Buy Back Crib Sheet Notes

Share Buy-Back

1. 658 Generally a company is forbidden from buying its own shares except in accordance with CA 2006

   1. 690(1) provides that company may only buy back its shares if it not prohibited from doing so by its articles

      1. Model Articles have no restrictions

   2. 691(1) Only shares which are fully paid can be bought back

      1. MA 21 it can be assumed that shares are fully paid

   3. 690(2) Buy-back cannot take place if, as a result, there would be only redeemable shares in issue

      1. CHECK BALANCE SHEET

   4. 691(2) When shares are bought, the company must pay for them upon purchase

2. How can shares be funded?

   1. 692(2)(a)(i) Out of sufficient distributable profits

      1. CHECK PROFIT & LOSS ACCOUNT

   2. 692(2)(a)(ii) Out of the proceeds of a fresh issue of shares made for the purpose of financing the purchase

   3. PRIVATE COMPANY then 709(1) Out of capital

      1. Unless articles forbid this – Model Articles do not

3. What type of purchase is it?

   1. Private company then probably off-market 693(1)(a)

      1. Contract effecting buy-back has to be approved by SPECIAL RESOLUTION or be conditional on approval being granted 694(2)

         1. Board Resolution to draft contract & call GM/written resolution

         2. Special resolution approving contract

         3. Board resolution executing contract

   2. Public company can be off-market 693(2)

      1. Contract effecting buy-back has to be approved by SPECIAL RESOLUTION or be conditional on approval being granted 694(2)

         1. Board Resolution to draft contract & call GM

         2. Special resolution approving contract

         3. Board resolution executing contract

   3. 701(1) To make a market purchase then need an ORDINARY RESOLUTION of shareholders

      1. 701(3) stating the maximum number of shares to be authorised to be acquired & the maximum & minimum prices to be paid for the shares

      2. 701(5) Authority to directors must state the period for which the authority is to last, for a maximum of 5 years

         1. Board resolution to call GM (or written resolution if private company)

         2. Ordinary resolution

         3. Board resolution to effect market purchase

4. Procedure for buy-back out of distributable profits?

   1. Is the meeting quorate?

      1. MA 11(2)

      2. Ordinary resolution of shareholders required to alter quorum requirements

   2. Do any declarations of interests need to be made?

      1. If shareholder with whom buy back is to take place is also a director then director must declare interest under 177 & will be ineligible to vote or count in quorum MA 14

   3. Directors have to asses if buy-back will promote the success of the company 172

      1. APPLY TO FACTS

         1. Are there sufficient distributable profits?

         2. Is the company cash-rich?

         3. Are the shares being bought at a premium?

   4. Board resolutions

      1. Approve buy-back & draft contract

      2. Call GM or circulate written resolution (if private company only)

   5. Shareholder resolutions

      1. SPECIAL RESOLUTION approving contract

         1. 695(2) shareholder whose shares are being bought is ineligible to vote in a written resolution

         2. 695(3) & (4) shareholder whose shares are being bought can vote & count in quorum at GM, but if his vote has the effect of causing the SR to be passed, the resolution will be void

            1. APPLY TO FACTS but generally advise not to vote in SR

   6. Board Resolutions

      1. Authorise signatories for contract

         1. Anyone with a conflict still cannot vote MA 14

   7. Administration

      1. 707(1) Form SH03 to Registrar within 28 of buy-back

      2. 708(2) Form SH06 to registrar within 28 days accompanied with statement of capital

      3. 113 Alter register of members

      4. 702(3) Keep buy-back contract at registered office for 10 years

5. Procedure for Buy-Back out of capital

   1. Is the meeting quorate?

      1. MA 11(2)

      2. Ordinary resolution of shareholders required to alter quorum requirements

   2. Do any declarations of interests need to be made?

      1. If shareholder with whom buy back is to take place is also a director then director must declare interest under 177 & will be ineligible to vote or count in quorum MA 14

   3. Directors have to asses if buy-back will promote the success of the company 172

   4. 714 Directors required to give a statement of solvency that the company is solvent & will remain so for the next 12 months

      1. If company goes insolvent in this period directors could be made personally liable...

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