Companies Act 2006 -Treasury Shares

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Section 715: Directors’ statement: offence if no reasonable grounds for opinion

1023. This section restates section 173(6) of the 1985 Act and Schedule 24 to that Act (but substitutes the reference to “declaration” with “statement”). The offence that is currently contained in subsection (6) of section 173 (offence of making declaration without reasonable grounds) is replaced with an offence of making a statement under section 714 without having reasonable grounds for the opinion expressed in it. As now, the offence is committed by every director of the company who is in default.

Section 720: Directors’ statement and auditor’s report to be available for inspection

1024. This section replaces section 175(6)(a) and (7) and restates section 175(4), (6)(b), and (8) of the 1985 Act and Schedule 24 to that Act. Subsection (2) alters the current requirement, contained in section 175(6)(a), by providing that the directors’ statement and auditor’s report may, alternatively, be kept available for inspection at a place specified in regulations made under section 1136. There is a new requirement (in subsection (3)) for the company to give notice to the registrar of the place where the statement and report are kept available for inspection and of any change to that place. This change is consequential on the change introduced by subsection (2).

1025. Subsection (5) provides that if the company fails to give such notice to the registrar within 14 days or an inspection of the statement and report are refused, the company and every officer in default commit an offence.

CHAPTER 6: TREASURY SHARES

1026. Where a company buys back its own shares, it is normally required to cancel those shares. Certain companies (principally those which are listed or those which are traded on the Alternative Investment Market and equivalent companies in the EEA) may elect not to cancel shares which have been bought back but may hold the shares “in treasury”. A share which is held in treasury may be sold at a future point in time and this facility enables such companies to raise capital more quickly than they would otherwise be able to, as the directors do not have to obtain prior authority from the company’s members before selling treasury shares.

Section 727: Treasury shares: disposal

1027. This section replaces section 162D(2) of the 1985 Act and restates section 162D(1)(a) and (b) and 162D(3) of that Act. It defines (in subsection (2)) what is meant by “cash consideration” where treasury shares are sold and this mirrors, in part, the definition in section 583 (which restates section 738(2) to (4) of the 1985 Act and defines when a share is deemed to be paid up or allotted for cash).

1028. Subsections (2)(e), (3) and (5) are new. They enable the Secretary of State to specify, by order, what, in addition to the items specifically referred to in subsection (2), constitutes “cash consideration” for the purposes of subsection (1)(a).

1029. The power to make further provision in respect of what constitutes “cash consideration” for the purposes of a sale of treasury shares (that is, in addition to those already specified in subsection (2)) is intended to remove uncertainties surrounding other methods of settlement, for example, the CREST settlement system (see note on section 583) and will also act as a future proofing mechanism in the event that new methods of settlement are developed or identified.

Section 730: Treasury shares: notice of cancellation

1030. This section restates sections 169A(1)(b)(i), (2) to (4) of the 1985 Act and Schedule 24 to that Act. As now, where a company cancels shares which it has held in treasury it is required to give notice of this to the registrar within 28 days of the cancellation. The provision has, however, been updated to require companies to file a statement of capital in these circumstances (see note on section 619).

Section 732: Treasury shares: offences

1031. This section replaces section 162G of the 1985 Act. It renders both the company and every officer in default liable to an offence for any contravention of the provisions of this Chapter.

Section 737: General power to make further provision by regulations

1032. This section is a new provision which enables the Secretary of State, by regulations, to modify the provisions of Part 18 (see subsection (1)).

1033. Regulations made under this section may amend or repeal any of the provisions in this Part or make such other provision as appears to the Secretary of State appropriate in place of those provisions.

1034. The power to make regulations in this section will enable the Secretary of State to “future-proof” the provisions in Part 18 – which are primarily concerned with the maintenance of capital. This is desirable as many of these provisions are derived from EU law and may require amendment in the relatively near future (subject in part to the outcome of a fundamental study into alternatives to the current capital maintenance regime which is being carried out at EU level).

1035. Regulations made pursuant to the power in this section are subject to the affirmative resolution procedure, which means that they must be approved by both Houses of Parliament.

PART 19: DEBENTURES

1036. This part restates the provisions of the 1985 Act relating to debentures. Sections 738- 740, 742 and 749-754 make no change to the law.

Section 741: Registration of allotment of debentures

1037. This is a new section which obliges a company to register an allotment of debentures as soon as practicable, but in any event within two months after their allotment. It completes the picture as regards the existing requirement in section 185(1) of the 1985 Act (which is restated in section 769(1)) which obliges a company to complete and deliver certificates for debentures within two months after their allotment.

Section 743: Register of debenture holders

1038. This section replaces section 190 of the 1985 Act. There is no requirement for a company to keep a register of debenture holders but if such a register is kept, then it (or any duplicate) must be kept available for inspection at either the company’s registered office or a place permitted under regulations made under section 1136. (This is the same as for the obligatory registers of members, see section 114.)

Section 744: Register of debenture holders: right to inspect and require copy

1039. This section replaces part of section 191 of the 1985 Act. It modifies the existing right of public access to any register of debenture holders kept by a company. The changes mirror similar requirements in Part 8 relating to the register of members. Subsections (3) and (4) require those seeking to inspect or to be provided with a copy of the register to provide their names and addresses, the purpose for which the information will be used, and, if the access is sought on behalf of others, similar information for them.