Buyback of shares Flashcards
What are the consequences of the principle of maintenance of share capital?
Dividends may only be paid out of distributable profits, not capital; and
companies generally must not purchase their own shares.
What are the exceptions to the maintenance of share capital consequences?
A company may buyback shares or redeem redeemable shares where the process under CA 2006 is followed.
A company may buyback its shares following a court order for a successful shareholder petition for unfair prejudice.
Why may a private company wish to redeem or buyback shares?
A shareholder may want to leave and cannot find a buyer for their shares. Shareholders in private companies are prohibited from offering their shares to the public.
How can a company fund a buyback of shares?
distributable profits
proceeds of a fresh issue of shares made for the purpose of funding the buyback
capital
When should the accounts be prepared in relation to a buyback out of capital?
No more than three months before DSS.
What must a DSS be prepared with?
Auditors report
When must a special resolution to approve payment out of capital be passed?
Within a week after the directors sign the DSS.
What is a directors statement of solvency (DSS)?
It confirms the company is solvent and able to pay its debts as they fall due and that it will remain solvent for a period of 12 months after the buyback.
What might be the consequences for directors if a company is wound up within one year of the DSS?
They may be required to contribute to the assets of the company and may face criminal sanctions if they had no reasonable grounds for making the DSS.
What is the purpose of an auditors report?
It must be annexed to the DSS confirming that the auditors are not aware of anything to indicate that the directors opinion is not reasonable.
What are the notification requirements for a buyback out of capital?
Within 7 days of passing the SR, the company must give notice to its creditors by:
- Publishing a notice in the Gazette. The notice must state:
- that the company has approved a payment out of capital
- where the DSS and auditors report are available for inspection; and
- any creditor of the company may within the 5 weeks immediately following the SR, apply to the court for an order preventing the payment. - Publishing a notice in the same form as the Gazette notice in an appropriate national newspaper; and
- Filing copies of the DSS and auditors report at CoHo
When must the buyback out of capital take place?
No earlier than 5 weeks, and no later than 7 weeks after the date of the special resolution.
This period CANNOT be reduced even by SR passed unanimously, as it designed to protect creditors.
What must be actioned after the buyback out of capital has taken place?
Within 28 days of the date on which the shares are brought back, the company must send a return to CoHo and a notice of cancellation, together with a statement of capital.
What is the process of redemption of redeemable shares?
All details of redemption, including date of redemption and the price to be paid at that date will either be in the Articles or determined by the directors.
Therefore, a contract is NOT required to redeem shares, irrespective of the source of funds used.
