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Wednesday, 13 May 1981
Page: 2327


Mr JACOBI(8.1) —Before the suspension of the sitting, the Committee was dealing with non-cash considerations. I seek leave to have incorporated in Hansard sections 23 to 27 of the United Kingdom Companies Act of 1980.

Leave granted.

The document read as follows-

23.-(1) A public company shall not allot shares as fully or partly paid up (as to their nominal value or any premium payable on them) otherwise than in cash if the consideration for the allotment is or includes an undertaking which is to be or may be performed more than five years after the day of the allotment.

(2) Where a public company allots shares in contravention of subsection (1) above, the allottee of the shares shall be liable to pay the company an amount equal to their nominal value, together with the whole of any premium, or, if the case so requires, such proportion of that amount as is treated as paid up by the undertaking and shall be liable to pay interest at the appropriate rate on the amount payable under the foregoing provision.

(3) Where a contract for the allotment of shares does not contravene subsection (1) above, any variation of the contract which has the effect that the contract would have contravened that subsection if the terms of the contract as varied had been its original terms shall be void.

(4) Subsection (3) above shall apply to the variation by a public company of the terms of a contract entered into before the company was re-registered as a public company.

(5) Where a public company allots shares for a consideration which consists of or includes (in accordance with subsection (1) above) an undertaking which is to be performed within five years of the allotment but that undertaking is not performed within the period allowed by the contract for the allotment of the shares, the allottee of the shares in question shall be liable to pay the company at the end of that period an amount equal to the nominal value of the shares, together with the whole of any premium, or, if the case so requires, such proportion of that amount as is treated as paid up by the undertaking, together with interest at the appropriate rate on the amount payable under the foregoing provision.

(6) Subsection (4) of section 20 above shall apply in relation to a contravention of this section and to a failure to carry out a term of a contract as mentioned in subsection (5) above as it applies in relation to a contravention of that section.

(7) Any reference in this section to a contract for the allotment of shares includes a reference to an ancillary contract relating to payment in respect of those shares.

24.-(1) Subject to subsection (2) below, a public company shall not allot shares as fully or partly paid up (as to their nominal value or any premium payable on them) otherwise than in cash unless-

(a) the consideration for the allotment has been valued in accordance with the following provisions of this section;

(b) a report with respect to its value has been made to the company by a person appointed by the company in accordance with those provisions during the six months immediately preceding the allotment of the shares; and

(c) a copy of the report has been sent to the proposed allottee of the shares.

(2) Subsection (1) above shall not apply to the allotment of shares by a company in connection with-

(a) an offer made by the company to all the holders of the shares in another company to acquire all or some of those shares or to all holders of a particular class of those shares to acquire all or some of the shares of that class; or

(b) a proposed merger of that company with another company.

(3) In determining for the purposes of subsection (2) above whether an offer is so made by a company (in this subsection referred to as the ''offeror company''), shares held by or by a nominee of the offeror company in the other company or held in the other company by or by a nominee of a company which is the offeror company's holding company or its subsidiary or a company which is a subsidiary of its holding company shall be disregarded; and for those purposes there is a proposed merger of two companies when one of them proposes to acquire all the assets and liabilities of the other in exchange for the issue of shares in that one to shareholders of the other, with or without any cash payment to those shareholders.

(4) The valuation and report required by subsection (1) above shall be made by an independent person, that is to say, a person qualified at the time of the report to be appointed or continue to be auditor of the company, except that where it appears to him to be reasonable for the valuation of the consideration, or a valuation of part of the consideration, to be made, or to accept such a valuation made, by any person who-

(a) appears to him to have the requisite knowledge and experience to value the consideration or that part of the consideration; and

(b) is not an officer or servant of the company or any other body corporate which is that company's subsidiary or holding company or a subsidiary of that company's holding company or a partner or employee of such an officer or servant;

he may arrange for or accept such a valuation, together with a report which will enable him to make his own report under that subsection and provide a note in accordance with subsection (7) below.

(5) The independent person's report under subsection (1) above shall state-

(a) the nominal value of the shares to be wholly or partly paid for by the consideration in question;

(b) the amount of any premium payable on those shares;

(c) the description of the consideration and, as respects so much of the consideration as he himself has valued, a description of that part of the consideration, the method used to value it and the date of the valuation;

(d) the extent to which the nominal value of the shares and any premium are to be treated as paid up-

(i) by the consideration;

(ii) in cash.

(6) Where any consideration is valued under this section by a person other than the independent person, the latter's report under subsection (1) shall state that fact and shall also-

(a) state the former's name and what knowledge and experience he has to carry out the valuation; and

(b) describe so much of the consideration as was valued by that other person, the method used to value it, and state the date of valuation.

(7) The report of the independent person made under subsection (1) above shall contain or be accompanied by a note by him-

(a) in the case of a valuation made by another person, that it appeared to the independent person reasonable to arrange for it to be so made or to accept a valuation so made;

(b) whoever made the valuation, that the method of valuation was reasonable in all the circumstances;

(c) that it appears to the independent person that there has been no material change in the value of the consideration in question since the valuation; and

(d) that on the basis of the valuation the value of the consideration, together with any cash by which the nominal value of the shares or any premium payable on them is to be paid up, is not less than so much of the aggregate of the nominal value and the whole of any such premium as is treated as paid up by the consideration and any such cash.

(8) Subsection (9) below applies where a public company allots any share in contravention of subsection (1) above and either-

(a) the allottee has not received a report under this section; or

(b) there has been some other contravention of this section and the allottee knew or ought to have known that it amounted to a contravention.

(9) Where this subsection applies, the allottee shall be liable to pay the company an amount equal to the nominal value of the shares, together with the whole of any premium or, if the case so requires, such proportion of that amount as is treated as paid up by the consideration, and shall be liable to pay interest at the appropriate rate on the amount payable under the foregoing provision.

(10) Subsection (4) of section 20 above shall apply for the purposes of this section as it applies for the purposes of that.

(11) Where the consideration is accepted partly in payment up of the nominal value of the shares and any premium and partly for some other consideration given by the company, the foregoing provisions of this section shall apply as if references to the consideration accepted by the company included references to the proportion of that consideration which is properly attributable to the payment up of that value and any premium; and

(a) the independent person shall carry out or arrange for such other valuations as will enable him to determine that proportion; and

(b) his report under subsection (1) above shall state what valuations have been made by virtue of this subsection and also the reason for and method and date of any such valuation and any other matters which may be relevant to that determination.

(12) In this section-

(a) any reference to a company, except where it is or is to be construed as a reference to a public company, includes a reference to any body corporate and any body to which letters patent have been issued under the Chartered Companies Act 1837; and

(b) any reference to an officer or servant shall not include a reference to an auditor.

25.-(1) Any person carrying out a valuation or making a report under section 24 above with respect to any consideration proposed to be accepted or given by a company shall be entitled to require from the officers of the company such information and explanation as he thinks necessary to enable him to carry out the valuation or to make the report and provide a note under that section.

(2) A company to which such a report is made as to the value of any consideration for which, or partly for which, it proposes to allot shares shall deliver a copy of the report to the registrar of companies for registration at the same time that it files the return of the allotments of those shares under section 52 of the 1948 Act, and subsection (3) of that section (default) shall apply to a default in complying with this subsection as it applies to a default in complying with that section.

(3) Any person who knowingly or recklessly makes a statement which-

(a) is misleading, false or deceptive in a material particular, and

(b) is a statement to which this subsection applies,

shall be guilty of an offence.

(4) Subsection (3) above applies to any statement made (whether orally or in writing) to any person carrying out a valuation or making a report under section 24 above, being a statement which conveys or purports to convey any information or explanation which that person requires, or is entitled to require, under subsection (1) above.

(5) A person guilty of an offence under this section shall be liable-

(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine, or both;

(b) on summary conviction, to imprisonment for a term not exceeding six months or a fine not exceeding the statutory maximum, or both.

26.-(1) A public company, other than a company re-registered under section 8 above, shall not, unless the conditions mentioned in subsection (3) below have been complied with, enter into an agreement with a relevant person for the transfer by him during the initial period of one or more non-cash assets to the company or another for a consideration to be given by the company equal in value at the time of the agreement to at least one-tenth of the nominal value of the company's share capital issued at that time.

(2) In this section-

(a) in relation to a company formed as a public company, ''relevant person'' means any subscriber to the memorandum of the company and ''initial period'' means the period of two years beginning with the date on which the company is issued with a certificate under section 4 above that it is entitled to do business;

(b) in relation to a company re-registered, or registered in accordance with section 13 above, as a public company, ''relevant person'' means any person who was a member of the company on the date of the re-registration or registration and ''initial period'' means the period of two years beginning with that date;

and in this subsection the reference to a company re-registered as a public company includes a reference to a private company so re-registered which was a public company before it was a private company.

(3) The conditions referred to in subsection (1) above are that-

(a) the consideration to be received by the company (that is to say, the asset to be transferred to the company or the advantage to the company of its transfer to another person) and any consideration other than cash to be given by the company have been valued under the following provisions of this section (without prejudice to any requirement to value any consideration under section 24 above);

(b) a report with respect to the consideration to be so received and given has been made to the company in accordance with those provisions during the six months immediately preceding the date of the agreement;

(c) the terms of the agreement have been approved by an ordinary resolution of the company; and

(d) not later than the giving of the notice of the meeting at which the resolution is proposed, copies of the resolution and report have been circulated to the members of the company entitled to receive that notice and, if the relevant person is not then such a member, to that person.

(4) Subsection (1) above shall not apply to the following agreements for the transfer of an asset for a consideration to be given by the company, that is to say-

(a) where it is part of the ordinary business of the company to acquire or arrange for other persons to acquire assets of a particular description, an agreement entered into by the company in the ordinary course of its business for the transfer of an asset of that description to it or such a person, as the case may be; or

(b) an agreement entered into by the company under the supervision of the court, or an officer authorised by the court for the purpose, for the transfer of an asset to the company or to another.

(5) Section 24 (4) and (6) above shall apply to a valuation and report of any consideration under this section as those subsections apply to a valuation of and report on any consideration under subsection (1) of that section.

(6) The report of the independent person under this section shall-

(a) state the consideration to be received by the company, describing the asset in question, specifying the amount to be received in cash, and the consideration to be given by the company, specifying the amount to be given in cash;

(b) state the method and date of valuation;

(c) contain or be accompanied by a note as to the matters mentioned in section 24 (7) (a) to (c) above; and

(d) contain or be accompanied by a note that on the basis of the valuation the value of the consideration to be received by the company is not less than the value of the consideration to be given by it.

(7) If a public company enters into an agreement with any relevant person in contravention of subsection (1) above and either he has not received a report under this section or there has been some other contravention of this section or section 24 (4) or (6) above which he knew or ought to have known amounted to a contravention, then, subject to subsection (8) below-

(a) the company shall be entitled to recover from the relevant person any consideration given by the company under the agreement or an amount equivalent to its value at the time of the agreement; and

(b) the agreement, so far as not carried out, shall be void.

(8) Where a company enters into an agreement in contravention of subsection (1) above and that agreement is or includes an agreement for the allotment of shares in that company, then, whether or not the agreement also contravenes section 24 above-

(a) subsection (7) above shall not apply to the agreement in so far as it is an agreement for the allotment of shares; and

(b) subsection (4) of section 20 and subsection (9) of section 24 above shall apply in relation to the shares as if they had been allotted in contravention of section 24.

27.-(1) Any person carrying out a valuation or making a report under section 26 above shall be entitled to require from the officers of the company such information and explanation as he thinks necessary to enable him to carry out the valuation or make the report and provide the note required by that section; and subsections (3) and (5) of section 25 above shall apply in relation to any such valuation and report as they apply in relation to a valuation and report under section 24 (1) above with the substitution of a reference to this subsection for the reference in section 25 (4) to section 25 (1).

(2) A company which has passed a resolution under section 26 above with respect to the transfer of an asset shall, within 15 days of the passing of the resolution, deliver to the registrar of companies a copy of the resolution together with the report required by that section and, if it fails to do so, the company and every officer of the company who is in default shall be liable on summary conviction to a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum for every day until the resolution is so delivered.

(3) Any reference in section 26 above or this section to consideration given for the transfer of an asset includes a reference to consideration given partly for its transfer; but-

(a) the value of any consideration partly so given shall be taken to be the proportion of that consideration properly attributable to its transfer;

(b) the independent person shall carry out or arrange for such valuations of anything else as will enable him to determine that proportion; and

(c) his report under that section shall state what valuation has been made by virtue of this paragraph and also the reason for and method and date of any such valuation and any other matters which may be relevant to that determination.


Mr JACOBI —Clauses 116 and 117, when read together, clearly seek to limit a limited liability company to issuing shares at a discount of up to 10 per cent provided that the companies memoranda or articles do not prohibit the practice. That is referred to in clause 117 (1) (a). It parrots paragraph 302 of the explanatory memorandum with which the Minister for Business and Consumer Affairs (Mr Moore) has kindly furnished the Parliament. That paragraph indicates that clause 117 applies to all payments, not just to commissions and brokerage which the explanatory memorandum states, in effect, that the provision deals with. Sub-clause 117 (2) states:

. . . the allowance of a discount by a company shall be taken to be the making of a payment by the company.

Consequently, the provisions of the following clause, clause 118, which are aimed at ensuring the creditors and shareholders are not prejudiced by the discount share issues, have no application to discounts of up to 10 per cent. Clause 117 ought to be amended so that it covers only commissions paid to underwriters and a brokerage paid to registered sharebrokers in connection with an issue of company shares. I would like some response from the ministerial advisers on that matter.

I think the part of the Bill dealing with commissions was intended to make it clear that companies could legitimately pay underwriting and brokerage commissions incurred in issuing shares without infringing the prohibition of issuing shares at a discount. It is worded very broadly, and it is arguable that a company could legitimately issue shares to anyone under this clause at a discount of up to 10 per cent. I suggest it ought to be amended so that it authorises only underwriting commissions, salesmen's commissions and brokerage commissions incurred in the issue of company shares. I believe that clause is defective to that extent, and again I ask the Minister to raise the matter in the Ministerial Council.

Clause agreed to.

Clauses 118 to 124-by leave-taken together, and agreed to.

Clause 125 (Rights of holders of classes of shares).