Buyback of Shares Flashcards
Is a company permitted to return capital that shareholders input back to the shareholder?
No – all payments must be made out of distributable profits
What is the doctrine of maintenance of share capital?
Share capital cannot be returned to shareholders while the company is a going concern
What can dividends be paid out of and not paid out of?
Can be paid out of distributable profits – not capital
Can companies purchase their own shares?
Generally, they shouldn’t.
What is the exception to the doctrine maintenance of share capital?
- Company can buy back shares if it follows CA 2006 procedure
- Company can buy back shares if ordered by court (i.e. unfair prejudice claim)
What are the two ways a Company can effectively acquire its own shares?
1) Redemption of redeemable shares
2) Purchase of own shares (buyback)
Is it difficult for a company to buy back own shares?
Yes, there are very strict controls
What is a buyback of shares for a company?
When a company purchases its own shares from a shareholder
When would a company buyback share?
If no other shareholder available to buy, and shareholder wants out
Is a resolution needed for company to buy back own shares? What for?
Yes, ordinary resolution to approve the terms of the contract
What are the ways in which a company can fund buyback of shares?
1) Distributable profits
2) Proceeds of fresh issue of shares made for purpose of financing the buyback
3) Capital
What are the rules on using capital to fund buyback of shares?
1) Only private companies
2) Any redemption or purchase out of capital must comply with restrictions in ss709-723 CA 2006; and
3) Companies must first use other available money
If the shares being purchased by a company are not fully paid up, can profits / fresh issue be used for buyback of shares?
No
What is the procedure in using profits / fresh issue of shares to use for buyback of shares?
1) A contract
2) Terms of contract approved by ordinary resolution
3) Contract must be available 15 days before GM and at GM
What are the rules on buyback of shares out of capital?
1) Director’s statement of solvency
2) Special resolution required
3) Must be paid out of profits
4) Public notice for opportunity for creditors to object
What must be included in directors’ statement of solvency for buyback of shares?
Company is solvent and can pay debts as they fall due for a period of 12 months after buyback
What is an auditors’ report?
Not aware of anything to indicate directors’ opinion is not reasonable
What are the notification requirements for buyback out of capital?
1) Publishing a notice in Gazette
2) Publishing a notice in appropriate national newspaper
3) Filing copies of directors’ statement and auditors’ report at Companies House
What must the notice say for buyback out of capital?
- Company approved payment
- Where statement and audit available for inspection
- Any creditor, any time within 5 weeks, can apply to court to prevent payment
When can buyback out of capital take effect?
Any time between no earlier than 5 and no later than 7 weeks after date of special resolution
Is a contract required to redeem shares?
No, not required
