62B. Transitional provisions for section 62A Flashcards
62B. Transitional provisions for section 62A
[62B.01] This section was enacted to enable the transition from the par value regime to the present regime where shares do not have any par value. Previously, shares cannot be issued at a discount but may be issued at a premium. When issued at a premium, the excess of the share price over its nominal value was credited into a share premium account and used for certain authorised payments only. Section 62B(3) sets out a list of expenses that are permitted to be paid out of the share premium account in order to close the account.
Share capital
[62B.02] Previously, if shares were issued above the par value, e.g. $1 nominal value shares were sold at a premium of $0.50, i.e. for $1.50, the $1 nominal value was allocated into the company’s capital account and the $0.50 into the share premium account. The capital maintenance rule applied to both accounts.
[62B.03] After the Companies (Amendment) Act 2005 (No 21 of 2005), these two accounts combine to form the company’s share capital. For the rule on capital maintenance, see Trevor v Whitworth (1887) 12 App Cas 409, HL ; considered in Re Anglo-French Exploration Co [1902] 2 Ch 845, Ch D where the court held that the rule is not infringed if the reduction is effected by (a) cancelling capital lost or unrepresented by available assets; or (b) paying off capital in excess of the company’s wants (in each case under s 3 of the Companies Act 1877 (UK)).
Share premium account
[62B.04] Section 62B(3) permits the amount standing to the credit of the share premium account to be used for the purposes stated therein: (a) to pay for the premium payable on redemption of debentures or redeemable preference shares issued before that date (i.e. January 30, 2006); (b) to write off the preliminary expenses of the company incurred before that date; (c) to write off any expenses incurred, or commissions or brokerages paid or discounts allowed, or on any duty, fee or tax payable or in connection with any issue of shares of the company (note: s 67 of the Companies Act (Cap 50, 1994 Rev Edn) provided that the company could use its share premium account to pay commissions and other permitted expenses incurred for an issue of shares). Section 69(2)(e) expressly allowed the share premium account to be applied to write off preliminary expenses or the expenses of, the commissions or brokerage paid or discount allowed on, any duty, fee or tax payable on or in connection with any issue of shares of the company. These sections have been repealed when par value was abolished vide the Companies (Amendment) Act 2005 (No 21 of 2005)); (d) for the issue of fully paid-up bonus shares; (e) to pay up in whole or in part any unpaid balance due on shares issued before that date; and (f) to pay dividends declared before that date, that are satisfied by an issue of shares to members of the company. The share premium account has been abolished pursuant to the abolition of the par value concept vide the Companies (Amendment) Act 2005 (No 21 of 2005).
Permitted expenses
[62B.05] Section 62B(3) allows preliminary expenses, or expenses incurred or commissions or brokerages paid or discounts allowed, or any duty, fee or tax payable in connection with any issue of shares by a company to be written off against any amounts standing to the credit of the share premium account immediately before January 30, 2006. For permitted expenses incurred after January 30, 2006, see the CLRFC, Recommendation 2.18, October 2002 where the Steering Committee was of the view that any expenses directly related to any share issue or buyback may be deducted from the equity portion of the company’s balance sheet (which consists of share capital, reserves and retained earnings: para 37 of FRS 32). Section 258C of the Corporations Act 2001 (Australia) allows a company to pay brokerage or commissions to a person in respect of that person or another person agreeing to take up shares in the company. The New Zealand legislation is silent on this issue. See s 76F(1A) which was introduced in Act No 36 of 2014 to allow such expenses to be paid by a company.
