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PART VIN.I.SHARE CAPITAL, ITS INCREASE, MAINTENANCE AND REDUCTION

CHAPTER VIN.I.FINANCIAL ASSISTANCE BY A COMPANY FOR ACQUISITION OF ITS OWN SHARES

Provisions applying to both public and private companiesN.I.

Financial assistance generally prohibitedN.I.

161.[F1(1) Subject to the following provisions of this Chapter, where a person is acquiring or is proposing to acquire shares in a company, it is not lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of that acquisition before or at the same time as the acquisition takes place.

(2) Subject to those provisions, where a person has acquired shares in a company and any liability has been incurred (by that or any other person) for the purpose of that acquisition, it is not lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of reducing or discharging the liability so incurred.

(3) If a company acts in contravention of this Article, it is liable to a fine, and every officer of it who is in default is liable to imprisonment or a fine, or both.]

Annotations:

F1Art. 161 repealed (1.10.2008 with application as mentioned in art. 5(2) of the commencing S.I.) by Companies Act 2006 (c. 46), ss. 1284(2), 1295, 1300(2), Sch. 16; S.I. 2007/3495, arts. 5(2), 8(b), Sch. 3 Pt. 2 (with arts. 7, 12, Sch. 4 paras. 51, 52)

Interpretation for this ChapterN.I.

162.[F2(1) In this Chapter—

(a)“financial assistance” means—

(i)financial assistance given by way of gift;

(ii)financial assistance given by way of guarantee, security or indemnity, other than an indemnity in respect of the indemnifier's own neglect or default, or by way of release or waiver;

(iii)financial assistance given by way of a loan or any other agreement under which any of the obligations of the person giving the assistance are to be fulfilled at a time when in accordance with the agreement any obligation of another party to the agreement remains unfulfilled, or by way of the novation of, or the assignment of rights arising under a loan or such other agreement; or

(iv)any other financial assistance given by a company the net assets of which are thereby reduced to a material extent or which has no net assets;

(b)“distributable profits”, in relation to the giving of any financial assistance—

(i)means those profits out of which the company could lawfully make a distribution equal in value to that assistance, and

(ii)includes, in a case where the financial assistance is or includes a non-cash asset, any profit which, if the company were to make a distribution of that asset, would under [F3section 846 of the Companies Act 2006] (distributions in kind) be available for that purpose, and

(c)“distribution” has the meaning given by [F4section 829 of the Companies Act 2006].

(2) In paragraph (1)(a)(iv) “net assets” means the aggregate of the company's assets, less the aggregate of its liabilities ( “liabilities” to include any[F5 provision for liabilities] within paragraph 88 of Schedule 4[F5 that is made in Companies Order individual accounts and any provision that is made in IAS individual accounts] ).

(3) In this Chapter—

(a)a reference to a person incurring a liability includes his changing his financial position by making an agreement or arrangement (whether enforceable or unenforceable, and whether made on his own account or with any other person) or by any other means, and

(b)a reference to a company giving financial assistance for the purpose of reducing or discharging a liability incurred by a person for the purpose of the acquisition of shares includes its giving such assistance for the purpose of wholly or partly restoring his financial position to what it was before the acquisition took place.]

Transactions not prohibited by Article 161N.I.

163.[F6(1) Article 161(1) does not prohibit a company from giving financial assistance for the purpose of an acquisition of shares in it or its holding company if—

(a)the company's principal purpose in giving that assistance is not to give it for the purpose of any such acquisition, or the giving of the assistance for that purpose is but an incidental part of some larger purpose of the company, and

(b)the assistance is given in good faith in the interests of the company.

(2) Article 161 (2) does not prohibit a company from giving financial assistance if—

(a)the company's principal purpose in giving the assistance is not to reduce or discharge any liability incurred by a person for the purpose of the acquisition of shares in the company or its holding company, or the reduction or discharge of any such liability is but an incidental part of some larger purpose of the company, and

(b)the assistance is given in good faith in the interests of the company.

(3) Article 161 does not prohibit—

(a)a distribution of a company's assets by way of dividend lawfully made or a distribution made in the course of the company's winding up,

(b)the allotment of bonus shares,

(c)a reduction of capital confirmed by order of the court under Article 147,

(d)a redemption or purchase of shares made in accordance with Chapter VII,

(e)anything done in pursuance of an order of the court under [F7section 899 of the Companies Act 2006] (compromises and arrangements with creditors and members),

(f)anything done under an arrangement made in pursuance of[F8 Article 96 of the Insolvency Order] (acceptance of shares by liquidator in winding up as consideration for sale of property), or

(g)anything done under an arrangement made between a company and its creditors which is binding on the creditors by virtue of[F8 Part II of the Insolvency Order] (winding up imminent or in progress).

(4) Article 161 does not prohibit—

(a)where the lending of money is part of the ordinary business of the company, the lending of money by the company in the ordinary course of its business,

[F9(b)the provision by a company, in good faith in the interests of the company, of financial assistance for the purposes of an employees' share scheme,]

[F10(bb)without prejudice to sub-paragraph (b), the provision of financial assistance by a company or any of its subsidiaries for the purposes of or in connection with anything done by the company (or[F9 a company in the same group]) for the purpose of enabling or facilitating transactions in shares in the first-mentioned company between, and involving the acquisition of beneficial ownership of those shares by, any of the following persons—

(i)the bona fida employees or former employees of that company or of another company in the same group; or

(ii)the wives, husbands, widows, widowers, children, step-children or adopted children under the age of eighteen of such employees or former employees.]

(c)the making by a company of loans to persons (other than directors) employed in good faith by the company with a view to enabling those persons to acquire fully paid shares in the company or its holding company to be held by them by way of beneficial ownership.

[F9(5) For the purposes of paragraph (4)(bb) a company is in the same group as another company if it is a holding company or subsidiary of that company, or a subsidiary of a holding company of that company.]]

Special restriction for public companiesN.I.

164.—(1) In the case of a public company, Article 163(4) authorises the giving of financial assistance only if the company has net assets which are not thereby reduced or, to the extent that those assets are thereby reduced, if the assistance is provided out of distributable profits.

(2) For this purpose the following definitions apply—

(a)“net assets” means the amount by which the aggregate of the company's assets exceeds the aggregate of its liabilities (taking the amount of both assets and liabilities to be as stated in the company's accounting records immediately before the financial assistance is given);

(b)“liabilities” includes any amount retained as reasonably necessary for the purpose of providing for any liability[F11 the nature of which is clearly defined and] which is either likely to be incurred, or certain to be incurred, but uncertain as to amount or as to the date on which it will arise.

Annotations:

F11SR 2004/496

Private companiesN.I.

Relaxation of Article 161 for private companiesN.I.

165.[F12(1) Article 161 does not prohibit a private company from giving financial assistance in a case where the acquisition of shares in question is or was an acquisition of shares in the company or, if it is a subsidiary of another private company, in that other company if the following provisions of this Article, and Articles 166 to 168, are complied with as respects the giving of that assistance.

(2) The financial assistance may only be given if the company has net assets which are not thereby reduced or, to the extent that they are reduced, if the assistance is provided out of distributable profits.

Article 164(2) applies for the interpretation of this paragraph.

(3) This Article does not permit financial assistance to be given by a subsidiary in a case where the acquisition of shares in question is or was an acquisition of shares in its holding company, if it is also a subsidiary of a public company which is itself a subsidiary of that holding company.

(4) Unless the company proposing to give the financial assistance is a wholly-owned subsidiary, the giving of assistance under this Article must be approved by special resolution of the company in general meeting.

(5) Where the financial assistance is to be given by the company in a case where the acquisition of shares in question is or was an acquisition of shares in its holding company, that holding company and any other company which is both the company's holding company and a subsidiary of that other holding company (except, in any case, a company which is a wholly-owned subsidiary) shall also approve by special resolution in general meeting the giving of the financial assistance.

(6) The directors of the company proposing to give the financial assistance and, where the shares acquired or to be acquired are shares in its holding company, the directors of that company and of any other company which is both the company's holding company and a subsidiary of that other holding company shall before the financial assistance is given make a statutory declaration in the prescribed form complying with Article 166.]

Annotations:

F12Art. 165 repealed (1.10.2008 with application as mentioned in art. 5(2) of the commencing S.I.) by Companies Act 2006 (c. 46), ss. 1284(2), 1295, 1300(2), Sch. 16; S.I. 2007/3495, arts. 5(2), 8(b), Sch. 3 Pt. 2 (with arts. 7, 12, Sch. 4 paras. 51, 52)

Statutory declaration under Article 165N.I.

166.[F13(1) A statutory declaration made by a company's directors under Article 165(6) shall contain such particulars of the financial assistance to be given, and of the business of the company of which they are directors, as may be prescribed, and shall identify the person to whom the assistance is to be given.

(2) The declaration shall state that the directors have formed the opinion, as regards the company's initial situation immediately following the date on which the assistance is proposed to be given, that there will be no ground on which it could then be found to be unable to pay its debts; and either—

(a)if it is intended to commence the winding up of the company within 12 months of that date, the company will be able to pay its debts in full within 12 months of the commencement of the winding up, or

(b)in any other case, that the company will be able to pay its debts as they fall due during the year immediately following that date.

(3) In forming their opinion for the purposes of paragraph (2), the directors shall take into account the same liabilities (including contingent and prospective liabilities) as would be relevant under[F14 Article 102 of the Insolvency Order] (winding up by the court) to the question whether the company is unable to pay its debts.

(4) The directors' statutory declaration shall have annexed to it a report addressed to them by their company's auditors stating that—

(a)they have enquired into the state of affairs of the company, and

(b)they are not aware of anything to indicate that the opinion expressed by the directors in the declaration as to any of the matters mentioned in paragraph (2) is unreasonable in all the circumstances.

(5) The statutory declaration and auditors' report shall be delivered to the registrar—

(a)together with a copy of any special resolution passed by the company under Article 165 and delivered to the registrar in compliance with [F15section 30 of the Companies Act 2006], or

(b)where no such resolution is required to be passed, within 15 days after the making of the declaration.

(6) If a company fails to comply with paragraph (5), the company and every officer of it who is in default is liable to a fine and, for continued contravention, to a daily default fine.

(7) A director of a company who makes a statutory declaration under Article 165 without having reasonable grounds for the opinion expressed in it is liable to imprisonment or a fine, or both.]

Special resolution under Article 165N.I.

167.[F16(1) A special resolution required by Article 165 to be passed by a company approving the giving of financial assistance must be passed on the date on which the directors of that company make the statutory declaration required by that Article in connection with the giving of that assistance, or within the week immediately following that date.

(2) Where such a resolution has been passed, an application may be made to the court for the cancellation of the resolution—

(a)by the holders of not less in the aggregate than 10 per cent. in nominal value of the company's issued share capital or any class of it, or

(b)if the company is not limited by shares, by not less than 10 per cent. of the company's members;

but the application shall not be made by a person who has consented to or voted in favour of the resolution.

(3) Article 64(3) to (10) (litigation to cancel resolution under Article 63) applies to applications under this Article as to applications under Article 64.

(4) A special resolution passed by a company is not effective for the purposes of Article 165—

(a)unless the declaration made under paragraph (6) of that Article by the directors of the company, together with the auditors' report annexed to it, is available for inspection by members of the company at the meeting at which the resolution is passed,

(b)if it is cancelled by the court on an application under this Article.]

Annotations:

F16Art. 167 repealed (1.10.2008 with application as mentioned in art. 5(2) of the commencing S.I.) by Companies Act 2006 (c. 46), ss. 1284(2), 1295, 1300(2), Sch. 16; S.I. 2007/3495, arts. 5(2), 8(b), Sch. 3 Pt. 2 (with arts. 7, 12, Sch. 4 paras. 51, 52)

Time for giving financial assistance under Article 165N.I.

168.[F17(1) This Article applies as to the time before and after which financial assistance may not be given by a company in pursuance of Article 165.

(2) Where a special resolution is required by that Article to be passed approving the giving of the assistance, the assistance shall not be given before the expiry of the period of 4 weeks beginning with—

(a)the date on which the special resolution is passed, or

(b)where more than one such resolution is passed, the date on which the last of them is passed,

unless, as respects that resolution (or, if more than one, each of them) every member of the company which passed the resolution who is entitled to vote at general meetings of the company voted in favour of the resolution.

(3) If application for the cancellation of any such resolution is made under Article 167, the financial assistance shall not be given before the final determination of the application unless the court otherwise orders.

(4) The assistance shall not be given after the expiry of the period of 8 weeks beginning with—

(a)the date on which the directors of the company proposing to give the assistance made their statutory declaration under Article 165, or

(b)where that company is a subsidiary and both its directors and the directors of any of its holding companies made such a declaration, the date on which the earliest of the declarations is made,

unless the court, on an application under Article 167, otherwise orders.]

Annotations:

F17Art. 168 repealed (1.10.2008 with application as mentioned in art. 5(2) of the commencing S.I.) by Companies Act 2006 (c. 46), ss. 1284(2), 1295, 1300(2), Sch. 16; S.I. 2007/3495, arts. 5(2), 8(b), Sch. 3 Pt. 2 (with arts. 7, 12, Sch. 4 paras. 51, 52)