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BLP > Buyback of shares > Flashcards

Buyback of shares Flashcards

1
Q

doctrine of maintenance capital

A

company must maintain and not reduce its share capital except in certain limited circumstances

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2
Q

consequences of the principle go maintenance of share capital what are the exceptions

A
  1. dividends may only be paid out of distributable profits, capital
  2. companies generally must not purchase their shares

exception:
1. a company may buy back its own shares or redeem redeemable shares provided it follows the procedures set out in CA 2006.

  1. A company may purchase its own shares where a court order is made for this following a successful shareholder petition for unfair prejudice
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2
Q

consequences of the principle go maintenance of share capital what are the exceptions

A
  1. dividends may only be paid out of distributable profits, capital
  2. companies generally must not purchase their shares

exception:
1. a company may buy back its own shares or redeem redeemable shares provided it follows the procedures set out in CA 2006.

  1. A company may purchase its own shares where a court order is made for this following a successful shareholder petition for unfair prejudice
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3
Q

What are two types of situation when a company can buy its own shares?

A

Both private and public companies may buyback or redeem shares if they comply with provisions of CA 2006

  1. redemption of redeemable shares- contract is not required
  2. purchase of own shares (buyback)
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4
Q

what are the different ways of funding purchase of own shares?

A
  1. distributable profits
  2. proceeds of fresh shares made for the purpose of financing the buyback
  3. capital:
    - only available to private companies
  • any redemption or purchase out of capital must comply with the restrictions in s709-723
  • Companies must first use any money available either in the form of profits or the proceeds of a fresh issue of shares to fund the purchase before using capital
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4
Q

what are the different ways of funding purchase of own shares?

A
  1. distributable profits
  2. proceeds of fresh shares made for the purpose of financing the buyback
  3. capital:
    - only available to private companies
  • any redemption or purchase out of capital must comply with the restrictions in s709-723
  • Companies must first use any money available either in the form of profits or the proceeds of a fresh issue of shares to fund the purchase before using capital
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5
Q

Conditions for:

  1. distributable profits
  2. proceeds of fresh shares made for the purpose of financing the buyback
A
  1. Purchase of own shares is not restricted or prohibited in the Articles.
  2. The shares being purchased are fully paid up, and
  3. the company must continue to have issued shared other that redeemable and treasury shares
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6
Q

Conditions for:

  1. distributable profits
  2. proceeds of fresh shares made for the purpose of financing the buyback
A
  1. Purchase of own shares is not restricted or prohibited in the Articles.
  2. The shares being purchased are fully paid up, and
  3. the company must continue to have issued shared other that redeemable and treasury shares
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7
Q

procedure of buyback s694

A
  • contract of purchase- approved by OR
  • contract must be available for inspection at the company’s registered office for a period of 15 days before the GM and also at the GM.

Written resolution is used, a copy of the contract must be sent together with the copy of any written resolution.

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8
Q

Procedure for buying back share- initial steps

A
  • no limitation on articles on s 690 power to buy back
  • BR to call a GM/ propose a WR
  • Contract to be made available to shareholders:

If GM- contract to be available for inspection for 15 days prop

Ordinary resolution-

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9
Q

Procedure for buying back share- initial steps

A
  • no limitation on articles on s 690 power to buy back
  • BR to call a GM/ propose a WR
  • Contract to be made available to shareholders:

If GM- contract to be available for inspection for 15 days prop

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10
Q

Procedure for buying back share- initial steps

A
  • no limitation on articles on s 690 power to buy back
  • BR to call a GM/ propose a WR
  • Contract to be made available to shareholders:

If GM- contract to be available for inspection for 15 days prop

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11
Q

what shareholder resolution is requires

A

Ordinary resolution, holders of the shares being bought are not eligible to vote

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12
Q

GR/WR

A

-BR to enter the contract
- BR to appoint a directors to sign the contract

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13
Q

Post Meeting Matters

A
  • file return notice of cancellation, and statement of capital within 28 days
  • keep copy of contract for 10 years
  • cancel shares, update register of members (and PSC register if applicable)
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14
Q

What conditions need to be satisfied of the buyback of shares out of capital for private companies

A
  1. purchase of shares out of capital is not restricted or prohibited in the company’s articles
  2. accounts were prepared no more than 3 months before the directors statement
  3. check is there are any distributable profits, if so profits or funds from a fresh issue of shares for the purpose must be used to fund the buyback before capital can be used (s710)
  4. a director statement of solvency must be prepared with an auditors report (s714)
  5. special resolution to approve payment out of capital must be passed within a week after the directors sign the statement of solvency
  6. the shares being purchased by the company are fully paid up
  7. after the purchase, the company must continue to have issued shared other than redeemable and and treasury shares
15
Q

The directors statement of solvency.

Made when?
Guarantees what?

A
  • made no earlier than one week before the GM

the statement confirms that the company is solvent and is able to pay debt and will remain solvent for a period of 12 month before the buy back

16
Q

what happens if the directors statement is false and the company is insolvent and wound up within 1 year?

A

directors may be required to contribute to assets and may face criminal sanctions

17
Q

what does an auditors report confirm?

A

Auditors report must be annexed to the written statement of solvency, confirming that the auditors are not aware of anything to indicate that the directors opinion is not reasonable

18
Q

Buyback of shares out of capital- What notification requirements are there after the? in how long?

A

Within 7 days of the SR

  1. Publishing the notice in the gazette the notice must state:
  • that the company has approved a payment made out of capital for the purpose of purchasing its now shares
  • where the directors report and auditors report are available fore inspections; and
  • any creditor of the company may, at anytime within 5 weeks immediately following the date of the resolution, apply to the court under s721 CA 2006 for an order preventing the payment
  1. publishing a notice in an appropriate national newspaper in the same form as the gazette notice
  2. Give notice in writing to each of its creditors , AND
  3. file copies of the directors statement and auditors report at the companies house. This is so they any interest creditor interested may inspect it
19
Q

Procedure for buying back share- initial steps via cash/ proceeds of fresh issue

A
  • no limitation on articles on s 690 power to buy back
  • BR to call a GM/ propose a WR
  • Contract to be made available to shareholders:

If GM- contract to be available for inspection for 15 days prop

20
Q

what is the timing for buyback out of capital

A

the share purchase takes place no earlier than 5 weeks, and no latter than 7 weeks after the date of the special resolution- this period cannott be altered

21
Q

what needs to be done within 28 days…

A

within 28 days of the date on which the shares that are bought back and delivered to the company; the company must send the following CH:
a) return
b) a notice
c) statement of capital

22
Q

buy back of shares out of capital

A
  • Check Articles for any prohibition on buyback and on use of capital
  • Buyback terms must be set out in a contract (15-day display)
  • DSS and AR; accounts (< 3 months old)
  • Shareholders must approve the contract by ordinary resolution
  • Shareholders must approve the payment out of capital by special resolution
  • Detailed notification requirements for creditors
23
Q

buyback from profits/ proceeds of new share issue

A
  • Check Articles for any prohibition on buyback
  • Verify distributable profits
  • Terms of buyback must be set out in a contract - must be available for inspection at least 15 days before GM and at GM itself (or circulated with written resolution)
  • Shareholders must approve the contract by ordinary resolution

BLP (17 decks)

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