67. Use of share capital to pay expenses incurred in issue of new shares

Question 1

67. Use of share capital to pay expenses incurred in issue of new shares

Answer 1

General overview
[67.01] Prior to Act No 36 of 2014, it has always been a contention by some that any expenses, including brokerage and commission incurred in respect of issuing shares and payable by the company amounted to a breach of s 76 as “financial assistance” to the acquisition of shares in the company: see Chaston v SWP Group plc [2003] 1 BCLC 675 . Section 76 is a statutory enactment to preserve the capital maintenance rule. The new s 67 clarifies that such payment of expenses, brokerage and commission is not to be considered as reducing the amount of share capital of the company.

Question 2

Commission and brokerage

Answer 2

[67.02] The new s 67 introduced by Act No 36 of 2014 allows for the company to pay any expenses, including brokerage and commission, incurred directly in the issue of new shares. Subsection (2) provides that such payment shall not amount to a reduction of share capital of the company, so as not to infringe the capital maintenance rule.

[67.03] For payment of expenses for a due diligence report amounting to “financial assistance” by the company to acquire shares, see Chaston v SWP Group plc [2003] 1 BCLC 675 and other cases cited under s 76.