NOTICE: It is unlawful to send these notes to anyone.

Hopefully you find the notes helpful, and in return I ask that you please don’t send
them on to others. To share them, please direct people to download the notes at https://liamporritt.com, where 99% of my notes are
available for free.

Returning Value to Shareholders

Maintenance of share capital

• Company not usually permitted to return capital to shareholders; payments made

out of profits
• Doctrine of maintenance of share capital = In general, company cannot release sums
in equity account + share premium account to return value to shareholders; can
only be used to carry on the business of the company while the company is a going
concern
• Until winding up, only return =
o Dividends
o Redemption / purchase amount on a redemption or purchase of own shares
by company, where permitted

• General rule – company must not acquire its own shares, except in accordance with
provisions of this Part (Part 18) => Creditors entitled to assume that nominal value +
premium on shares will not be dissipated otherwise than in the ordinary course of
company’s business (s 658(1) CA 2006)
o Liability of members limited to amount unpaid on shares

• Statutory exceptions to s 658:

o Set out in s 659 +
o S 658 subject to acquisition by company in accordance with Part 18 CA 2006
= company redeeming (s 684(1)) or purchasing (s 690(1)) own shares

• Where company acquires its own shares except as allowed (see below);
o An offence is committed by the company + every officer of company in
default;
o Acquisition is void

© Liam Porritt 2020 1

Dividends

• Company may not make a distribution of assets, which includes dividends (s 829) to
shareholders except out of distributable profits (s 830(1) CA 2006), being realised
profit available for distribution (s 736)
o Consider whether distribution should take place by reference to relevant
accounts, being the company’s last annual accounts, or interim accounts
where considering interim dividend (s 836(2))
• Must check Articles + SA for provisions governing the distribution of dividends

• MA 30 – final dividend:
o Directors recommend dividend in BM = proposed dividend, which does not
appear in accounts (MA 30(2))
o Shareholders vote on this by OR (MA 30(1)) + agree dividend ≤ amount
recommended by directors = declared dividend, which is a debt enforceable
by SHs + appears on balance sheet as current liability until paid
• MA 30 – interim dividends:
o Directors decide by BR; no need for OR = may be rescinded before payment
(i.e. ≠ debt due)

• Shareholders entitled to dividend =>

o Those listed on register of members at time of declaration, unless…
o Arts provide for record date to be set to establish which shareholders are
entitled to receive the dividend (esp. for listed companies)

• Arts usually state that dividends declared + paid according to amounts paid up on
shares
o In absence of such an Article, amount paid calculated on nominal value of
shares (regardless of different amounts paid up on the shares) (MA30(4))
• No interest is payable by the company on dividends, unless provided by the rights
attached to the shares (MA 32)
• Directors may make use (investing or otherwise) of unclaimed dividends for benefit
of company (MA 33(1))

• Unlawful dividend, where member knows or has reasonable grounds for so

believing, at time of distribution = liable to repay it (s 847(2))
o No criminal sanctions or penalties for directors, but directors should be
mindful of s 171-177 duties

Preference shares and cumulative dividends

• Preference shares => usually fixed dividend in priority to ordinary shareholders
• Cumulative preference shares => holder accumulates right to dividends as debt where they are
payable but not then paid (unless provisions in Arts / SA to the contrary)

Bonus issue of shares (capitalisation issue / scrip issue)

• Companies may offer shares to shareholders as alternative to cash in respect of dividend payments
• Not usually treated as distribution for tax purposes
• Shareholders do not have to pay dealing costs / stamp duty on shares

© Liam Porritt 2020 2

Redemption and own share purchase

• Usually where shareholder wants to leave + cannot find buyer + prohibited form
offering shares to public
• Company can raise funds for redemption of redeemable shares / purchase of own
shares from:
1. Distributable profits (s 687(2)(a), 692(2)(a)(i) CA 2006)
2. Fresh issue of shares for purpose of redemption / purchase (s 687(2)(b),
292(2)(a)(ii)) – but limits where financing repayment of premium
3. Capital (s 687(1), s 692(1))
§ Only available to private companies (s 687(1), 692(1) and 709(1))
§ Must comply with restrictions in ss 709-723 CA 2006 unless purchase
in scope of de minimis provisions (share purchases NOT redemption)
in s 692(1ZA)

Redemption of redeemable shares

• Issued as redeemable shares – may be stipulated to be redeemed:

o On occurrence of event
o At option of company
o At option of shareholder
• No contract required to redeem shares as details of redemption set out prior to
allotment of shares:
o In Articles
o By directors

© Liam Porritt 2020 3

Redemption out of profits (s 687(2)(a)) / proceeds of fresh issue of shares (s 687(2)(b))

Requirements (No need for shareholder resolution):

Issue of redeemable shares

1. Authority to issue:
a. Arts of private company may exclude / restrict issue of redeemable shares (s
684(2))
b. Public company must have express authority in Arts to issue redeemable
shares (s 684(3))
2. Company must have non-redeemable shares at time of issuing redeemable shares (s
684(4))
3. Terms of redemption must be set out in Arts (s 684(4)) => redeemable at option of
company and/or SH? + details of redemption
o Except: Arts or OR may provide that directors can determine redemption
rights attaching to such shares (s 685(1)) before share allotment (s 685(3))
Redemption
4. Shares to be redeemed must be fully paid up (s 686(1))
5. Amount of distributable profits available for redemption verified by company’s
accountants
6. Where using proceeds of fresh issue + redemption at a premium, share premium
account may be reduced by the lesser of either (s 687(4)):
o The premiums originally received on the shares being purchased; or
o The current amount in the share premium account, which is proceeds of the
fresh issue of shares for the purpose

7. Redeemed shares treated as cancelled (s 688)

8. Reissue share certificates if shareholder retains some shares, i.e. number of shares
held has changed (s 688)
9. Notice of redemption via form SH02 (689(1)) + statement of capital via form SH06 (s
689(2)) must be sent to CH within 1 month of redemption

Redemption out of capital (s 687(1))

Requirements

Redemption
1. Shares to be redeemed must be fully paid up (s 686(1))
2. Company must be a private company (s 687(1))
3. Redemption from capital not restricted / prohibited by Arts (s 709(1))
4. ‘Permissible capital payment’ only where company’s distributable profits / funds
from fresh issue of shares for purpose insufficient to fund total cost of redemption
(s 710(1))

5. Accounts used to determine distributable profits must have been prepared to a date
≤ 3 months before date of directors’ statement under s 714 (s 712(7))
6. Amount of capital available for redemption verified by company’s accountants

© Liam Porritt 2020 4

Procedure, in accordance with s 713(1) CA 2006

1. BM1 to call GM on 14 clear days’ notice (unless short notice / written resolution
used) to move a special resolution to approve payment out of capital (s 716(1))

2. Written statement of solvency made by directors => directors believe that company
able to pay debts from date immediately after payment out of capital for period of
12 months (s 714(3)) + auditors’ report annexed to directors’ written statement of
solvency (s 714(6)) + signed on day of / not more than 7 days prior to GM or receipt
of sufficient votes to pass SR (s 716(2))

3. GM / Written resolution – SR to approve payment out of capital (s 716(1))

o GM – Shareholder whose shares are being redeemed can vote on a show of
hands or on a poll, but SR ineffective if his votes in respect of the shares
being redeemed carry the resolution (s 717(3)); therefore, if a poll
demanded…
§ If all shares to be redeemed = abstain
§ If not all shares being redeemed = vote on a poll in respect of shares
being kept
o Written resolution – shareholder disenfranchised for that vote (s 717(2))

BM2

4. Within the week immediately following the date of the SR, company must publish:
o A notice in the Gazette (s 719(1)) stating:
a) That company has approved a payment out of capital for the
purpose of redeeming its own redeemable shares
b) Amount of permissible capital payment for shares in question and
the date of the SR
c) Where directors’ statement and auditors’ report are available for
inspection
d) That any creditor of the company may, at any time within 5 weeks
immediately following the date of the resolution, apply to the court
under s 721 for an order preventing the payment
o A notice in the same form in an appropriate national newspaper / give notice
in writing to that effect to each of its creditors (s 719(2))

5. Directors’ statement + auditors’ report = direct company secretary…

o On or before day of first notice in Gazette / national newspaper / in writing
to creditors (see 5 below), to deliver a copy of the directors’ statement and
auditor’s report to CH (s 719(4))
o From day of first notice published / given to creditors until 5 weeks since the
SR, to make DS + AR available to any shareholder or creditor of the company
for inspection, without charge (s 720(1))

6. Direct company secretary to file SR with CH within 15 days of GM (s 29(1)(a); s 30(1))

7. BM closed

© Liam Porritt 2020 5

 BM 3

NB MA 14(1) – interested directors cannot vote or count in quorum

8. Directors report on the following matters:

o During 5-week delay, shareholders who did not vote in favour of the
resolution and/or creditors may object to payment out of capital by lodging
an application at court for cancellation of the resolution (s 721(1)); provided
they do not, hold BM 5 weeks after SR…

o Redemption can take place no earlier than 5 weeks + no later than 7 weeks
after date of SR (s 723(1))
§ Redemption payment for shares must be immediate unless terms of
redemption specify that may be deferred + shareholder agrees with
company to be paid on a date later than the redemption date (s
686(2))

9. Directors pass BRs to:

o Approve redemption => redeemed shares treated as cancelled (s 688)
o Instruct company secretary to carry out PMMs…

10. Post-meeting matters

i. Notice of redemption via form SH02 (689(1)) + statement of capital via form
SH06 (s 689(2)) must be sent to CH within 1 month of redemption
ii. Update register of members (s 112(2); s 113)
iii. Update PSC register if member no longer PSC / gains > 25% of shares (s
790M) and file form PSC01 / PSC07 (s 790VA)
iv. Minutes of BM + GM (s 248(1) + s 355(1))
v. Issue new share certificates if shareholder retains some shares + cancel old
share certificate (s 706)

© Liam Porritt 2020 6

Purchase of own shares

• Company may purchase redeemable shares + this does not amount to a redemption
of those shares where purchase is not carried out on the terms for redemption set
out in Arts / determined by directors prior to allotment
• Listed company with redeemable shares may purchase rather than redeem if trading
at a discount

• Modes of purchasing own shares the same as for redemption (see above), with
addition of de minimis procedure (s 692)

Off-market purchase of own shares

• Off market (s 693(2)) – purchase of own shares takes place otherwise than on
recognised investment exchange or on recognised investment exchange not subject to a
‘marketing arrangement

Market purchase of own shares (not examinable)

• S 693(4) – purchase of own shares by company takes place on recognised investment

exchange
• S 701(1) – OR required to approve market purchase of own shares, although in
practice shareholders of listed companies may ask for SR

© Liam Porritt 2020 7

Purchase out of profits (s 692(2)(a)(i)) / proceeds of fresh issue of shares (s 692(2)(a)(ii))

• Must first use distributable profits or money raised from fresh issue of shares for the
purpose of purchase / redemption to fund purchase, unless De Minimis provisions
apply, before using capital for the purpose.
o In exam: Here, as distributable profits are sufficient to fund the whole
purchase, there may be no payment out of capital – there is no permissible
capital payment (s 710(1) CA 2006)

Requirements

1. Purchase of own shares not restricted / prohibited in Arts (s 690(1)(b))

2. Following purchase, company will continue to have issued shares other than
redeemable and treasury shares

3. Shares being purchased are fully paid up (s 691(1))

4. Amount of distributable profits available for purchase verified by company’s
accountants
5. Where using proceeds of fresh issue + purchase at a premium, share premium
account may be reduced by the lesser of either (s 692(3)):
o The premiums originally received on the shares being purchased; or
o The current amount in the share premium account, which is proceeds of the
fresh issue of shares for the purpose

© Liam Porritt 2020 8

Procedure

1. Previous BM: contract to purchase own shares (s 694(1)) to be entered into after OR
2. BM1 to call GM on 14 clear days’ notice (unless written resolution used) to move
ordinary resolution to approve an off-market purchase of shares and the proposed
terms of the contract (s 694(2)(a))
o At this stage there are no issues with MA 14 – directors selling shares CAN
count in quorum + vote, but should declare nature and extent of interest (s
177(1))
3. Contract made available / sent out to shareholders:
a. OR by written resolution, contract must be sent to every eligible member at
or before the time the proposed resolution sent to him (s 696(2)(a))
b. OR at GM, contract must be available for inspection at company’s registered
office for not less than 15 days ending with date of GM + at GM (s 696(2)(b))

4. GM / Written resolution – Terms of contract must be approved by OR (s 694(2)(a))

o NB using short notice, with notice period reduced to the amount of time it
takes to consent to short notice (s 307(5)) would be of little use, due to
requirement that contract be available for inspection at company’s registered
office for ≥ 15 days ending with the date of the GM (s 696(2)(b)) = notice
period of 14 clear days
a. GM – Shareholder whose shares are being bought may vote on a show of
hands or on a poll, but OR will be ineffective if his votes in respect of the
shares being bought carry the resolution (s 695(3)); if poll demanded…
i. If all shares being purchased = abstain
ii. If not all shares being purchased = should vote on poll in respect of
the shares being kept
b. Written resolution – shareholder disenfranchised for that vote (s695(2))

5. BM2 – BRs (NB MA 14(1) – interested director(s) cannot count in quorum / vote to
enter into purchase contract),
a. Enter into purchase contract
b. Authorise director to sign contract
c. Resolve whether shares to be cancelled (s 706), or held as treasury shares (s
724)
d. Direct company secretary to deal with post-meeting matters
i. Within 28 days of date on which shares bought back are delivered to
the company, company must send a return to CH via form SH03 (s
707(1)) + notice of cancellation (s 708(1)) + statement of capital via
form SH06 (s 708(2))
ii. Update register of members (s 113)
iii. Update PSC register if member no longer PSC / gains > 25% of shares
(s 790M) and file form PSC01 / PSC07 (s 790VA)
iv. Minutes of BM + GM (s 248(1) + s 355(1))
v. Issue new share certificates if shareholder retains some shares +
cancel old share certificate (s 706)
vi. Keep contract for 10 years at registered office (s 702 (3))

© Liam Porritt 2020 9

Reduced procedure for private companies making de minimis purchases of shares using
capital

Requirements

1. Arts authorise it to follow De Minimis procedure, or SR obtained to be able to rely on

De Minimis provision
2. The De Minimis Procedure (s 692(1ZA)) allows private companies to purchase shares
using capital without complying with s 709-723
3. Cap on use of procedure at an aggregate amount in each financial year not
exceeding the lower of:
a. £15,000
b. Value of 5% of share capital
4. Per BIS guidance, purchase price under De Minimis Procedure can be at > or <
nominal value

Procedure (as above for purchase out of distributable profits / proceeds of fresh issue)

© Liam Porritt 2020 10

Purchase of own shares out of capital

Requirements

1. Purchase of own shares from capital not restricted / prohibited in Arts (s 690(1)(b))
2. Following purchase, company will continue to have issued shares other than
redeemable and treasury shares
3. Shares being purchased are fully paid up (s 691(1))
4. Company must be a private company (s 692(1))

5. ‘Permissible capital payment’ only to be used where distributable profits / money

raised from fresh issue of shares for the purpose of purchase insufficient to fund
purchase of own shares (s 710(1))

6. Accounts used to determine distributable profits must have been prepared to a

date ≤ 3 months before date of directors’ statement under s 714 (s 712(7))
7. Amount of capital available for redemption verified by company’s accountants

Procedure, in accordance with s 713(1) CA 2006

1. Previous BM: contract to purchase own shares (s 694(1)) to be entered into after OR
2. BM1 to call GM on 14 clear days’ notice (unless written resolution used) to move:
a. ordinary resolution to approve an off-market purchase of shares and the
proposed terms of the contract (s 694(2)(a)); and
b. special resolution to approve payment out of capital (s 716(1))

o At this stage there are no issued with MA 14 – directors selling shares CAN
count in quorum + vote; but should declare nature and extent of interest in
transaction (s 177(1))

3. Contract made available / sent out to shareholders:

a. OR by written resolution – contract must be sent to every eligible member at
or before the time the proposed resolution sent to him (s 696(2)(a))
b. OR at GM – contract must be available for inspection at company’s registered
office for not less than 15 days ending with the date of the GM + at GM (s
696(2)(b))

4. Written statement of solvency made by directors => directors believe that company
able to pay debts from date immediately after payment out of capital for period of
12 months (s 714(3)) + auditors’ report annexed to directors’ written statement of
solvency (s 714(6)) + signed on day of / not more than 7 days prior to GM or receipt
of sufficient votes to pass SR (s 716(2))

© Liam Porritt 2020 11

 5. GM / Written resolution – Terms of contract must be approved by OR (s 694(2)(a)) +
SR to approve payment out of capital (s 716(1))
o NB using short notice, with notice period reduced to the amount of time it
takes to consent to short notice (s 307(5)) would be of little use, due to
requirement that contract be available for inspection at company’s registered
office for ≥ 15 days ending with the date of the GM = notice period of 14
clear days
a. GM – Shareholder whose shares are being bought may vote on OR and SR on
a show of hands or on a poll, but resolutions will be ineffective if his votes in
respect of the shares being bought carry the resolution (s 695(3); s 717(3));
therefore, if poll demanded…
i. If all shares being purchased = abstain
ii. If not all shares being purchased = should vote on poll in respect of
the shares being kept
b. Written resolution – shareholder disenfranchised for vote (s695(2); s 717(2))

BM2

6. Directors’ statement + auditors’ report:

a. On or before day of first notice in Gazette / national newspaper / in writing
to creditors (see 5 below), company must deliver a copy of the directors’
statement and auditor’s report to CH (s 719(4))
b. From day of first notice published / given to creditors until 5 weeks since the
SR, company must make DS + AR available to any shareholder or creditor of
the company for inspection, without charge (s 720(1))

7. Within the week immediately following the date of the SR, company must publish:
o A notice in the Gazette (s 719(1)) stating:
a) That company has approved a payment out of capital for the
purpose of redeeming its own redeemable shares
b) Amount of permissible capital payment for shares in question and
the date of the SR
c) Where directors’ statement and auditors’ report are available for
inspection
d) That any creditor of the company may, at any time within 5 weeks
immediately following the date of the resolution, apply to the court
under s 721 for an order preventing the payment
o A notice in the same form in an appropriate national newspaper / give notice
in writing to that effect to each of its creditors (s 719(2))

8. Instruct company secretary to send SR to CH within 15 days of GM (s 29(1); s 30(1))

© Liam Porritt 2020 12

 BM3

NB MA 14(1) – interested directors cannot vote or count in quorum

9. Directors report on the following matters

o During 5-week delay, shareholders who did not vote in favour of the
resolution and/or creditors may object to payment out of capital by lodging
an application at court for cancellation of the resolution (s 721(1)); provided
they do not, hold BM 5 weeks after SR…

o Share purchase can take place no earlier than 5 weeks + no later than 7
weeks after date of SR (s 723(1))
i. No ability to defer payment of consideration (s 691(2))

10. Directors pass BRs to:

a. Enter purchase contract
b. Authorise director to sign
c. Resolve whether shares cancelled (s 706) or held in treasury (s 724)
d. Direct company secretary to carry out PMMs…

11. Post-meeting matters:

i. Within 28 days of date on which shares bought back are delivered to the
company, company must send a return to CH via form SH03 (s 707(1)) + notice
of cancellation (s 708(1)) + statement of capital via form SH06 (s 708(2))
ii. Update register of members (s 112(2); s 113)
iii. Update PSC register if member no longer PSC / gains > 25% of shares (s 790M)
and file form PSC01 / PSC07 (s 790VA)
iv. Minutes of BM + GM (s 248(1) + s 355(1))
v. Issue new share certificates if shareholder retains some shares + cancel old
share certificate (s 706)
vi. Keep contract for 10 years (s 702 (3))

© Liam Porritt 2020 13

Procedure where purchase for purposes of employees’ share scheme out of capital

• Only need SR + written statement of solvency (s 713(2) + 720A(1)) => no auditors’

report needed + SR must be passed within 15 days of directors’ statement
• May defer payment of consideration on own share purchase where pursuant to
employees’ share scheme (s 691(3))

Reasons for buy-back / redemption

1. May be obliged to buy shares if shareholder has triggered buy back

2. Seeking to buy back shares from leaving employee / officer
3. Seeking to buy back preference shares by reissuing ordinary shares
4. Ability to buy back shares from certain shareholders, where dividends must be given
to all shareholders
5. May buy back shares where redemption going to kick in and current value lower
than redemption value

© Liam Porritt 2020 14

Balance sheet impact of own share purchase out of distributable profits

1. Share premium account remains the same

2. Capital redemption reserve increase by nominal value of repurchase
3. Undistributed profit decreases by nominal value of repurchase AND premium paid
on repurchased shares

CA 2006 provisions in respect of effects on balance sheet

Share premium account

• In general, company cannot use share premium account to purchase / redeem own shares
• Where redemption (s 687(4)) or purchase (s 692(3)) financed out of fresh issue of shares made for
that purpose, any premium payable on their purchase may be paid out of the share premium account
if shares originally issued at a premium
• Share premium account may be reduced (s 687(5); s 692(4)) by the lesser of either:
o The premiums originally received on the shares being purchased; or
o The current amount in the share premium account
• Any remaining amount must be paid out of distributable profits, and if none, capital (where private
company)

Capital redemption reserve

• If shares redeemed / purchased out of profits (or proceeds of fresh issue of shares in certain
circumstances), CRR increased by amount of reduction to share capital (s733)
• If shares redeemed / purchased out of capital (or proceeds of fresh issue of shares in certain
circumstances) in circumstances set out in s 734 CA, CRR increased

Permissible capital payment

• Payment which can be made out of capital (‘permissible capital payment’) is such an amount as, after
applying available profits + proceeds of fresh issue of shares for the purpose, is require to meet the
price of redemption or purchase (s 710)

© Liam Porritt 2020 15

Treasury Shares

• Companies can, if they wish, purchase their shares out of distributable profits ONLY + hold them ‘in
treasury’ instead of having to cancel them
• Treasury shares can be held in treasury indefinitely, sold for cash, cancelled at any time, or
transferred for the purposes of an employees’ share scheme
• No s 551 authority is required to sell treasury shares, BUT s 561 pre-emption rights apply to treasury
shares as if their sale were an allotment of ‘equity securities’

Taxation on share buy-back

• Where company redeems / purchases own shares, tax usually payable by shareholder
• In general, payment to shareholder exceeding amount paid on allotment treated as distribution (i.e.
dividend), unless repayment on winding up
• However, ss 1033-45 CTA 2010 => money received on buy-back will be treated as capital receipt
where:
o Shares in unquoted trading company
o Seller resident in UK in tax year of sale
o Shares owned for ≥ 5 years
o At least 25% reduction in percentage of seller’s shareholding (‘substantial reduction’)
o For 12 months after purchase, seller must not hold more than 30% of company’s:
§ Issued ordinary share capital; or
§ Share and loan capital; or
§ Voting power
o Buy-back must benefit the trade and must not be part of a scheme to avoid tax / enable the
shareholder to participate in company’s profits without receiving a dividend

• Unless shares bought back < £1,000, company usually has to pay stamp duty

© Liam Porritt 2020 16

Reduction of capital under s 641

• Exception to doctrine of maintenance of share capital

• May reduce share capital:
o In case or private company, by SR supported by solvency statement (s 642-644)
§ Subject to anything in SR / Arts, where reduction in share capital + solvency
statement w/out application for court order confirming the reduction, reserve
treated as realised profit
o In any case, by SR confirmed by court (ss 645-651)

Reasons for reduction in share capital

• Wishes to create distributable reserves, increasing ability to pay dividends

• Surplus capital which it wishes to return to shareholders
• Substantial reduction in value of assets of company, resulting in share capital of company no longer
representing true value of assets of company
• Company may wish to carry out redemption / buy-back, but lacks sufficient distributable reserves to
redeem / buy back shares
• Part of scheme of arrangement

Stages using court procedure

• Prelim: Check Arts – reduction of capital must not be restricted / prohibited (s 641(6))
• Stage 1: Timetable for reduction agreed by court
o Date by which petition must be presented to court
o Date of directions hearing
o Date of petition hearing
• Stage 2: SR approving reduction of capital
• Stage 3: Company presents petition to court + application notice setting out directions sought from
court
• Stage 4: Petition supported by WS / affidavit of chairman of GM
• Stage 5: Directions Hearing – will confirm, unless interests of creditors adversely affected by proposal;
therefore, here consider position of creditors + ensure advertisement re: petition in newspaper 7
days before hearing
• Stage 6: Companies Court Registrar hears petition to reduce capital in open court
• Stage 7: Reduction effective once court order + statement of capital registered at CH

© Liam Porritt 2020 17

Reduction using solvency statement procedure

• Quicker + less expensive that court procedure

• But, can be challenged by creditors + requires all directors to make solvency statement

• Must be non-redeemable shares following reduction (s 641(2))

• Must ensure one person will not hold all shares, unless s 641(2B) met
• Shareholders pass SR to reduce capital within 15 days of date directors sign statement of solvency (s
642-44)
• Within 15 days of resolution, company files SR, solvency statement + statement of capital at CH

Schemes of arrangement

• ‘Compromise or arrangement proposed between company and creditors, or between company and
members’ (s 895(1) CA 2006)
• Used for returns of capital, reductions of capital, company reorganisations + insolvencies

Stages

1. Company, creditors or members apply to court

2. Registrar makes order on claim form convening meetings of classes of members / creditors, usually
with 21 clear days’ notice
3. Resolution to approve scheme proposed at class meeting (≥ 75% of creditors / members of class) +
approved by court (s 899(1))
4. Court hears petition to sanction the scheme where satisfied:
a. Approving scheme reasonable
b. Each class has been fairly represented at meetings
c. Statutory provisions have been complied with, e.g. correct notice having been given of court
meetings
5. Office copy of s 899 order filed at CH, and then binding on all members + creditors (s 899(3))

© Liam Porritt 2020 18

Financial assistance

• Financial assistance (e.g loan, guarantee) may not be given (s 677-683) by:
o Private companies for acquisition of shares of public holding company
o Public companies for acquisition of their shares or parent company shares

© Liam Porritt 2020 19

PCR ISSUES – Dividends + investment advice

• General prohibition (s 19(1) FSMA 2000) – criminal offence for anyone who is not
authorised by the FCA (or exempt) to carry out any regulated activity

• Regulated activity = specified investment + specified activity (s 22(1) FSMA)

o Specified investment: RAO Part III

§ Rights under a contract of insurance (Art 75)
§ Shares (Art 76)
§ Instruments creating or acknowledging indebtedness (Art 77)
§ Regulated mortgage contracts (Art 88)

o Specified activity: RAO Part II

§ Dealing in investments as principal (Art 14) or agent (Art 21)
§ Arranging deals in investments (Art 25)
• Exclusion – where arranging deal through authorised person
(Art 29) or referring client to an authorised person (Art 33)
§ Managing investments (Art 37)
§ Safeguarding AND administering investments (Art 40)
§ Advising on the merits of investments (Art 53(1))

• Is activity generally excluded under FSMA? (RAO Part II) – if so, no need for
authorisation
o Acting as trustee / PR (Art 66 RAO)
o Regulated activities that are a necessary part of other services (Art 67)
o Regulated activities in connection with sale of body corporate (Art 70)

© Liam Porritt 2020 20

 • Does activity fulfil basic conditions in s 327 FSMA + SRA Scope Rule 2?

1. Person carrying on regulated activities is member of a profession (e.g.

solicitor) (s 327(2));
2. Person must not receive a commission from third party in respect of regulated
activities unless he accounts to his client for the commission (s 327(3));
3. Specified activity must be provided in a way that is incidental to provision of
professional services (s 327(4)); and
o Look at overall work – if regulated activity is a small part of what the
firm does for clients overall, it will be incidental
4. Person must only carry out regulated activities which he is permitted to carry
out as a result of s 332(3) (i.e. he has to comply with the rules set by relevant
designated professional body, here the SRA)

+ SCOPE RULES - No commission + Incidental + Activity arises naturally out of

or is complementary to the provision of a particular professional service to a
particular client (Scope Rule 2.1(b))
§ E.g. Giving legal / tax advice when drafting documents to effect the
sale of shares

o If yes, activity = exempt regulated activity + law firm must:

§ Ensure compliance with restrictions imposed on the firm under Scope
Rules
§ Be authorised by SRA in relation to this activity and comply with any
relevant SRA Financial Services (Conduct of Business) Rules 2019
o If no, firm must:
§ Be authorised by PRA or FCA; and
§ Comply with PRA / FCA Handbook

© Liam Porritt 2020 21