76B. Company may acquire its own shares Flashcards
76B. Company may acquire its own shares
General overview
[76B.01] This statutory provision makes an inroad into the capital maintenance rule by specifically allowing companies to repurchase their own shares in accordance with the provisions of s 76B. Briefly, a company is allowed to buyback its own shares subject to a ceiling of 20% of the total number of ordinary shares of the company within the relevant period. There are four methods of share buybacks that are permitted by the Act which apply to both unlisted and listed shares.
Share buybacks
[76B.02] At common law, a company may not purchase its own shares: Cree v Somervail (1879) 4 App Cas 648 ; Ashbury Rly Carriage and Iron Co v Riche (1874-75) LR 7 HL 653 at 685 ; Hall’s Case (1869-70) LR 5 Ch App 707 ; Hope v International Financial Society (1876) 4 Ch D 327 ; Teasdale’s Case (1873) LR 9 Ch 54 ; Zulueta’s Claim (1869-70) LR 5 Ch App 444 ; Lawe’s Case (1852) 1 De GM & G 421 ; Re National Funds Assurance Co (1878) 10 Ch D 118 ; Stanhope’s Case (1863) LR 1 Ch 161 ; Spackman v Evans (1868) 3 HL 171 ; cf there was nothing illegal in a clause authorising a purchase of shares, not for profit, but for carrying into effect an arrangement considered to be for the benefit of the company; that such a purchase did not reduce the capital of the company in any sense in which such reduction is prohibited by the Companies Act (UK): Re Dronfield Silkstone Coal Co (1880) 17 Ch D 76, CA .
[76B.03] However, a company may buyback its own shares in accordance with ss 76C–76G if it is expressly permitted to do so by its constitution: s 76B(1).
20% ceiling
[76B.04] The total number of ordinary shares and stocks in any class that may be purchased or acquired by a company during the “relevant period” shall not exceed 20% of the total number of ordinary shares and stocks of the company in that class ascertained as at the date of any resolution passed pursuant to ss 76C, 76D, 76DA or 76E subject to a reduction of capital exercise by the company pursuant to ss 78B or 78C or by court order under s 78I: s 76B(3)(a) and (b). The same ceiling extends to the buyback of preference shares (which are not redeemable preference shares under s 70): s 76B(3B)(a) and (b). For reduction of capital, see Taylor v Pilsen Joel and General Electric Light Co (1884) 27 Ch D 268, Ch D . For listed shares, the ceiling is 10%: SGX Listing Rules 882.
“relevant period”
[76B.05] It is the period between the date of resolution passed pursuant to ss 76C, 76D, 76DA or 76E (whichever is the case) and the date the next annual general meeting is held or required to be held, whichever is earlier.
Statutory methods for share buybacks
[76B.06] There are four methods prescribed by the Act: (a) off-market acquisition on equal access scheme; (b) selective off-market acquisition; (c) contingent purchase contract; and (d) authority for market acquisition: ss 76C, 76D, 76DA and 76E.
Off-market acquisitions on equal access
[76B.07] If authorised in advance by the company at a general meeting, a listed or unlisted company may make a purchase or acquisition of its own shares otherwise than on a securities exchange in Singapore or outside Singapore. All procedural requirements are contained in s 76C(2)–(6).
Selective off-market acquisition
[76B.08] It is also an off-market purchase by a company of its own shares from selected members or associated persons only. It requires a special resolution by the company, with the persons or associated persons’ whose shares are being acquired abstaining from voting on the resolution. The procedures for effecting the share buyback are contained in s 76D(1)–(14).
Contingent purchase contract
[76B.09] The definition of a “contingent purchase contract” is stated in s 76DA(9). It is a conditional contract which binds the company to acquire or purchase the shares, subject to any conditions, but which does not amount to a contract to purchase the shares where both the company and the member are bound. It is akin to a call option in favour of the company.
Authority for market acquisition
[76B.10] A listed company may acquire its own shares in the securities exchange. The purchase or acquisition has to be authorised in advance by the company at general meeting. The particulars of the purchase or acquisition has to be disclosed to the members in accordance with s 76E(2), (3) and (5).
