder—

• (a) has no registered address in the United Kingdom or an EEA State and has not given to the company an address in the United Kingdom or an EEA State for the service of notices on him, or

• (b) is the holder of a share warrant,

the offer may be made by causing it, or a notice specifying where a copy of it can be obtained or inspected, to be published in the Gazette.

• (4) The offer must state a period during which it may be accepted and the offer shall not be withdrawn before the end of that period.

• (5) The period must be a period of at least 14 days beginning—

• (a) in the case of an offer made in hard copy form, with the date on which the offer is sent or supplied;

• (b) in the case of an offer made in electronic form, with the date on which the offer is sent;

• (c) in the case of an offer made by publication in the Gazette, with the date of publication.

• (6) The Secretary of State may by regulations made by statutory instrument—

• (a) reduce the period specified in subsection (5) (but not to less than 14 days), or

• (b) increase that period.

• (7) A statutory instrument containing regulations made under subsection (6) is subject to affirmative resolution procedure.

Liability of company and officers in case of contravention

563

• (1) This section applies where there is a contravention of—

• section 561 (existing shareholders' right of pre-emption), or

• section 562 (communication of pre-emption offers to shareholders).

• (2) The company and every officer of it who knowingly authorised or permitted the contravention are jointly and severally liable to compensate any person to whom an offer should have been made in accordance with those provisions for any loss, damage, costs or expenses which the person has sustained or incurred by reason of the contravention.

• (3) No proceedings to recover any such loss, damage, costs or expenses shall be commenced after the expiration of two years—

• (a) from the delivery to the registrar of companies of the return of allotment, or

• (b) where equity securities other than shares are granted, from the date of the grant.

Exceptions to right of pre-emption

Exception to pre-emption right: bonus shares

564

Section 561(1) (existing shareholders' right of pre-emption) does not apply in relation to the allotment of bonus shares.

Exception to pre-emption right: issue for non-cash consideration

565

Section 561(1) (existing shareholders' right of pre-emption) does not apply to a particular allotment of equity securities if these are, or are to be, wholly or partly paid up otherwise than in cash.

Exceptions to pre-emption right: employees' share schemes

566

Section 561 (existing shareholders' right of pre-emption) does not apply to the allotment of equity securities that would, apart from any renunciation or assignment of the right to their allotment, be held under or allotted or transferred pursuant to an employees' share scheme.

Exception to pre-emption right: companies in financial difficulty

566A

Section 561(1) (existing shareholders’ right of pre-emption) does not apply to an allotment of equity securities that is carried out as part of a compromise or arrangement sanctioned in accordance with Part 26A (arrangements and reconstructions: companies in financial difficulty).

Exclusion of right of pre-emption

Exclusion of requirements by private companies

567

• (1) All or any of the requirements of—

• (a) section 561 (existing shareholders' right of pre-emption), or

• (b) section 562 (communication of pre-emption offers to shareholders)

may be excluded by provision contained in the articles of a private company.

• (2) They may be excluded—

• (a) generally in relation to the allotment by the company of equity securities, or

• (b) in relation to allotments of a particular description.

• (3) Any requirement or authorisation contained in the articles of a private company that is inconsistent with either of those sections is treated for the purposes of this section as a provision excluding that section.

• (4) A provision to which section 568 applies (exclusion of pre-emption right: corresponding right conferred by articles) is not to be treated as inconsistent with section 561.

Exclusion of pre-emption right: articles conferring corresponding right

568

• (1) The provisions of this section apply where, in a case in which section 561 (existing shareholders' right of pre-emption) would otherwise apply—

• (a) a company's articles contain provision (“pre-emption provision”) prohibiting the company from allotting ordinary shares of a particular class unless it has complied with the condition that it makes such an offer as is described in section 561(1) to each person who holds ordinary shares of that class, and

• (b) in accordance with that provision—

• (i) the company makes an offer to allot shares to such a holder, and

• (ii) he or anyone in whose favour he has renounced his right to their allotment accepts the offer.

• (2) In that case, section 561 does not apply to the allotment of those shares and the company may allot them accordingly.

• (3) The provisions of section 562 (communication of pre-emption offers to shareholders) apply in relation to offers made in pursuance of the pre-emption provision of the company's articles.

This is subject to section 567 (exclusion of requirements by private companies).

• (4) If there is a contravention of the pre-emption provision of the company's articles, the company, and every officer of it who knowingly authorised or permitted the contravention, are jointly and severally liable to compensate any person to whom an offer should have been made under the provision for any loss, damage, costs or expenses which the person has sustained or incurred by reason of the contravention.

• (5) No proceedings to recover any such loss, damage, costs or expenses may be commenced after the expiration of two years—

• (a) from the delivery to the registrar of companies of the return of allotment, or

• (b) where equity securities other than shares are granted, from the date of the grant.

Disapplication of pre-emption rights

Disapplication of pre-emption rights: private company with only one class of shares

569

• (1) The directors of a private company that has only one class of shares may be given power by the articles, or by a special resolution of the company, to allot equity securities of that class as if section 561 (existing shareholders' right of pre-emption)—

• (a) did not apply to the allotment, or

• (b) applied to the allotment with such modifications as the directors may determine.

• (2) Where the directors make an allotment under this section, the provisions of this Chapter have effect accordingly.

Disapplication of pre-emption rights: directors acting under general authorisation

570

• (1) Where the directors of a company are generally authorised for the purposes of section 551 (power of directors to allot shares etc: authorisation by company), they may be given power by the articles, or by a special resolution of the company, to allot equity securities pursuant to that authorisation as if section 561 (existing shareholders' right of pre-emption)—

• (a) did not apply to the allotment, or

• (b) applied to the allotment with such modifications as the directors may determine.

• (2) Where the directors make an allotment under this section, the provisions of this Chapter have effect accordingly.

• (3) The power conferred by this section ceases to have effect when the authorisation to which it relates—

• (a) is revoked, or

• (b) would (if not renewed) expire.

But if the authorisation is renewed the power may also be renewed, for a period not longer than that for which the authorisation is renewed, by a special resolution of the company.

• (4) Notwithstanding that the power conferred by this section has expired, the directors may allot equity securities in pursuance of an offer or agreement previously made by the company if the power enabled the company to make an offer or agreement that would or might require equity securities to be allotted after it expired.

Disapplication of pre-emption rights by special resolution

571

• (1) Where the directors of a company are authorised for the purposes of section 551 (power of directors to allot shares etc: authorisation by company), whether generally or otherwise, the company may by special resolution resolve that section 561 (existing shareholders' right of pre-emption)—

• (a) does not apply to a specified allotment of equity securities to be made pursuant to that authorisation, or

• (b) applies to such an allotment with such modifications as may be specified in the resolution.

• (2) Where such a resolution is passed the provisions of this Chapter have effect accordingly.

• (3) A special resolution under this section ceases to have effect when the authorisation to which it relates—

• (a) is revoked, or

• (b) would (if not renewed) expire.

But if the authorisation is renewed the resolution may also be renewed, for a period not longer than that for which the authorisation is renewed, by a special resolution of the company.

• (4) Notwithstanding that any such resolution has expired, the directors may allot equity securities in pursuance of an offer or agreement previously made by the company if the resolution enabled the company to make an offer or agreement that would or might require equity securities to be allotted after it expired.

• (5) A special resolution under this section, or a special resolution to renew such a resolution, must not be proposed unless—

• (a) it is recommended by the directors, and

• (b) the directors have complied with the following provisions.

• (6) Before such a resolution is proposed, the directors must make a written statement setting out—

• (a) their reasons for making the recommendation,

• (b) the amount to be paid to the company in respect of the equity securities to be allotted, and

• (c) the directors' justification of that amount.

• (7) The directors' statement must—

• (a) if the resolution is proposed as a written resolution, be sent or submitted to every eligible member at or before the time at which the proposed resolution is sent or submitted to him;

• (b) if the resolution is proposed at a general meeting, be circulated to the members entitled to notice of the meeting with that notice.

Liability for false statement in directors' statement

572

• (1) This section applies in relation to a directors' statement under section 571 (special resolution disapplying pre-emption rights) that is sent, submitted or circulated under subsection (7) of that section.

• (2) A person who knowingly or recklessly authorises or permits the inclusion of any matter that is misleading, false or deceptive in a material particular in such a statement commits an offence.

• (3) 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);

• (b) on summary conviction—

• (i) in England and Wales, to imprisonment for a term not exceeding twelve months or to a fine not exceeding the statutory maximum (or both);

• (ii) in Scotland or Northern Ireland, to imprisonment for a term not exceeding six months, or to a fine not exceeding the statutory maximum (or both).

Disapplication of pre-emption rights: sale of treasury shares

573

• (1) This section applies in relation to a sale of shares that is an allotment of equity securities by virtue of section 560(3)(sale of shares held by company as treasury shares).

• (2) The directors of a company may be given power by the articles, or by a special resolution of the company, to allot equity securities as if section 561 (existing shareholders' right of pre-emption)—

• (a) did not apply to the allotment, or

• (b) applied to the allotment with such modifications as the directors may determine.

• (3) The provisions of section 570(2) and (4) apply in that case as they apply to a case within subsection (1) of that section.

• (4) The company may by special resolution resolve that section 561—

• (a) shall not apply to a specified allotment of securities, or

• (b) shall apply to the allotment with such modifications as may be specified in the resolution.

• (5) The provisions of section 571(2) and (4) to (7) apply in that case as they apply to a case within subsection (1) of that section.

Supplementary

References to holder of shares in relation to offer

574

• (1) In this Chapter, in relation to an offer to allot securities required by—

• (a) section 561 (existing shareholders' right of pre-emption), or

• (b) any provision to which section 568 applies (articles conferring corresponding right),

a reference (however expressed) to the holder of shares of any description is to whoever was the holder of shares of that description at the close of business on a date to be specified in the offer.

• (2) The specified date must fall within the period of 28 days immediately before the date of the offer.

Saving for other restrictions on offer or allotment

575

• (1) The provisions of this Chapter are without prejudice to any other enactment by virtue of which a company is prohibited (whether generally or in specified circumstances) from offering or allotting equity securities to any person.

• (2) Where a company cannot by virtue of such an enactment offer or allot equity securities to a holder of ordinary shares of the company, those shares are disregarded for the purposes of section 561 (existing shareholders' right of pre-emption), so that—

• (a) the person is not treated as a person who holds ordinary shares, and

• (b) the shares are not treated as forming part of the ordinary share capital of the company.

Saving for certain older pre-emption requirements

576

• (1) In the case of a public company the provisions of this Chapter do not apply to an allotment of equity securities that are subject to a pre-emption requirement in relation to which section 96(1) of the Companies Act 1985 (c. 6) or Article 106(1) of the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)) applied immediately before the commencement of this Chapter.