Companies (Acquisition of Own Shares) (Treasury Shares) Regulations (Northern Ireland) 2004

Explanatory Note

(This note is not part of the Regulations.)

These Regulations further implement the Council Directive 77/91/EEC (O.J. No. L26, 31.1.77, p. 1) as amended by 92/101/EEC (O.J. No. L347, 28.11.92, p. 64) on co-ordination of safeguards which, for the protection of members and others, are required by member states of companies in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent. The Regulations amend the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)) (“the 1986 Order”) to permit certain companies to hold shares in treasury following a purchase of own shares as an alternative to cancelling such shares on purchase.

Regulation 2 defines qualifying shares which are the only shares that may be held as treasury shares.

Regulation 3 inserts new Articles 172A, 172B, 172C, 172D, 172E, 172F and 172G in the 1986 Order which set out the principal provisions relating to treasury shares. Article 172A provides that where qualifying shares are purchased out of distributable profits they may be held in treasury; and that the holding of treasury shares by nominees is not permitted. Article 172B provides that the maximum holding of treasury shares is 10% of the nominal value of any class of share. If that limit is exceeded, the company must dispose of or cancel the excess shares within 12 months. Article 172C provides that the rights attached to treasury shares, including voting rights and rights to receive dividends, are suspended and that the purported exercise of such rights is void. Article 172D provides that treasury shares may only be sold for cash; or transferred for the purposes of, or pursuant to, an employees' share scheme; or cancelled. Article 172E provides that if a company’s treasury shares cease to be qualifying shares they must be cancelled forthwith. Article 172F sets out the rules that apply in respect of the proceeds of a sale of treasury shares. Article 172G provides that if a company contravenes any provision of Articles 172A to 172F every officer of it who is in default is liable to a fine.

Regulation 4 provides that the Schedule to the Regulations has effect. The Schedule sets out consequential amendments to the 1986 Order. Paragraphs 4, 5 and 6 amend Articles 99, 104 and 105 respectively and provide that the pre-emption rights that apply to the allotment of new shares also apply to the sale of treasury shares but may also be similarly disapplied with the agreement of shareholders. Article 99(6) provides that when a company holding treasury shares allots new securities, all those securities must be offered to existing shareholders (other than the company itself) in proportion to their existing shareholding. Paragraphs 12 and 13 amend Article 179 and insert a new Article 179A respectively and set out the rules relating to the disclosure to the Registrar of Companies of purchases of treasury shares and their subsequent sale, transfer or cancellation. Article 331 is amended by paragraph 17 to allow a director to buy a right to call for the delivery of shares held as treasury shares.