公司法和商法(双语)讲义 第25章Corporate and Business Law Chapter 25

25 Capital maintenance and dividends
Overview
GENERAL PRINCIPLE
Protection of Principle
Creditors effects
1 Introduction
General principle
1.1 When members contribute capital to the company it forms what is known as the creditors’ buffer.
1.2 A com pany’s capital (creditors’ buffer) consists of its share capital and undistributable reserves.
1.3 These funds cannot be ‘distributed’ i.e. given back to the members.
Development of the principle
1.4 Three main areas are covered:
(a) Payment of dividends.
(b) Reduction of capital.
(c) Assisting others to acquire its own shares.
2 Distributable profits
Payment of dividends
2.1 (a) The power to declare a dividend is given to the directors by the articles.
(b) Members do not have a right to be paid a dividend. They must approve the dividend at a G.M.
(they cannot increase it).
(c) Dividends are normally declared payable on the paid up amount of share capital and may be
in cash or otherwise.
(d) (i) A dividend is a debt only when it is declared and due for payment.
(ii) If declared and unpaid it is a deferred debt.
(iii) An unclaimed dividend becomes statute barred after six years.
Basic rules
2.2 The basic rules contained are set out in ss.263 and 264.
s.263 –Basic restrictions which apply to public and private companies.
s.264 –Further restrictions applying to public companies only.
Basic restriction applicable to all non-investment companies s.263
2.3 (a) Distributable profits are defined as:
Accumulated realised profits– accumulated realised losses.
(b) Accumulated: this means the company cannot take one year in isolation. It must take all
profits/losses since commencement.
(c)Realised profits and losses:
(i) There is no distinction between capital and revenue profits.
(ii) The Act does not define realised profits precisely but implies that they are what a
prudent accountant would apply (ultimately the court will decide). Any profit is of
course realised at the point of sale.
(iii) Any provision, whether for doubtful debts or depreciation, must be treated as a
realised loss.
Further restriction applicable to public companies only s.264
2.4 (a) Net assets must always be at least equal to called up share capital plus undistributable
reserves.
(b) Undistributable reserves are:
(i) share premium account;
(ii) capital redemption reserve;
(iii) the surplus of unrealised profits – unrealised losses (revaluation reserve);
(iv) any other controlled reserve (this could be defined in the memorandum or articles or come from statute).
(c) The practical effect of this is to make plcs take unrealised losses into account when
calculating the amount to distribute.
(d) NB. Financial accounting practice treats private companies in the same way on grounds of
prudence.
Example
The table below has information about the financial status of two companies, Black and White, as at the year ending 31.12.200X.
Black White
£m £m Unrealised
Revaluation reserve 350 (300)
Realised capital
Profits 250 150
Realised revenue
Profits b/fwd 150 150
Profit/loss for year 50 (50)
Assuming Black is a private company, what profits are available for distribution? Would your answer be the same if Black was a plc?
Now do the same exercise for White.
Answer
Black Ltd
250 + 150 + 50 = 450m
Black plc = 450m
White Ltd
150 + 150 – (50) = 250m
White plc
150 + 150 – (50) – (300) = 0m
Consequences of making an unlawful distribution (s.277)
2.5 (a) If a company makes an unlawful payment then any shareholder knowing it is unlawful must
pay it back.
(b) Strangely, no specific liability attaches to directors by statute.
However, directors could be regarded as failing in their duty and would then be liable to indemnify the company.
3 Reduction in issued share capital
Three authorities are needed to reduce capital
3.1 (a) Power in the articles;
(b) A special resolution;
(c) Sanction of the court.
The section suggests three circumstances when capital may be reduced:
3.2 (a) To cancel future calls on unpaid capital.
(b) To repay capital that is surplus to the company’s requirements.
(c) To write off share capital that is permanently lost.
Role of court in reductions
3.3 Creditors may object to reduction under (a) or (b) above but obviously not (c). They can demand
repayment or a guarantee. (s.136 CA 1985).
4 Purchase or redemption of shares – public and
private companies (ss.159/162)
Overview
PURCHASE/REDEMPTION OF SHARES
General Ltd Co
rules exception
General rules
4.1 (a) The issue of redeemable shares must be authorised by the articles
(Table A gives authority).
(b) Redeemable shares may ONLY be issued if there are some non-redeemable shares in
issue.
(c) Any company may purchase its own shares if authorised to do so by its articles (Table A
gives authority)
(d) After the re-purchase some non redeemable shares must remain in issue.
(e) Redeemable shares must be fully paid up before being redeemed.
Effect on the creditors’ buffer
4.2 If the purchasing company is a plc the creditors’ buffer must be maintained, this can be achieved by
a fresh issue or if necessary by transferring profits to an undistributable Capital Redemption Reserve Transfer to the capital redemption reserve
4.3 Example
X plc wants to repurchase 50 shares at par value of £50. It has distributable profits of £5,000. Show how the transaction would be represented.
BEFORE BUY BACK AFTER BUY BACK
Share capital 100
Share premium 50
Revaluation reserve –
Capital redemption reserve –
150
DP’s500
Answer
AFTER BUY BACK
Share capital 50
Share premium 50
Revaluation reserve –
Capital redemption reserve 50
150
DP’s450
Premium on redemption
4.4 This may be charged to the share premium account and may not exceed the lower of:
(a) the proceeds of any fresh issue; and
(b) the premium received on the original issue of the shares being redeemed; and
(c) the balance of the share premium account (including the premium of any fresh issue). Conditions
4.5 (a) These depend upon whether it is
(i) a market purchase, or
(ii) an off-market purchase.
(b) Market Purchase
(i) This requires an ordinary resolution
(ii) The resolution must be delivered to the Registrar within 15 days.
(c) Off-Market Purchase
(i) This requires a special resolution. s.164(2)
(ii) The resolution must state "the terms of the contract".
(iii) Voting
Voting is by show of hands or a poll (which any member can demand).
A vendor cannot vote. s.164(5)
(d) Details to be delivered to the Registrar s.169
All companies must send full details within 28 days of the purchase.
5 Redemption/purchase of own shares – procedure
available to private companies only (s.171) Introduction
5.1 (a) Private companies are permitted to purchase/redeem their own shares without the need to
maintain capital provided they have authority in their articles – Table A gives this.
(b) As before, a transfer to CRR is required which will use up distributable profits.
(c) The transfer need not compensate completely for the net reduction in share capital i.e.: the
creditors’ buffer may be reduced. This reduction is known as the Permissible Capital
Payment.
(d) The practical effect is that a private company with low P&L reserves may purchase/redeem
more shares than a public company in the same position.
Conditions
5.2 (a) Distributable profits must be determined
(b) A statutory declaration by directors is also required
This specifies the amount of the P.C.P. and states that the directors have made full enquiries
into the affairs and prospects of the company and are of the opinion that:-
(i) the company will be able to meet its debts immediately after the payment out of capital
and
(ii) it will continue as a going concern for the next 12 months after the payment and will be able to pay its debts as they fall due.
(c) An auditors' report must be attached to the Statutory Declaration:
The auditors must state that:
(i) They have enquired into the company’s state of affairs.
(ii) The amount of the PCP has been correctly determined.
(iii) They are not aware of anything to indicate that the directors' opinion is unreasonable.
(d) A special resolution is required:
(i) Voting is as before (vendors may not vote)
(ii) The resolution must be passed within 1 week after the date of the statutory
declaration.
(iii) The payment out of capital must take place not earlier than 5 weeks and not later than
7 weeks after the date of the special resolution.
(e) Publicity for proposed payment out of capital s.175:
(i) Notice must be given within 1 week of resolution.
(ii) Notice is required in a national newspaper OR written notice to each creditor.
(iii) Notice must also be placed in the London Gazette.
(f) The statutory declaration and auditors' report:
(i) copies must be delivered to the Registrar not later than the date on which notice is first
published/given.
(ii) they must be available at the registered office during business hours for inspection by any member or creditor during the 5 week period after the date of the special
resolution.
(iii) they must be available for inspection by members at the meeting to pass the special resolution.
(g) Objections by members or creditors s.176:
(i) Any member (who did not vote in favour) or creditor may apply to the court within 5
weeks of the special resolution for its cancellation.
(ii) The company must give immediate notice of the application to the Registrar and
deliver a copy of any court order to the Registrar within 15 days.
Civil liability of past shareholders and directors
5.3 (a) If the company starts winding up within 1 year of making a payment out of capital and it
cannot meet its debts then the following are liable to contribute to the assets of the company:
(i) the vendor shareholders.
(ii) the directors (who signed the statutory declaration – unless they can show there were reasonable grounds for the opinion expressed).
(b) Liability:
(i) vendors are liable for the amount they were paid.
(ii) directors are liable jointly and severally with each vendor shareholder.
Criminal liability for contraventions
5.4 If they had no reasonable grounds for their opinion in the statutory declaration – director(s) are liable
to a fine and/or prison. s.173(6)
Default
5.5 Shareholders can apply for an order of specific performance if directors fail to redeem/purchase
shares.
6 Financial assistance for the acquisition of a
company's own shares
Overview
FINANCIAL ASSISTANCE – DIRECTLY OR INDIRECTLY
General Ltd Co
Exceptions exception
Basic rule (s.151)
6.1 (a) It is illegal for any company DIRECTLY or INDIRECTLY, to provide financial assistance of any
sort for the acquisition of shares in itself or its holding company.
(b) It is irrelevant whether the financial assistance is given before, at the same time, or after the
acquisition.
General exceptions (s.153)
6.2 (a) If financial assistance is not the principal purpose of the transaction, or the assistance is just
an incidental part of some larger purpose;
AND
the financial assistance is in good faith.
(b) If the company lends money in the ordinary course of business (e.g., banks lending to buy
shares in themselves).
(c) Employees’ share scheme
(d) Loans to employees (but not directors)
6.3 In the case of a PUBLIC COMPANY the last three exceptions ONLY apply if:
–the company’s net assets are not reduced (e.g. loan).
or
–if they are reduced it is only by a gift of cash "out of distributable profits". s.154
Private companies – relaxation of restrictions (s.155 )
6.4 (a) Private companies may give financial assistance if they follow the correct procedure.
(b) Conditions:
(i) Net assets must not be reduced (or the reduction must be out of distributable profits).
(ii) Directors must make a statutory declaration stating:-
–that in their opinion, the company will be able to meet liabilities for the next 12
months.
–to whom the assistance is given.
(iii) Members must pass a special resolution.
(iv) An auditors' report is required on the statutory declaration saying:-
–that the opinion expressed by the directors is reasonable.
–there is nothing they are aware of which would affect the opinion.
(v) All three must be filed with the Registrar within 15 days of the resolution being passed.
(vi) Financial assistance must be given:
–not before 4 weeks after the resolution.
–not after 8 weeks post the statutory declaration. s.158
Rights of minority shareholders to object (s.157)
6.5 (a) A minimum of 10% of any class may object to the resolution.
(b) They must not have voted in favour.
(c) They must apply to the court within 28 days.
(d) The court may do as it thinks fit.
Criminal liability for contravention of these provisions
6.6 (a) Contravention of s.151 (General prohibition)
(i) The company is liable to a fine.
(ii) Officers in default are liable to a fine and/or prison.
(b) Contravention of provisions for private companies
(i) For non-delivery of documents to the Registrar: the company and its officers will be
liable to a fine: s.156;
(ii) For making the statutory declaration without reasonable grounds: any such director may be fined and/or imprisoned. s.156.
Civil liability
6.7 (a) Directors who breach these provisions become personally liable for losses to the company as
a result.
(b) The contract itself is illegal (i.e. void and unenforceable).。