Buyback of shares Flashcards
(17 cards)
What is the Doctrine of Maintenance of Share Capital?
A principle that prohibits companies from returning investments to shareholders except in limited circumstances
Why is the Doctrine of Maintenance of Share Capital important?
To protect creditors given limited liability and ensure that share capital indicates creditworthiness
How does the Doctrine of Maintenance of Share Capital apply to dividends?
It limits the funds from which a company may pay dividends to ensure they come from ‘distributable profits’
Share premium reserve does not count as distributable profits.
How can a company buy back its shares?
- Using distributable profits
- Using proceeds of fresh issue of shares to finance the buyback
- Capital (only available for private companies if (1) and (2) are not).
What are the preliminary things to check for a company to be able to conduct a buyback of shares out of its profits?
- it is not restricted in the articles
- the shares being bought are paid up
- after buyback, there will still be shares which are not treasury shares or redeemable shares
If the preliminaries are approved, what are the next steps to buyback shares with profits?
- BM to approve the contract and call a GM
- Contract must be approved by OR at a GM or by WR
What is required before the SHs can approve the contract to buyback shares out of profits?
The contract must be available for inspection for 15 days before the GM and at the GM. If WR procedure is used, the contract must be sent with the resolution.
What is the prohibition for public companies regarding buybacks out of capital?
Public companies are prohibited from using capital to fund buybacks
What must a private company do before funding a buyback with capital?
Use any available money in the form of distributable profits or proceeds from a fresh issue of shares. Accounts must be prepared no earlier than 3 months before the statement of solvency to show that there are no available distributable profits.
What does a director’s statement of solvency confirm?
That the company will remain solvent for 12 months after the buyback
This statement must be accompanied by an auditor’s report.
After establishing the preliminaries, what are the steps to buyback shares out of capital?
- Prepare a director’s statement of solvency with auditor’s report
- BM to approve draft contracts and call a GM
- GM (with 15 days notice so that the contract can be approved) or WR
- Need an OR to approve the contract and a SR to approve payment out of capital
- Give notice to creditors
- BM to enter into the contract
When must the directors’ statement of solvency be signed?
No earlier than 1 week before the GM/WR
What notice must creditors be given after the GM/WR if buying shares out of capital?
Creditors must be given notice within 7 days of passing the SR by:
- placing notices in the Gazette and local newspaper, saying that a SR has been passed, they can apply to stop this, where the DSS and AR are available for inspection
- publishing a notice in an appropriate newspaper
- file copies of DSS and AR at CH
How long do creditors have if they want to stop the buyback out of capital?
They can apply any time within 5 weeks immediately following the date of the resolution
When must the SR approving buyback out of capital be filed at CH?
Within 15 days
When can a buyback take place after a special resolution?
No earlier than 5 weeks and no later than 7 weeks after the resolution
What is required for the redemption of redeemable shares?
No contract is needed; the procedure is outlined in the company’s articles
