Companies Act 2006

• (2) Members amounting to not less than 15% of the members of the class in question (being persons who did not consent to or vote in favour of the resolution for the variation) may apply to the court to have the variation cancelled.

• (3) If such an application is made, the variation has no effect unless and until it is confirmed by the court.

• (4) Application to the court must be made within 21 days after the date on which the consent was given or the resolution was passed (as the case may be) and may be made on behalf of the members entitled to make the application by such one or more of their number as they may appoint in writing for the purpose.

• (5) The court, after hearing the applicant and any other persons who apply to the court to be heard and appear to the court to be interested in the application, may, if satisfied having regard to all the circumstances of the case that the variation would unfairly prejudice the members of the class represented by the applicant, disallow the variation, and shall if not so satisfied confirm it.

The decision of the court on any such application is final.

• (6) References in this section to the variation of the rights of a class of members include references to their abrogation.

Copy of court order to be forwarded to the registrar

635

• (1) The company must within 15 days after the making of an order by the court on an application under section 633 or 634 (objection to variation of class rights) forward a copy of the order to the registrar.

• (2) If default is made in complying with this section an offence is committed by—

• (a) the company, and

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

• (3) 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.

Matters to be notified to the registrar

Notice of name or other designation of class of shares

636

• (1) Where a company assigns a name or other designation, or a new name or other designation, to any class or description of its shares, it must within one month from doing so deliver to the registrar a notice giving particulars of the name or designation so assigned.

• (2) If default is made in complying with this section, an offence is committed by—

• (a) the company, and

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

• (3) 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.

Notice of particulars of variation of rights attached to shares

637

• (1) Where the rights attached to any shares of a company are varied, the company must within one month from the date on which the variation is made deliver to the registrar a notice giving particulars of the variation.

• (2) If default is made in complying with this section, an offence is committed by—

• (a) the company, and

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

• (3) 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.

Notice of new class of members

638

• (1) If a company not having a share capital creates a new class of members, the company must within one month from the date on which the new class is created deliver to the registrar a notice containing particulars of the rights attached to that class.

• (2) If default is made in complying with this section, an offence is committed by—

• (a) the company, and

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

• (3) 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.

Notice of name or other designation of class of members

639

• (1) Where a company not having a share capital assigns a name or other designation, or a new name or other designation, to any class of its members, it must within one month from doing so deliver to the registrar a notice giving particulars of the name or designation so assigned.

• (2) If default is made in complying with this section, an offence is committed by—

• (a) the company, and

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

• (3) 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.

Notice of particulars of variation of class rights

640

• (1) If the rights of any class of members of a company not having a share capital are varied, the company must within one month from the date on which the variation is made deliver to the registrar a notice containing particulars of the variation.

• (2) If default is made in complying with this section, an offence is committed by—

• (a) the company, and

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

• (3) 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.

Chapter 10 — Reduction of share capital

Introductory

Circumstances in which a company may reduce its share capital

641

• (1) A limited company having a share capital may reduce its share capital—

• (a) in the case of a private company limited by shares, by special resolution supported by a solvency statement (see sections 642 to 644);

• (b) in any case, by special resolution confirmed by the court (see sections 645 to 651).

• (2) A company may not reduce its capital under subsection (1)(a) if as a result of the reduction there would no longer be any member of the company holding shares other than redeemable shares.

• (2A) A company may not reduce its share capital under subsection (1)(a) or (b) as part of a scheme by virtue of which a person, or a person together with its associates, is to acquire all the shares in the company or (where there is more than one class of shares in a company) all the shares of one or more classes, in each case other than shares that are already held by that person or its associates.

• (2B) Subsection (2A) does not apply to a scheme under which—

• (a) the company is to have a new parent undertaking,

• (b) all or substantially all of the members of the company become members of the parent undertaking, and

• (c) the members of the company are to hold proportions of the equity share capital of the parent undertaking in the same or substantially the same proportions as they hold the equity share capital of the company.

• (2C) In this section—

• “associate” has the meaning given by section 988 (meaning of “associate”), reading references in that section to an offeror as references to the person acquiring the shares in the company;

• “scheme” means a compromise or arrangement sanctioned by the court under Part 26 or 26A (arrangements and reconstructions).

• (3) Subject to subsections (2) to (2B), a company may reduce its share capital under this section in any way.

• (4) In particular, a company may—

• (a) extinguish or reduce the liability on any of its shares in respect of share capital not paid up, or

• (b) either with or without extinguishing or reducing liability on any of its shares—

• (i) cancel any paid-up share capital that is lost or unrepresented by available assets, or

• (ii) repay any paid-up share capital in excess of the company's wants.

• (5) A special resolution under this section may not provide for a reduction of share capital to take effect later than the date on which the resolution has effect in accordance with this Chapter.

• (6) This Chapter (apart from subsection (5) above) has effect subject to any provision of the company's articles restricting or prohibiting the reduction of the company's share capital.

• (7) In subsection (1)(b), section 91(5)(b)(iii), sections 645 to 651 (except in the phrases “sanctioned by the court under Part 26” and “sanctioned by the court under Part 26A”) and 653(1) “the court” means, in England and Wales, the High Court.

Private companies: reduction of capital supported by solvency statement

Reduction of capital supported by solvency statement

642

• (1) A resolution for reducing share capital of a private company limited by shares is supported by a solvency statement if—

• (a) the directors of the company make a statement of the solvency of the company in accordance with section 643 (a “solvency statement”) not more than 15 days before the date on which the resolution is passed, and

• (b) the resolution and solvency statement are registered in accordance with section 644.

• (2) Where the resolution is proposed as a written resolution, a copy of the solvency statement must be sent or submitted to every eligible member at or before the time at which the proposed resolution is sent or submitted to him.

• (3) Where the resolution is proposed at a general meeting, a copy of the solvency statement must be made available for inspection by members of the company throughout that meeting.

• (4) The validity of a resolution is not affected by a failure to comply with subsection (2) or (3).

Solvency statement

643

• (1) A solvency statement is a statement that each of the directors—

• (a) has formed the opinion, as regards the company's situation at the date of the statement, that there is no ground on which the company could then be found to be unable to pay (or otherwise discharge) its debts; and

• (b) has also formed the opinion—

• (i) if it is intended to commence the winding up of the company within twelve months of that date, that the company will be able to pay (or otherwise discharge) its debts in full within twelve months of the commencement of the winding up; or

• (ii) in any other case, that the company will be able to pay (or otherwise discharge) its debts as they fall due during the year immediately following that date.

• (2) In forming those opinions, the directors must take into account all of the company's liabilities (including any contingent or prospective liabilities).

• (3) The solvency statement must be in the prescribed form and must state—

• (a) the date on which it is made, and

• (b) the name of each director of the company.

• (4) If the directors make a solvency statement without having reasonable grounds for the opinions expressed in it, and the statement is delivered to the registrar, an offence is committed by every director who is in default.

• (5) A person guilty of an offence under subsection (4) 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).

Registration of resolution and supporting documents

644

• (1) Within 15 days after the resolution for reducing share capital is passed the company must deliver to the registrar—

• (a) a copy of the solvency statement, and

• (b) a statement of capital.

This is in addition to the copy of the resolution itself that is required to be delivered to the registrar under Chapter 3 of Part 3.

• (2) The statement of capital must state with respect to the company's share capital as reduced by the resolution—

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

• (3) The registrar must register the documents delivered to him under subsection (1) on receipt.

• (4) The resolution does not take effect until those documents are registered.

• (5) The company must also deliver to the registrar, within 15 days after the resolution is passed, a statement by the directors confirming that the solvency statement was—

• (a) made not more than 15 days before the date on which the resolution was passed, and

• (b) provided to members in accordance with section 642(2) or (3).

• (6) The validity of a resolution is not affected by—

• (a) a failure to deliver the documents required to be delivered to the registrar under subsection (1) within the time specified in that subsection, or

• (b) a failure to comply with subsection (5).

• (7) If the company delivers to the registrar a solvency statement that was not provided to members in accordance with section 642(2) or (3), an offence is committed by every officer of the company who is in default.

• (8) If default is made in complying with this section, an offence is committed by—

• (a) the company, and

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

• (9) A person guilty of an offence under subsection (7) or (8) is liable—

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

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

Reduction of capital confirmed by the court

Application to court for order of confirmation

645

• (1) Where a company has passed a resolution for reducing share capital, it may apply to the court for an order confirming the reduction.

• (2) If the proposed reduction of capital involves either—

• (a) diminution of liability in respect of unpaid share capital, or

• (b) the payment to a shareholder of any paid-up share capital,

section 646 (creditors entitled to object to reduction) applies unless the court directs otherwise.

• (3) The court may, if having regard to any special circumstances of the case it thinks proper to do so, direct that section 646 is not to apply as regards any class or classes of creditors.

• (4) The court may direct that section 646 is to apply in any other case.

Creditors entitled to object to reduction

646

• (1) Where this section applies (see section 645(2) and (4)), every creditor of the company who

• (a) at the date fixed by the court is entitled to any debt or claim that, if that date were the commencement of the winding up of the company would be admissible in proof against the company, and

• (b) can show that there is a real likelihood that the reduction would result in the company being unable to discharge his debt or claim when it fell due,

is entitled to object to the reduction of capital.

• (2) The court shall settle a list of creditors entitled to object.

• (3) For that purpose the court—

• (a) shall ascertain, as far as possible without requiring an application from any creditor, the names of those creditors and the nature and amount of their debts or claims, and

• (b) may publish notices fixing a day or days within which creditors not entered on the list are to claim to be so entered or are to be excluded from the right of objecting to the reduction of capital.

• (4) If a creditor entered on the list whose debt or claim is not discharged or has not determined does not consent to the reduction, the court may, if it thinks fit, dispense with the consent of that creditor on the company securing payment of his debt or claim.

• (5) For this purpose the debt or claim must be secured by appropriating (as the court may direct) the following amount—

• (a) if the company admits the full amount of the debt or claim or, though not admitting it, is willing to provide for it, the full amount of the debt or claim;

• (b) if the company does not admit, and is not willing to provide for, the full amount of the debt or claim, or if the amount is contingent or not ascertained, an amount fixed by the court after the like enquiry and adjudication as if the company were being wound up by the court.

Offences in connection with list of creditors

647

• (1) If an officer of the company—

• (a) intentionally or recklessly—

• (i) conceals the name of a creditor entitled to object to the reduction of capital, or

• (ii) misrepresents the nature or amount of the debt or claim of a creditor, or

• (b) is knowingly concerned in any such concealment or misrepresentation,

he commits an offence.

• (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.

Court order confirming reduction

648

• (1) The court may make an order confirming the reduction of capital on such terms and conditions as it thinks fit.

• (2) The court must not confirm the reduction unless it is satisfied, with respect to every creditor of the company who is entitled to object to the reduction of capital that either—

• (a) his consent to the reduction has been obtained, or

• (b) his debt or claim has been discharged, or has determined or has been secured.

• (3) Where the court confirms the reduction, it may order the company to publish (as the court directs) the reasons for reduction of capital, or such other information in regard to it as the court thinks expedient with a view to giving proper information to the public, and (if the court thinks fit) the causes that led to the reduction.

• (4) The court may, if for any special reason it thinks proper to do so, make an order directing that the company must, during such period (commencing on or at any time after the date of the order) as is specified in the order, add to its name as its last words the words “and reduced”.

If such an order is made, those words are, until the end of the period specified in the order, deemed to be part of the company's name.

Registration of order and statement of capital

649

• (1) The registrar, on the delivery of a copy of a court order confirming the reduction of a company’s share capital and of a statement of capital (approved by the court), shall register the order and statement.

This is subject to section 650 (public company reducing capital below authorised minimum).

• (2) The statement of capital must state with respect to the company's share capital as altered by the order—

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

• (3) The resolution for reducing share capital, as confirmed by the court's order, takes effect—

• (a) in the case of a reduction of share capital that forms part of a compromise or arrangement sanctioned by the court under Part 26 (arrangements and reconstructions: general)—

• (i) on delivery of the order and statement of capital to the registrar, or

• (ii) if the court so orders, on the registration of the order and statement of capital;

• (aa) in the case of a reduction of share capital that forms part of a compromise or arrangement sanctioned by the court under Part 26A (arrangements and reconstructions: companies in financial difficulty)—

• (i) in the case of any company other than one to which sub-paragraph (ii) applies, on delivery of the order and statement of capital to the registrar;

• (ii) in the case of an overseas company that is not required to register particulars under section 1046, on publication of the order and statement of capital in the Gazette;

• (iii) in either case, if the court so orders, on the registration of the order and statement of capital;

• (b) in any case not falling within paragraph (a) or (aa), on the registration of the order and statement of capital.

• (4) Notice of the registration of the order and statement of capital must be published in such manner as the court may direct.

• (5) The registrar must certify the registration of the order and statement of capital.

• (6) The certificate—

• (a) must be signed by the registrar or authenticated by the registrar's official seal, and

• (b) is conclusive evidence—

• (i) that the requirements of this Act with respect to the reduction of share capital have been complied with, and

• (ii) that the company's share capital is as stated in the statement of capital.

Public company reducing capital below authorised minimum

Public company reducing capital below authorised minimum

650

• (1) This section applies where the court makes an order confirming a reduction of a public company's capital that has the effect of bringing the nominal value of its allotted share capital below the authorised minimum.

• (2) The registrar must not register the order unless either—

• (a) the court so directs, or

• (b) the company is first re-registered as a private company.

• (3) Section 651 provides an expedited procedure for re-registration in these circumstances.

Expedited procedure for re-registration as a private company

651

• (1) The court may authorise the company to be re-registered as a private company without its having passed the special resolution required by section 97.

• (2) If it does so, the court must specify in the order the changes to the company's name and articles to be made in connection with the re-registration.

• (3) The company may then be re-registered as a private company if an application to that effect is delivered to the registrar together with—

• (a) a copy of the court's order, and

• (b) notice of the company's name, and a copy of the company's articles, as altered by the court's order.

• (4) On receipt of such an application the registrar must issue a certificate of incorporation altered to meet the circumstances of the case.

• (5) The certificate must state that it is issued on re-registration and the date on which it is issued.

• (6) On the issue of the certificate—

• (a) the company by virtue of the issue of the certificate becomes a private company, and

• (b) the changes in the company's name and articles take effect.

• (7) The certificate is conclusive evidence that the requirements of this Act as to re-registration have been complied with.

Effect of reduction of capital

Liability of members following reduction of capital

652

• (1) Where a company's share capital is reduced a member of the company (past or present) is not liable in respect of any share to any call or contribution exceeding in amount the difference (if any) between—

• (a) the nominal amount of the share as notified to the registrar in the statement of capital delivered under section 644 , 649, 1028A or 1032A of this Act or paragraph 7 of Schedule 4 to the Small Business, Enterprise and Employment Act 2015, and

• (b) the amount paid on the share or the reduced amount (if any) which is deemed to have been paid on it, as the case may be.

• (2) This is subject to section 653 (liability to creditor in case of omission from list).

• (3) Nothing in this section affects the rights of the contributories among themselves.

Liability to creditor in case of omission from list of creditors

653

• (1) This section applies where, in the case of a reduction of capital confirmed by the court—

• (a) a creditor entitled to object to the reduction of share capital is by reason of his ignorance—

• (i) of the proceedings for reduction of share capital, or

• (ii) of their nature and effect with respect to his debt or claim,

not entered on the list of creditors, and

• (b) after the reduction of capital the company is unable to pay the amount of his debt or claim.

• (2) Every person who was a member of the company at the date on which the resolution for reducing capital took effect under section 649(3) is liable to contribute for the payment of the debt or claim an amount not exceeding that which he would have been liable to contribute if the company had commenced to be wound up on the day before that date.

• (3) If the company is wound up, the court on the application of the creditor in question, and proof of ignorance as mentioned in subsection (1)(a), may if it thinks fit—

• (a) settle accordingly a list of persons liable to contribute under this section, and

• (b) make and enforce calls and orders on them as if they were ordinary contributories in a winding up.

• (4) The reference in subsection (1)(b) to a company being unable to pay the amount of a debt or claim has the same meaning as in section 123 of the Insolvency Act 1986 (c. 45) or Article 103 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)).

Chapter 11 — Miscellaneous and supplementary provisions

Treatment of reserve arising from reduction of capital

654

• (1) A reserve arising from the reduction of a company's share capital is not distributable, subject to any provision made by order under this section.

• (2) The Secretary of State may by order specify cases in which—

• (a) the prohibition in subsection (1) does not apply, and

• (b) the reserve is to be treated for the purposes of Part 23 (distributions) as a realised profit.

• (3) An order under this section is subject to affirmative resolution procedure.

Shares no bar to damages against company

655

A person is not debarred from obtaining damages or other compensation from a company by reason only of his holding or having held shares in the company or any right to apply or subscribe for shares or to be included in the company's register of members ... in respect of shares.

Public companies: duty of directors to call meeting on serious loss of capital

656

• (1) Where the net assets of a public company are half or less of its called-up share capital, the directors must call a general meeting of the company to consider whether any, and if so what, steps should be taken to deal with the situation.

• (2) They must do so not later than 28 days from the earliest day on which that fact is known to a director of the company.

• (3) The meeting must be convened for a date not later than 56 days from that day.

• (4) If there is a failure to convene a meeting as required by this section, each of the directors of the company who—

• (a) knowingly authorises or permits the failure, or

• (b) after the period during which the meeting should have been convened, knowingly authorises or permits the failure to continue,

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 authorises the consideration at a meeting convened in pursuance of subsection (1) of any matter that could not have been considered at that meeting apart from this section.

General power to make further provision by regulations

657

• (1) The Secretary of State may by regulations modify the following provisions of this Part—

• sections 552 and 553 (prohibited commissions, discounts and allowances),

• Chapter 5 (payment for shares),

• Chapter 6 (public companies: independent valuation of non-cash consideration),

• Chapter 7 (share premiums),

• sections 622 to 628 (redenomination of share capital),

• Chapter 10 (reduction of capital), and

• section 656 (public companies: duty of directors to call meeting on serious loss of capital).

• (2) The regulations may—

• (a) amend or repeal any of those provisions, or

• (b) make such other provision as appears to the Secretary of State appropriate in place of any of those provisions.

• (3) Regulations under this section may make consequential amendments or repeals in other provisions of this Act, or in other enactments.

• (4) Regulations under this section are subject to affirmative resolution procedure.

Part 18 — Acquisition by limited company of its own shares

Chapter 1 — General provisions

Introductory

General rule against limited company acquiring its own shares

658

• (1) A limited company must not acquire its own shares, whether by purchase, subscription or otherwise, except in accordance with the provisions of this Part.

• (2) If a company purports to act in contravention of this section—

• (a) an offence is committed by—

• (i) the company, and

• (ii) every officer of the company who is in default, and

• (b) the purported acquisition is void.

• (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 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 a fine not exceeding the statutory maximum (or both).

Exceptions to general rule

659

• (1) A limited company may acquire any of its own fully paid shares otherwise than for valuable consideration.

• (2) Section 658 does not prohibit—

• (a) the acquisition of shares in a reduction of capital duly made;

• (b) the purchase of shares in pursuance of an order of the court under—

• (i) section 98 (application to court to cancel resolution for re-registration as a private company),

• (ii) section 721(6) (powers of court on objection to redemption or purchase of shares out of capital),

• (iii) section 759 (remedial order in case of breach of prohibition of public offers by private company), or

• (iv) Part 30 (protection of members against unfair prejudice);

• (c) the forfeiture of shares, or the acceptance of shares surrendered in lieu, in pursuance of the company's articles, for failure to pay any sum payable in respect of the shares.

Shares held by company's nominee

Treatment of shares held by nominee

660

• (1) This section applies where shares in a limited company—

• (a) are taken by a subscriber to the memorandum as nominee of the company,

• (b) are issued to a nominee of the company, or

• (c) are acquired by a nominee of the company, partly paid up, from a third person.

• (2) For all purposes—

• (a) the shares are to be treated as held by the nominee on his own account, and

• (b) the company is to be regarded as having no beneficial interest in them.

• (3) This section does not apply—

• (a) to shares acquired otherwise than by subscription by a nominee of a public company, where—

• (i) a person acquires shares in the company with financial assistance given to him, directly or indirectly, by the company for the purpose of or in connection with the acquisition, and

• (ii) the company has a beneficial interest in the shares;

• (b) to shares acquired by a nominee of the company when the company has no beneficial interest in the shares.

Liability of others where nominee fails to make payment in respect of shares

661

• (1) This section applies where shares in a limited company—

• (a) are taken by a subscriber to the memorandum as nominee of the company,

• (b) are issued to a nominee of the company, or

• (c) are acquired by a nominee of the company, partly paid up, from a third person.

• (2) If the nominee, having been called on to pay any amount for the purposes of paying up, or paying any premium on, the shares, fails to pay that amount within 21 days from being called on to do so, then—

• (a) in the case of shares that he agreed to take as subscriber to the memorandum, the other subscribers to the memorandum, and

• (b) in any other case, the directors of the company when the shares were issued to or acquired by him,

are jointly and severally liable with him to pay that amount.

• (3) If in proceedings for the recovery of an amount under subsection (2) it appears to the court that the subscriber or director—

• (a) has acted honestly and reasonably, and

• (b) having regard to all the circumstances of the case, ought fairly to be relieved from liability,

the court may relieve him, either wholly or in part, from his liability on such terms as the court thinks fit.

• (4) If a subscriber to a company's memorandum or a director of a company has reason to apprehend that a claim will or might be made for the recovery of any such amount from him—

• (a) he may apply to the court for relief, and

• (b) the court has the same power to relieve him as it would have had in proceedings for recovery of that amount.

• (5) This section does not apply to shares acquired by a nominee of the company when the company has no beneficial interest in the shares.

Shares held by or for public company

Duty to cancel shares in public company held by or for the company

662

• (1) This section applies in the case of a public company—

• (a) where shares in the company are forfeited, or surrendered to the company in lieu of forfeiture, in pursuance of the articles, for failure to pay any sum payable in respect of the shares;

• (b) where shares in the company are surrendered to the company in pursuance of section 102C(1)(b) of the Building Societies Act 1986 (c. 53);

• (c) where shares in the company are acquired by it (otherwise than in accordance with this Part or Part 30 (protection of members against unfair prejudice)) and the company has a beneficial interest in the shares;

• (d) where a nominee of the company acquires shares in the company from a third party without financial assistance being given directly or indirectly by the company and the company has a beneficial interest in the shares; or

• (e) where a person acquires shares in the company, with financial assistance given to him, directly or indirectly, by the company for the purpose of or in connection with the acquisition, and the company has a beneficial interest in the shares.

• (2) Unless the shares or any interest of the company in them are previously disposed of, the company must—

• (a) cancel the shares and diminish the amount of the company's share capital by the nominal value of the shares cancelled, and

• (b) where the effect is that the nominal value of the company's allotted share capital is brought below the authorised minimum, apply for re-registration as a private company, stating the effect of the cancellation.

• (3) It must do so no later than—

• (a) in a case within subsection (1)(a) or (b), three years from the date of the forfeiture or surrender;

• (b) in a case within subsection (1)(c) or (d), three years from the date of the acquisition;

• (c) in a case within subsection (1)(e), one year from the date of the acquisition.

• (4) The directors of the company may take any steps necessary to enable the company to comply with this section, and may do so without complying with the provisions of Chapter 10 of Part 17 (reduction of capital).

See also section 664 (re-registration as private company in consequence of cancellation).

• (5) Neither the company nor, in a case within subsection (1)(d) or (e), the nominee or other shareholder may exercise any voting rights in respect of the shares.

• (6) Any purported exercise of those rights is void.

Notice of cancellation of shares

663

• (1) Where a company cancels shares in order to comply with section 662, it must within one month after the shares are cancelled give notice to the registrar, specifying the shares cancelled.

• (2) The notice must be accompanied by a statement of capital.

• (3) The statement of capital must state with respect to the company's share capital immediately following the cancellation—

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

• (4) If default is made in complying with this section, an offence is committed by—

• (a) the company, and

• (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.

Re-registration as private company in consequence of cancellation

664

• (1) Where a company is obliged to re-register as a private company to comply with section 662, the directors may resolve that the company should be so re-registered.

Chapter 3 of Part 3 (resolutions affecting a company's constitution) applies to any such resolution.

• (2) The resolution may make such changes—

• (a) in the company's name, and

• (b) in the company's articles,

as are necessary in connection with its becoming a private company.

• (3) The application for re-registration must contain a statement of the company's proposed name on re-registration.

• (4) The application must be accompanied by—

• (a) a copy of the resolution (unless a copy has already been forwarded under Chapter 3 of Part 3),

• (b) a copy of the company's articles as amended by the resolution, and

• (c) a statement of compliance.

• (5) The statement of compliance required is a statement that the requirements of this section as to re-registration as a private company have been complied with.

• (6) The registrar may accept the statement of compliance as sufficient evidence that the company is entitled to be re-registered as a private company.

Issue of certificate of incorporation on re-registration

665

• (1) If on an application under section 664 the registrar is satisfied that the company is entitled to be re-registered as a private company, the company shall be re-registered accordingly.

• (2) The registrar must issue a certificate of incorporation altered to meet the circumstances of the case.

• (3) The certificate must state that it is issued on re-registration and the date on which it is issued.

• (4) On the issue of the certificate—

• (a) the company by virtue of the issue of the certificate becomes a private company, and

• (b) the changes in the company's name and articles take effect.

• (5) The certificate is conclusive evidence that the requirements of this Act as to re-registration have been complied with.

Effect of failure to re-register

666

• (1) If a public company that is required by section 662 to apply to be re-registered as a private company fails to do so before the end of the period specified in subsection (3) of that section, Chapter 1 of Part 20 (prohibition of public offers by private company) applies to it as if it were a private company.

• (2) Subject to that, the company continues to be treated as a public company until it is so re-registered.

Offence in case of failure to cancel shares or re-register

667

• (1) This section applies where a company, when required to do by section 662—

• (a) fails to cancel any shares, or

• (b) fails to make an application for re-registration as a private company,

within the time specified in subsection (3) of that section.

• (2) An offence is committed by—

• (a) the company, and

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

• (3) 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.

Application of provisions to company re-registering as public company

668

• (1) This section applies where, after shares in a private company—

• (a) are forfeited in pursuance of the company's articles or are surrendered to the company in lieu of forfeiture,

• (b) are acquired by the company (otherwise than by any of the methods permitted by this Part or Part 30 (protection of members against unfair prejudice)), the company having a beneficial interest in the shares,

• (c) are acquired by a nominee of the company from a third party without financial assistance being given directly or indirectly by the company, the company having a beneficial interest in the shares, or

• (d) are acquired by a person with financial assistance given to him, directly or indirectly, by the company for the purpose of or in connection with the acquisition, the company having a beneficial interest in the shares,

the company is re-registered as a public company.

• (2) In that case the provisions of sections 662 to 667 apply to the company as if it had been a public company at the time of the forfeiture, surrender or acquisition, subject to the following modification.

• (3) The modification is that the period specified in section 662(3)(a), (b) or (c) (period for complying with obligations under that section) runs from the date of the re-registration of the company as a public company.

Transfer to reserve on acquisition of shares by public company or nominee

669

• (1) Where—

• (a) a public company, or a nominee of a public company, acquires shares in the company, and

• (b) those shares are shown in a balance sheet of the company as an asset,

an amount equal to the value of the shares must be transferred out of profits available for dividend to a reserve fund and is not then available for distribution.

• (2) Subsection (1) applies to an interest in shares as it applies to shares.

As it so applies the reference to the value of the shares shall be read as a reference to the value to the company of its interest in the shares.

Charges of public company on own shares

Public companies: general rule against lien or charge on own shares

670

• (1) A lien or other charge of a public company on its own shares (whether taken expressly or otherwise) is void, except as permitted by this section.

• (2) In the case of any description of company, a charge is permitted if the shares are not fully paid up and the charge is for an amount payable in respect of the shares.

• (3) In the case of a company whose ordinary business—

• (a) includes the lending of money, or

• (b) consists of the provision of credit or the bailment (in Scotland, hiring) of goods under a hire-purchase agreement, or both,

a charge is permitted (whether the shares are fully paid or not) if it arises in connection with a transaction entered into by the company in the ordinary course of that business.

• (4) In the case of a company that has been re-registered as a public company, a charge is permitted if it was in existence immediately before the application for re-registration.

Supplementary provisions

Interests to be disregarded in determining whether company has beneficial interest

671

In determining for the purposes of this Chapter whether a company has a beneficial interest in shares, there shall be disregarded any such interest as is mentioned in—

• section 672 (residual interest under pension scheme or employees' share scheme),

• section 673 (employer's charges and other rights of recovery), or

• section 674 (rights as personal representative or trustee).

Residual interest under pension scheme or employees' share scheme

672

• (1) Where the shares are held on trust for the purposes of a pension scheme or employees' share scheme, there shall be disregarded any residual interest of the company that has not vested in possession.

• (2) A “residual interest” means a right of the company to receive any of the trust property in the event of—

• (a) all the liabilities arising under the scheme having been satisfied or provided for, or

• (b) the company ceasing to participate in the scheme, or

• (c) the trust property at any time exceeding what is necessary for satisfying the liabilities arising or expected to arise under the scheme.

• (3) In subsection (2)—

• (a) the reference to a right includes a right dependent on the exercise of a discretion vested by the scheme in the trustee or another person, and

• (b) the reference to liabilities arising under a scheme includes liabilities that have resulted, or may result, from the exercise of any such discretion.

• (4) For the purposes of this section a residual interest vests in possession—

• (a) in a case within subsection (2)(a), on the occurrence of the event mentioned there (whether or not the amount of the property receivable pursuant to the right is ascertained);

• (b) in a case within subsection (2)(b) or (c), when the company becomes entitled to require the trustee to transfer to it any of the property receivable pursuant to that right.

• (5) Where by virtue of this section shares are exempt from section 660 or 661 (shares held by company's nominee) at the time they are taken, issued or acquired but the residual interest in question vests in possession before they are disposed of or fully paid up, those sections apply to the shares as if they had been taken, issued or acquired on the date on which that interest vests in possession.

• (6) Where by virtue of this section shares are exempt from sections 662 to 668 (shares held by or for public company) at the time they are acquired but the residual interest in question vests in possession before they are disposed of, those sections apply to the shares as if they had been acquired on the date on which the interest vests in possession.

Employer's charges and other rights of recovery

673

• (1) Where the shares are held on trust for the purposes of a pension scheme there shall be disregarded—

• (a) any charge or lien on, or set-off against, any benefit or other right or interest under the scheme for the purpose of enabling the employer or former employer of a member of the scheme to obtain the discharge of a monetary obligation due to him from the member;

• (b) any right to receive from the trustee of the scheme, or as trustee of the scheme to retain, an amount that can be recovered or retained—

• (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (ii) under section 57 of the Pension Schemes (Northern Ireland) Act 1993 (c. 49), or otherwise, as reimbursement or partial reimbursement for any contributions equivalent premium paid in connection with the scheme under Part 3 of that Act.

• (2) Where the shares are held on trust for the purposes of an employees' share scheme, there shall be disregarded any charge or lien on, or set-off against, any benefit or other right or interest under the scheme for the purpose of enabling the employer or former employer of a member of the scheme to obtain the discharge of a monetary obligation due to him from the member.

Rights as personal representative or trustee

674

Where the company is a personal representative or trustee, there shall be disregarded any rights that the company has in that capacity including, in particular—

• (a) any right to recover its expenses or be remunerated out of the estate or trust property, and

• (b) any right to be indemnified out of that property for any liability incurred by reason of any act or omission of the company in the performance of its duties as personal representative or trustee.

Meaning of “pension scheme”

675

• (1) In this Chapter “pension scheme” means a scheme for the provision of benefits consisting of or including relevant benefits for or in respect of employees or former employees.

• (2) In subsection (1) “relevant benefits” means any pension, lump sum, gratuity or other like benefit given or to be given on retirement or on death or in anticipation of retirement or, in connection with past service, after retirement or death.

Application of provisions to directors

676

For the purposes of this Chapter references to “employer” and “employee”, in the context of a pension scheme or employees' share scheme, shall be read as if a director of a company were employed by it.

Chapter 2 — Financial assistance for purchase of own shares

Introductory

Meaning of “financial assistance”

677

• (1) In this Chapter “financial assistance” means—

• (a) financial assistance given by way of gift,

• (b) financial assistance given—

• (i) by way of guarantee, security or indemnity (other than an indemnity in respect of the indemnifier's own neglect or default), or

• (ii) by way of release or waiver,

• (c) financial assistance given—

• (i) by way of a loan or any other agreement under which any of the obligations of the person giving the assistance are to be fulfilled at a time when in accordance with the agreement any obligation of another party to the agreement remains unfulfilled, or

• (ii) by way of the novation of, or the assignment (in Scotland, assignation) of rights arising under, a loan or such other agreement, or

• (d) any other financial assistance given by a company where—

• (i) the net assets of the company are reduced to a material extent by the giving of the assistance, or

• (ii) the company has no net assets.

• (2) “Net assets” here means the aggregate amount of the company's assets less the aggregate amount of its liabilities.

• (3) For this purpose a company's liabilities include—

• (a) where the company draws up Companies Act individual accounts, any provision of a kind specified for the purposes of this subsection by regulations under section 396, and

• (b) where the company draws up IAS individual accounts, any provision made in those accounts.

Circumstances in which financial assistance prohibited

Assistance for acquisition of shares in public company

678

• (1) Where a person is acquiring or proposing to acquire shares in a public company, it is not lawful for that company, or a company that is a subsidiary of that company, to give financial assistance directly or indirectly for the purpose of the acquisition before or at the same time as the acquisition takes place.

• (2) Subsection (1) does not prohibit a company from giving financial assistance for the acquisition of shares in it or its holding company if—

• (a) the company's principal purpose in giving the assistance is not to give it for the purpose of any such acquisition, or

• (b) the giving of the assistance for that purpose is only an incidental part of some larger purpose of the company,

and the assistance is given in good faith in the interests of the company.

• (3) Where—

• (a) a person has acquired shares in a company, and

• (b) a liability has been incurred (by that or another person) for the purpose of the acquisition,

it is not lawful for that company, or a company that is a subsidiary of that company, to give financial assistance directly or indirectly for the purpose of reducing or discharging the liability if, at the time the assistance is given, the company in which the shares were acquired is a public company.

• (4) Subsection (3) does not prohibit a company from giving financial assistance if—

• (a) the company's principal purpose in giving the assistance is not to reduce or discharge any liability incurred by a person for the purpose of the acquisition of shares in the company or its holding company, or

• (b) the reduction or discharge of any such liability is only an incidental part of some larger purpose of the company,

and the assistance is given in good faith in the interests of the company.

• (5) This section has effect subject to sections 681 and 682 (unconditional and conditional exceptions to prohibition).

Assistance by public company for acquisition of shares in its private holding company

679

• (1) Where a person is acquiring or proposing to acquire shares in a private company, it is not lawful for a public company that is a subsidiary of that company to give financial assistance directly or indirectly for the purpose of the acquisition before or at the same time as the acquisition takes place.

• (2) Subsection (1) does not prohibit a company from giving financial assistance for the acquisition of shares in its holding company if—

• (a) the company's principal purpose in giving the assistance is not to give it for the purpose of any such acquisition, or

• (b) the giving of the assistance for that purpose is only an incidental part of some larger purpose of the company,

and the assistance is given in good faith in the interests of the company.

• (3) Where—

• (a) a person has acquired shares in a private company, and

• (b) a liability has been incurred (by that or another person) for the purpose of the acquisition,

it is not lawful for a public company that is a subsidiary of that company to give financial assistance directly or indirectly for the purpose of reducing or discharging the liability.

• (4) Subsection (3) does not prohibit a company from giving financial assistance if—

• (a) the company's principal purpose in giving the assistance is not to reduce or discharge any liability incurred by a person for the purpose of the acquisition of shares in its holding company, or

• (b) the reduction or discharge of any such liability is only an incidental part of some larger purpose of the company,

and the assistance is given in good faith in the interests of the company.

• (5) This section has effect subject to sections 681 and 682 (unconditional and conditional exceptions to prohibition).

Prohibited financial assistance an offence

680

• (1) If a company contravenes section 678(1) or (3) or section 679(1) or (3) (prohibited financial assistance) an offence is committed by—

• (a) the company, and

• (b) 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 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).

Exceptions from prohibition

Unconditional exceptions

681

• (1) Neither section 678 nor section 679 prohibits a transaction to which this section applies.

• (2) Those transactions are—

• (a) a distribution of the company's assets by way of—

• (i) dividend lawfully made, or

• (ii) distribution in the course of a company's winding up;

• (b) an allotment of bonus shares;

• (c) a reduction of capital under Chapter 10 of Part 17;

• (d) a redemption of shares under Chapter 3 or a purchase of shares under Chapter 4 of this Part;

• (e) anything done in pursuance of an order of the court under Part 26 or 26A (order sanctioning compromise or arrangement with members or creditors);

• (f) anything done under an arrangement made in pursuance of section 110 of the Insolvency Act 1986 (c. 45) or Article 96 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)) (liquidator in winding up accepting shares as consideration for sale of company's property);

• (g) anything done under an arrangement made between a company and its creditors that is binding on the creditors by virtue of Part 1 of the Insolvency Act 1986 or Part 2 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)).

Conditional exceptions

682

• (1) Neither section 678 nor section 679 prohibits a transaction to which this section applies—

• (a) if the company giving the assistance is a private company, or

• (b) if the company giving the assistance is a public company and—

• (i) the company has net assets that are not reduced by the giving of the assistance, or

• (ii) to the extent that those assets are so reduced, the assistance is provided out of distributable profits.

• (2) The transactions to which this section applies are—

• (a) where the lending of money is part of the ordinary business of the company, the lending of money in the ordinary course of the company's business;

• (b) the provision by the company, in good faith in the interests of the company or its holding company, of financial assistance for the purposes of an employees' share scheme;

• (c) the provision of financial assistance by the company for the purposes of or in connection with anything done by the company (or another company in the same group) for the purpose of enabling or facilitating transactions in shares in the first-mentioned company or its holding company between, and involving the acquisition of beneficial ownership of those shares by—

• (i) bona fide employees or former employees of that company (or another company in the same group), or

• (ii) spouses or civil partners, widows, widowers or surviving civil partners, or minor children or step-children of any such employees or former employees;

• (d) the making by the company of loans to persons (other than directors) employed in good faith by the company with a view to enabling those persons to acquire fully paid shares in the company or its holding company to be held by them by way of beneficial ownership.

• (3) The references in this section to “net assets” are to the amount by which the aggregate of the company's assets exceeds the aggregate of its liabilities.

• (4) For this purpose—

• (a) the amount of both assets and liabilities shall be taken to be as stated in the company's accounting records immediately before the financial assistance is given, and

• (b) “liabilities” includes any amount retained as reasonably necessary for the purpose of providing for a liability the nature of which is clearly defined and that is either likely to be incurred or certain to be incurred but uncertain as to amount or as to the date on which it will arise.

• (5) For the purposes of subsection (2)(c) a company is in the same group as another company if it is a holding company or subsidiary of that company or a subsidiary of a holding company of that company.

Supplementary

Definitions for this Chapter

683

• (1) In this Chapter—

• “distributable profits”, in relation to the giving of any financial assistance—means those profits out of which the company could lawfully make a distribution equal in value to that assistance, andincludes, in a case where the financial assistance consists of or includes, or is treated as arising in consequence of, the sale, transfer or other disposition of a non-cash asset, any profit that, if the company were to make a distribution of that character would be available for that purpose (see section 846); and

• “distribution” has the same meaning as in Part 23 (distributions) (see section 829).

• (2) In this Chapter—

• (a) a reference to a person incurring a liability includes his changing his financial position by making an agreement or arrangement (whether enforceable or unenforceable, and whether made on his own account or with any other person) or by any other means, and

• (b) a reference to a company giving financial assistance for the purposes of reducing or discharging a liability incurred by a person for the purpose of the acquisition of shares includes its giving such assistance for the purpose of wholly or partly restoring his financial position to what it was before the acquisition took place.

Chapter 3 — Redeemable shares

Power of limited company to issue redeemable shares

684

• (1) A limited company having a share capital may issue shares that are to be redeemed or are liable to be redeemed at the option of the company or the shareholder (“redeemable shares”), subject to the following provisions.

• (2) The articles of a private limited company may exclude or restrict the issue of redeemable shares.

• (3) A public limited company may only issue redeemable shares if it is authorised to do so by its articles.

• (4) No redeemable shares may be issued at a time when there are no issued shares of the company that are not redeemable.

Terms and manner of redemption

685

• (1) The directors of a limited company may determine the terms, conditions and manner of redemption of shares if they are authorised to do so—

• (a) by the company's articles, or

• (b) by a resolution of the company.

• (2) A resolution under subsection (1)(b) may be an ordinary resolution, even though it amends the company's articles.

• (3) Where the directors are authorised under subsection (1) to determine the terms, conditions and manner of redemption of shares—

• (a) they must do so before the shares are allotted, and

• (b) any obligation of the company to state in a statement of capital the rights attached to the shares extends to the terms, conditions and manner of redemption.

• (4) Where the directors are not so authorised, the terms, conditions and manner of redemption of any redeemable shares must be stated in the company's articles.

Payment for redeemable shares

686

• (1) Redeemable shares in a limited company may not be redeemed unless they are fully paid.

• (2) The terms of redemption of shares in a limited company may provide that the amount payable on redemption may, by agreement between the company and the holder of the shares, be paid on a date later than the redemption date.

• (3) Unless redeemed in accordance with a provision authorised by subsection (2), the shares must be paid for on redemption.

Financing of redemption

687

• (1) A private limited company may redeem redeemable shares out of capital in accordance with Chapter 5.

• (2) Subject to that, redeemable shares in a limited company may only be redeemed out of—

• (a) distributable profits of the company, or

• (b) the proceeds of a fresh issue of shares made for the purposes of the redemption.

• (3) Any premium payable on redemption of shares in a limited company must be paid out of distributable profits of the company, subject to the following provision.

• (4) If the redeemable shares were issued at a premium, any premium payable on their redemption may be paid out of the proceeds of a fresh issue of shares made for the purposes of the redemption, up to an amount equal to—

• (a) the aggregate of the premiums received by the company on the issue of the shares redeemed, or

• (b) the current amount of the company's share premium account (including any sum transferred to that account in respect of premiums on the new shares),

whichever is the less.

• (5) The amount of the company's share premium account is reduced by a sum corresponding (or by sums in the aggregate corresponding) to the amount of any payment made under subsection (4).

• (6) This section is subject to section 735(4) (terms of redemption enforceable in a winding up).

Redeemed shares treated as cancelled

688

Where shares in a limited company are redeemed—

• (a) the shares are treated as cancelled, and

• (b) the amount of the company's issued share capital is diminished accordingly by the nominal value of the shares redeemed.

Notice to registrar of redemption

689

• (1) If a limited company redeems any redeemable shares it must within one month after doing so give notice to the registrar, specifying the shares redeemed.

• (2) The notice must be accompanied by a statement of capital.

• (3) The statement of capital must state with respect to the company's share capital immediately following the redemption—

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

• (4) If default is made in complying with this section, an offence is committed by—

• (a) the company, and

• (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.

Chapter 4 — Purchase of own shares

General provisions

Power of limited company to purchase own shares

690

• (1) A limited company having a share capital may purchase its own shares (including any redeemable shares), subject to—

• (a) the following provisions of this Chapter, and

• (b) any restriction or prohibition in the company's articles.

• (2) A limited company may not purchase its own shares if as a result of the purchase there would no longer be any issued shares of the company other than redeemable shares or shares held as treasury shares.

Payment for purchase of own shares

691

• (1) A limited company may not purchase its own shares unless they are fully paid.

• (2) Where a limited company purchases its own shares, the shares must be paid for on purchase.

• (3) But subsection (2) does not apply in a case where a private limited company is purchasing shares for the purposes of or pursuant to an employees' share scheme.

Financing of purchase of own shares

692

• (1) A private limited company may purchase its own shares out of capital in accordance with Chapter 5.

• (1ZA) If authorised to do so by its articles, a private limited company may purchase its own shares out of capital otherwise than in accordance with Chapter 5, up to an aggregate purchase price in a financial year of the lower of—

• (a) £15,000, or

• (b) the nominal value of 5% of its fully paid share capital as at the beginning of the financial year.

• (1A) If the share capital of the company is not denominated in sterling, the value in sterling of the share capital shall be calculated for the purposes of subsection (1ZA)(b) at an appropriate spot rate of exchange.

• (1B) The rate must be a rate prevailing on a day specified in the resolution authorising the purchase of the shares.

• (2) Subject to subsections (1) and (1ZA)—

• (a) a limited company may only purchase its own shares out of—

• (i) distributable profits of the company, or

• (ii) the proceeds of a fresh issue of shares made for the purpose of financing the purchase, and

• (b) any premium payable on the purchase by a limited company of its own shares must be paid out of distributable profits of the company, subject to subsection (3).

• (3) If the shares to be purchased were issued at a premium, any premium payable on their purchase by the company may be paid out of the proceeds of a fresh issue of shares made for the purpose of financing the purchase, up to an amount equal to—

• (a) the aggregate of the premiums received by the company on the issue of the shares purchased, or

• (b) the current amount of the company's share premium account (including any sum transferred to that account in respect of premiums on the new shares),

whichever is the less.

• (4) The amount of the company's share premium account is reduced by a sum corresponding (or by sums in the aggregate corresponding) to the amount of any payment made under subsection (3).

• (5) This section has effect subject to section 735(4) (terms of purchase enforceable in a winding up).

Authority for purchase of own shares

Authority for purchase of own shares

693

• (1) A limited company may only purchase its own shares—

• (a) by an off-market purchase, authorised in accordance with section 693A or in pursuance of a contract approved in advance in accordance with section 694;

• (b) by a market purchase, authorised in accordance with section 701.

• (2) A purchase is “off-market” if the shares either—

• (a) are purchased otherwise than on a recognised investment exchange, or

• (b) are purchased on a recognised investment exchange but are not subject to a marketing arrangement on the exchange.

• (3) For this purpose a company's shares are subject to a marketing arrangement on a recognised investment exchange if—

• (a) they are listed under Part 6 of the Financial Services and Markets Act 2000 (c. 8), or

• (b) the company has been afforded facilities for dealings in the shares to take place on the exchange—

• (i) without prior permission for individual transactions from the authority governing that investment exchange, and

• (ii) without limit as to the time during which those facilities are to be available.

• (4) A purchase is a “market purchase” if it is made on a recognised investment exchange and is not an off-market purchase by virtue of subsection (2)(b).

• (5) In this section “recognised investment exchange” means a recognised investment exchange (within the meaning of Part 18 of the Financial Services and Markets Act 2000) other than an overseas exchange (within the meaning of that Part).

Authority for off-market purchase for the purposes of or pursuant to an employees' share scheme

693A

• (1) A company may make an off-market purchase of its own shares for the purposes of or pursuant to an employees' share scheme if the purchase has first been authorised by a resolution of the company under this section.

• (2) That authority—

• (a) may be general or limited to the purchase of shares of a particular class or description, and

• (b) may be unconditional or subject to conditions.

• (3) The authority must—

• (a) specify the maximum number of shares authorised to be acquired, and

• (b) determine both the maximum and minimum prices that may be paid for the shares.

• (4) The authority may be varied, revoked or from time to time renewed by a resolution of the company.