The Companies (Acquisition of Own Shares) (Treasury Shares) No. 2 Regulations 2003

Explanatory Note

(This note is not part of the Regulations)

These Regulations further implement Council Directive 77/91/EEC (OJ No. L26, 31.1.77, p.1) as amended by 92/101/EEC (OJ 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 supplement Regulations made earlier this year—The Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 (S.I. 2003/1116)—by making further amendments to the Companies Act 1985 (c. 6) (“the 1985 Act”). The earlier Regulations amended the 1985 Act to permit certain public companies to hold shares in treasury following a purchase of own shares as an alternative to cancelling such shares on purchase.

Regulation 2 replaces section 89(6) of the 1985 Act (inserted by the earlier Regulations) with a new subsection (6) which seeks to ensure 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. Regulation 3 revokes paragraph 12(4) of the Schedule to S.I. 2003/1116 and amends section 169(3) of the 1985 Act to clarify the change to section 169(3) made by the revoked provision. Regulation 4 amends section 323 of the 1985 Act by allowing a director to buy a right to call for the delivery of shares held as treasury shares. Regulation 5 amends the definition of “shares” in section 428(2) of the 1985 Act to provide that treasury shares may either be included in, or excluded from, a takeover offer as defined in section 428(1). Regulations 6 and 7 delete the provisions made by the earlier Regulations in respect of sections 429 and 430A of the 1985 Act to take account of the changes made to section 428(2) and make provision for the circumstances in which the right of the minority shareholder to be bought out by an offeror under section 430A can be exercised where treasury shares are held by the company in respect of whose shares the offer is made.

A Regulatory Impact Assessment of these Regulations is available from the Department of Trade and Industry, Corporate Law and Governance Directorate, Room 507, 1 Victoria Street, London SW1H 0ET. A copy has also been placed in the libraries of both Houses of Parliament. Transposition Notes for S.I. 2003/1116 setting out how those Regulations further implemented Council Directive 77/91/EEC were placed in the libraries of both Houses of Parliament and are also available from the above address. The notes are unaffected by these Regulations.