367

Part II: Share Capital and Debentures

Prospectus

34 Dating and registration of prospectus

(1) A prospectus issued by or on behalf of a company or in relation to an intended company shall be dated, and that date shall, unless the contrary is proved, be taken as the date of publication of the prospectus.

(2) A copy of every such prospectus, signed by every person who is named therein as a director or proposed director of the company, or by his agent authorized in writing, shall be delivered to the Registrar for registration on or before the date of its publication, and no such prospectus shall be issued until a copy thereof has been so delivered for registration.

(3) The Registrar shall not register any prospectus unless it is dated, and the copy thereof signed, in manner required by this section.

(4) Every prospectus shall state on the face of it that a copy has been delivered for registration as required by this section.

(5) If a prospectus is issued without a copy thereof being so delivered, the company and every person who is  knowingly a party to the issue of the prospectus, are guilty of offences and are each liable on summary conviction to a fine of £5 for every day from the date of the issue, of the prospectus until a copy thereof is so delivered.

368

35 Specific requirements as to particulars in prospectus

(1) Every prospectus issued by or on behalf of a company, or by or on behalf of any person who is or has been engaged or interested in the formation of the company, must state the matters specified in Part I of Schedule 3 and set out the reports specified in Part II of that Schedule, and Parts I and II shall have effect subject to the provisions contained in Part III of that Schedule.

(2) A condition requiring or binding an applicant for share in or debentures of a company to waive compliance with any requirement of this section, or purporting to affect him with notice of any contract, or matter not specifically referred to in the prospectus, shall be void.

(3) It shall not be lawful to issue any form of application for shares in or debentures of a company unless the form is issued with a prospectus which complies with the requirements of this section:

Provided that this subsection shall not apply if it is shown that the form of application was issued either—

(a) in connection with a bona fide invitation to a person to enter into an underwriting agreement with respect to the shares or debentures; or

(b) in relation to shares or debentures which were not offered to the public.

A person who acts in contravention of the provisions of this subsection, is guilty of an offence and is liable on summary conviction to a fine at level 5 on the standard scale.

(4) In the event of non-compliance with or contravention of any of the requirements of this section, a director or other person responsible for the prospectus shall not incur any liability by reason of the non-compliance or contravention, if—

(a) as regards any matter not disclosed, he proves that he was not cognisant thereof; or

(b) he proves that the non-compliance or contravention arose from an honest mistake of fact on his part; or

(c) the non-compliance or contravention was in respect of matters which in the opinion of the court dealing with the case were immaterial or was otherwise such as ought, in the opinion of that court, having regard to all the circumstances of the case, reasonably to be excused:

Provided that, in the event of failure to include in a prospectus a statement with respect to the matters specified in paragraph 15 of Part I of Schedule 3, no director or other person shall incur any liability in respect of the failure unless it be proved that he had knowledge of the matters not disclosed.

(5) This section shall not apply to the issue to existing members or debenture holders of a company of a prospectus or form of application relating to shares in or debentures of the company, whether an applicant for shares or debentures will or will not have the right to renounce in favour of other persons, but subject as aforesaid, this section shall apply to a prospectus or a form of application whether issued on or with reference to the formation of a company or subsequently.

(6) Nothing in this section shall limit or diminish any liability which any person may incur under the general law or this Ordinance apart from this section.

369

36 Restriction on alteration of terms mentioned in prospectus or statement in lieu of prospectus

(1) A company limited by shares or a company limited by guarantee and having a share capital shall not previously to the statutory meeting vary the terms of a contract referred to in the prospectus or statement in lieu of prospectus, except subject to the approval of the statutory meeting.

(2) This section shall not apply to a private company.

370

37 Liability for statements in prospectus

(1) Where a prospectus invites persons to subscribe for shares in or debentures of a company—

(a) every person who is a director of the company at the time of the issue of the prospectus; and

(b) every person who has authorized himself to be named and is named in the prospectus as a director or as having agreed to become a director either immediately or after an interval of time; and

(c) every person being a promoter of the company; and

(d) every person who has authorized the issue of the prospectus,

is liable to pay compensation to all persons who subscribe for any shares or debentures on the faith of the prospectus for the loss or damage they may have sustained by reason of any untrue statement therein, or in any report or memorandum appearing on the  face thereof, or by reference incorporated therein or issued therewith, unless it is proved—

(i) that having consented to become a director of the company he withdrew his consent before the issue of the prospectus, and that it was issued without his authority or consent; or

(ii) that the prospectus was issued without his knowledge or consent, and that on becoming aware of its issue he forthwith gave reasonable public notice that it was issued without his knowledge or consent; or

(iii) that after the issue of the prospectus and before allotment thereunder, he, on becoming aware of any untrue statement therein, withdrew his consent thereto, and gave reasonable public notice of the withdrawal, and of the reason therefor; or

(iv) that—

(A) as regards every untrue statement not purporting to be made on the authority of an expert or of a public official document or statement, he had reasonable ground to believe, and did up to the time of the allotment of the shares or debentures, as the case may be, believe, that the statement was true; and

(B) as regards every untrue statement purporting to be a statement by an expert or contained in what purports to be a copy of or extract from a report or valuation of an expert, it fairly represented the statement, or was a correct and fair of or extract from the report or valuation; and

(C) as regards every untrue statement purporting to be a statement made by an official person or contained in what purports to be a copy of or extract from a public official document, it was a correct and fair representation of the statement or copy of or extract from the document:

Provided that a person shall be liable to pay compensation as aforesaid if it is proved that he had no reasonable ground to believe that the person making any such statement, report or valuation as is mentioned in paragraph (iv)(B) of this subsection was competent to make it.

(2) Where the prospectus contains the name of a person as a director of the company, or as having agreed to become a director thereof, and he has not consented to become a director, or has withdrawn his consent before the issue of the prospectus, and has not authorized or consented to the issue thereof, the directors of the company, except any without whose knowledge or consent the prospectus was issued, and any other person who authorized the issue thereof, shall be liable to indemnify the person named against all damages, costs and expenses to which he may be made liable by reason of his name having been inserted in the prospectus, or in defending himself against any action or legal proceedings brought against him in respect thereof.

(3) Every person who, by reason of his being a director or named as a director or as having agreed to become a director, or of his having authorized the issue of the prospectus, becomes liable to make any payment under this section may recover contribution, as in cases of contract, from any other person who, if sued separately, would have been liable to make the same payment, unless the person who has become so liable was, and that other person was not, guilty of fraudulent misrepresentation.

(4) For the purposes of this section,—

“promoter”  means a promoter who was a party to the preparation of the prospectus, or of the portion thereof containing the untrue statement, but does not include any person by reason of his acting in a professional capacity for persons engaged in procuring  the formation of the company;

“expert” includes engineer, valuer, accountant and any other person whose profession gives authority to a statement made by him.

371

38 Document containing offer of shares or debentures for sale to be deemed prospectus

(1) Where a company allots or agrees to allot any shares in or debentures of the company with a view to all or any of those shares or debentures being offered for sale to the public, any document by which the offer for sale to the public is made shall for all purposes be deemed to be a prospectus issued by the company, and all enactments and rules of law as to the contents of prospectuses and to liability in respect of statements in and omissions from prospectuses, or otherwise relating to prospectuses, shall apply and have effect accordingly, as if the shares or debentures had been offered to the public for subscription and as if persons accepting the offer in respect of any shares or debentures were subscribers for those shares or debentures, but without prejudice to the liability (if any) of the persons by whom the offer is made, in respect of misstatements contained in the document or otherwise in respect thereof.

(2) For the purposes of this Ordinance, it shall, unless the contrary is proved, be evidence that an allotment of, or an agreement to allot, shares or debentures was made with a view to the shares or debentures being offered for sale to the public if it is shown—

(a) that an offer of the shares or debentures or of any of them for sale to the public was made within six months after the allotment or agreement to allot; or

(b) that at the date when the offer was made the whole consideration to be received by the company in respect of the shares or debentures had not been so received.

(3) Section 34 as applied by this section shall have effect as though the persons making the offer were persons named in a prospectus as directors of a company, and section 35 as applied by this section shall have effect as if it required a prospectus to state in addition to the matters required by that section to be stated in a prospectus—

(a) the net amount of the consideration received or to be received by the company in respect of the shares or debentures to which the offer relates; and

(b) the place and time at which the contract under which the shares or debentures have been or are to be allotted may be inspected.

(4) Where a person making an offer to which this section relates is a company or a firm, it shall be sufficient if the document aforesaid is signed on behalf of the company or firm by two directors of the company or not less than half of the partners, as the case may be, and any such director or partner may sign by his agent authorized in writing.

372

Allotment

39 Prohibition of allotment unless minimum subscription received

(1) No allotment shall be made of any share capital of a company offered to the public for subscription unless the amount stated in the prospectus as the minimum amount which, in the opinion of the directors, must be raised by the issue of share capital in  order to provide for the matters specified in paragraph 5 of Part I of Schedule 3 has been subscribed, and the sum payable on application for the amount so stated has been paid to and received by the company.

For the purposes of this subsection, a sum shall be deemed to have been paid to and received by the company if a cheque for that sum has been received in good faith by the company and the directors of the company have no reason for suspecting that the cheque will not be paid.

(2) The amount so stated in the prospectus shall be reckoned exclusively of any amount payable otherwise than in cash and is in this Ordinance referred to as “the minimum subscription.”

(3) The amount payable on application on each share shall not be less than 5 per cent of the nominal amount of the share.

(4) If the conditions aforesaid have not been complied with on the expiration of forty days after the first issue of the prospectus, all money received from applicants for shares shall be forthwith repaid to them without interest, and, if any such money is  not so repaid within forty-eight days after the issue of the prospectus, the directors of the company shall be jointly and severally liable to repay that money with interest at the rate of five per cent per annum from the expiration of the forty-eighth day:

Provided that a director shall not be liable if he proves that the default in the repayment of the money was not due to any misconduct or negligence on his part.

(5) Any condition requiring or binding any applicant for shares to waive compliance with any requirement of this section shall be void.

(6) This section, except subsection (3), shall not apply to any allotment of shares subsequent to the first allotment of shares offered to the public for subscription.

373

40 Prohibition of allotment in certain cases unless statement in lieu of prospectus delivered to Registrar

(1) A company having a share capital which does not issue a prospectus on or with reference to its formation, or which has issued such a prospectus but has not proceeded to allot any of the shares offered to the public for subscription, shall not allot any  of its shares or debentures unless at least three days before the first allotment of either shares or debentures there has been delivered to the Registrar for registration a statement in lieu of prospectus, signed by every person who is named therein as a director or a proposed director of the company or by his agent authorized in writing, in the form and containing the particulars set out in Schedule 4.

(2) This section shall not apply to a private company.

(3) If a company acts in contravention of this section, the company and every director of the company who knowingly authorizes or permits the contravention are guilty of offences and are each liable on summary conviction to a fine at level 3 on the standard scale.

374

41 Effect of irregular allotment

(1) An allotment made by a company to an applicant in contravention of the provisions of sections 39 and 40, shall be voidable at the instance of the applicant within one month after the holding of the statutory meeting of the company and not later, or, in  any case where the company is not required to hold a statutory meeting, or where the allotment is made after the holding of the statutory meeting, within one month after the date of the allotment, and not later, and shall be so voidable notwithstanding that the company is in course of being wound up.

(2) A director of a company who knowingly contravenes, or permits or authorizes the contravention of, any of the provisions of those sections with respect to allotment, is liable to compensate the company and the allottee respectively for any loss, damages  or costs which the company or the allottee may have sustained or incurred thereby:

Provided that proceedings to recover any such loss, damages or costs shall not be commenced after the expiration of two years from the date of the allotment.

375

42 Return as to allotments

(1) Whenever a company limited by shares or a company limited by guarantee and having a share capital makes any allotment of its shares, the company shall within one month thereafter deliver to the Registrar for registration—

(a) a return of the allotments, stating the number and nominal amount of the shares comprised in the allotment, the names, addresses and descriptions of the allottees, and the amount (if any) paid or due and payable on each share; and

(b) in the case of shares allotted as fully or partly paid up otherwise than in cash, a contract in writing constituting the title of the allottee to the allotment together with any contract of sale, or for services or other consideration in respect of which that allotment was made, such contracts being duly stamped, and a return stating the number and nominal amount of shares so allotted, the extent to which they are to be treated as paid up, and the consideration for which they have been allotted.

(2) Where such a contract as above mentioned is not reduced to writing, the company shall within one month after the allotment deliver to the Registrar for registration the prescribed particulars of the contract stamped with the same stamp duty as would have been payable if the contract had been reduced to writing, and those particulars shall be deemed to be an instrument within the meaning of the Stamp Duties Ordinance, and the Registrar may, as a condition of filing the particulars, require that the duty payable thereon be adjudicated under the relevant provisions of that Ordinance.

(3) If default is made in complying with this section, every director, manager(,) secretary or other officer of the company, who is knowingly a party to the default, is guilty of an offence and is liable on summary conviction to a fine at level 2 on the standard scale for every day during which the default continues:

Provided that, in case of default in delivering to the Registrar within one month after the allotment any document required to be delivered by this section, the company, or any person liable for the default, may apply to the Registrar for leave to file the  return of allotment out of time, and the Registrar, if satisfied that the omission to deliver the document was accidental or due to inadvertence or that it is just and equitable to grant relief, may make an order extending the time for the delivery of the document for such period as the court may think proper.

(4) An application made under subsection (3) shall be accompanied by—

(a) an affidavit of—

(i) the applicant’s interest in the matter, and

(ii) a statement of the facts on which the application is based, and

(iii) the relief sought; and

(b) the fee prescribed in Schedule 8.

(5) The Registrar may, in his discretion, require that a person making an application under subsection (3) give notice of that application (including the facts on which the application is based and the relief sought) to such other person as the Registrar may specify, being a person who appears to the Registrar to be concerned or to have an interest and may specify the time for receipt by him of any written objection from such person.

(6) On receipt within the time specified by virtue of subsection (5) of any written objection to the granting by the Registrar of an extension of time within which the return of allotment may be filed the Registrar shall forthwith notify the applicant of the receipt of the objection, the terms of the objection and of the identity of the objector.

(7) Where an application for an extension of time for the filing of a return of allotment has been made under subsection (3), the Registrar may, in his discretion refuse to consider the application and require that the person by whom the application was made apply to the Supreme Court for an order for such an extension of time.

(8) On receipt of an application under this section the Registrar, if satisfied that there are good grounds for extending the time within which the return of allotment may be made, may direct that the time be extended to the extent specified in his direction.

(9) A direction given under this section may be made subject to conditions and the Registrar may include such further directions and such provisions as seem just and equitable in the circumstances.

(10) The court may, on application under subsection (7), refuse the application or order the period of time for the filing of the return of allotment be extended by the period specified by the court.

(11) In any proceedings under this section, the court may determine any question which may be necessary or expedient to decide in connection with the extension of the time within which the return of allotment may be filed.

(12) The Registrar shall be entitled to appear and be heard on any application to the court under this section and shall appear if so directed by the court.

(13) Any order made by the court under this section shall direct that notice of the order shall be served on the Registrar in the prescribed manner and the Registrar shall, on receipt of the notice, act accordingly.

376

42A

[S 42A deleted by s 52(1) of Ordinance No 30 of 1999 as from 1 January 2000]

376A

42B Payment for allotted shares1

(1) Subject to the following provisions, shares allotted by any company and any premium payable on them may be paid up in money or moneys worth (including goodwill and know-how).

(2) A public company may not at any time accept in payment up of us shares or any premium on them, an undertaking given by any person that he or another should do work or perform services for the company or any other person.

(3) Where a public company accepts such an undertaking in payment up of its shares or any premium payable on them, the holder of the shares when they or the premium are treated as paid up, in whole or in part, by the undertaking is liable to pay the company in respect of those shares 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, with interest at the appropriate rate.

(4) This section does not prevent a company from allotting bonus shares to its members or from paying up, with sums available for the purpose, any amount for the time being unpaid on any of its shares (whether on their nominal value or any premium).

(5) The reference in subsection (3) to the holder of shares includes any person who has an unconditional right to be included in the company’s register of members in respect of those shares or to have an instrument of transfer of them executed in his favour.

Notes

1 S 42B inserted by Ordinance No 20 of 1998 s 4. Not yet in force.

376B

42C Shares to be allotted as at Ieast one quarter paid up1

(1) A public company may not allot a share except as paid up at least as to one quarter of its nominal value and the whole of any premium on it.

(2) If a company allots a share in contravention of subsection (1), the share shall be treated as if one quarter of its nominal value, together with the whole of any premium on it, had been received.

(3) In the circumstances of subsection (2), the allottee is liable to pay the company the minimum amount which should have been received in respect of the share under subsection (1) (less the value of any consideration actually applied in payment up, to any extent, of the share and any premium on it) with interest at the appropriate rate.

(4) Subsections (2) and (3) do not apply to the allotment of bonus shares, unless the allottee knew or ought to have known that the shares were allotted in contravention of subsection (1).

Notes

1 S 42C inserted by Ordinance No 20 of 1998 s 4. Not yet in force.

376C

42D Restrictions on payment by long-term undertaking1

(1) A public company may not allot shares as fully or partly paid up (as to their nominal value or any premium on them) except in cash if the consideration for the allotment is or includes an undertaking which is to be, or may be, performed more than 5 years after the date of allotment.

(2) If a company allots shares in contravention of subsection (1), the allottee is liable to pay the company an amount equal to the total of their nominal value and the whole of any premium (or, if the case so requires, so much of that total as is treated as paid up by the undertaking), with interest at the appropriate rate.

(3) Where a contract for the allotment of shares does not contravene subsection (1), any variation of the contract which has that effect is void.

(4) Subsection (3) applies also 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) an undertaking which is to be performed within 5 years of the allotment, but the undertaking is nor performed within the period allowed by the contact for the allotment of the shares. the allottee is then liable to pay the company, at the end of the period so allowed, an amount equal to the total of the nominal value of the shares and the whole of any premium (or, if the case so requires, so much of that total as is treated as paid up by the undertaking), with interest at the appropriate rate.

(6) A reference in this section to a contact for the allotment of shares includes an ancillary contact relating to payment in respect of them.

Notes

1 S 42D inserted by Ordinance No 20 of 1998 s 4. Not yet in force.

376D

42E Non-cash consideration to be valued before allotment1

(1) A public company shall not allot shares as fully or partly paid up (as to their nominal value or any premium on them) except in cash unless—

(a) the consideration for the allotment has been independently valued under Part I of Schedule 15;

(b) a report with respect to its value has been made to the company by a person appointed by the company during the 6 months immediately preceding the allotment of the shares, and

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

(2) Subsection (1) does not apply where an amount standing to the credit of any of the company’s reserve accounts or of its profit and loss account, is applied in paying up (to any extent) any shares allotted to members of the company or premiums on shares so allotted.

(3) Subsection (1) does not apply to the allotment of shares by a company in connection with an arrangement providing for the allotment of shares in that company on terms that—

(a) the whole or part of the consideration for the shares allotted is to be provided by the transfer to that company (or cancellation) of all or some of the shares, or all or some of the shares of a particular class in another company (with or without the issue to that company of shares, or of shares of any particular class, in that other company); and

(b) the arrangement is open to all shareholders in the other company (or all shareholders of the particular class, if the arrangement is limited to a particular class of shares).

In determining whether that is the case, shares held by or by a nominee of the company proposing to allot the shares in connection with the arrangement, or held by or by a nominee of a company which is that company’s holding company or subsidiary or a company which is a subsidiary of its holding company, shall be disregarded.

(4) Subsection (1) does not apply to the allotment of shares by a company in connection with its proposed merger with another company, that is. where one of the companies proposes to acquire all the assets and liabilities of the other in exchange for the issue of shares or other securities in the first company to shareholders of the other, with or without any cash payment to those shareholders.

(5) If a company allots shares in contravention of subsection (1) and either—

(a) the allottee has not received the valuer’s report required by that subsection to be sent to him; or

(b) there has been some other contravention of this section or Part I of Schedule 15 which the allottee knew or ought to have known amounted to a contravention;

the allottee is liable to pay the company an amount equal to the total of the nominal value of the shares and the whole of any premium (or, if the case so requires, so much of that total as is treated as paid up by the consideration) with interest at the appropriate rate.

(6) A public company shall deliver to the Registrar for registration a copy of the report mentioned in subsection (1) at the same time as a return of the documents is filed under section 42.

(7) If subsection (6) is not complied with, every officer of the company who is in default is guilty of an offence and liable on summary conviction to a fine at level 3 on the standard scale, and for continued contravention to a daily default fine of £500.

Notes

1 S 42E inserted by Ordinance No 20 of 1998 s 4. Not yet in force.

376C

42D Restrictions on payment by long-term undertaking1

(1) A public company may not allot shares as fully or partly paid up (as to their nominal value or any premium on them) except in cash if the consideration for the allotment is or includes an undertaking which is to be, or may be, performed more than 5 years after the date of allotment.

(2) If a company allots shares in contravention of subsection (1), the allottee is liable to pay the company an amount equal to the total of their nominal value and the whole of any premium (or, if the case so requires, so much of that total as is treated as paid up by the undertaking), with interest at the appropriate rate.

(3) Where a contract for the allotment of shares does not contravene subsection (1), any variation of the contract which has that effect is void.

(4) Subsection (3) applies also 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) an undertaking which is to be performed within 5 years of the allotment, but the undertaking is nor performed within the period allowed by the contact for the allotment of the shares. the allottee is then liable to pay the company, at the end of the period so allowed, an amount equal to the total of the nominal value of the shares and the whole of any premium (or, if the case so requires, so much of that total as is treated as paid up by the undertaking), with interest at the appropriate rate.

(6) A reference in this section to a contact for the allotment of shares includes an ancillary contact relating to payment in respect of them.

Notes

1 S 42D inserted by Ordinance No 20 of 1998 s 4. Not yet in force.

376D

42E Non-cash consideration to be valued before allotment1

(1) A public company shall not allot shares as fully or partly paid up (as to their nominal value or any premium on them) except in cash unless—

(a) the consideration for the allotment has been independently valued under Part I of Schedule 15;

(b) a report with respect to its value has been made to the company by a person appointed by the company during the 6 months immediately preceding the allotment of the shares, and

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

(2) Subsection (1) does not apply where an amount standing to the credit of any of the company’s reserve accounts or of its profit and loss account, is applied in paying up (to any extent) any shares allotted to members of the company or premiums on shares so allotted.

(3) Subsection (1) does not apply to the allotment of shares by a company in connection with an arrangement providing for the allotment of shares in that company on terms that—

(a) the whole or part of the consideration for the shares allotted is to be provided by the transfer to that company (or cancellation) of all or some of the shares, or all or some of the shares of a particular class in another company (with or without the issue to that company of shares, or of shares of any particular class, in that other company); and

(b) the arrangement is open to all shareholders in the other company (or all shareholders of the particular class, if the arrangement is limited to a particular class of shares).

In determining whether that is the case, shares held by or by a nominee of the company proposing to allot the shares in connection with the arrangement, or held by or by a nominee of a company which is that company’s holding company or subsidiary or a company which is a subsidiary of its holding company, shall be disregarded.

(4) Subsection (1) does not apply to the allotment of shares by a company in connection with its proposed merger with another company, that is. where one of the companies proposes to acquire all the assets and liabilities of the other in exchange for the issue of shares or other securities in the first company to shareholders of the other, with or without any cash payment to those shareholders.

(5) If a company allots shares in contravention of subsection (1) and either—

(a) the allottee has not received the valuer’s report required by that subsection to be sent to him; or

(b) there has been some other contravention of this section or Part I of Schedule 15 which the allottee knew or ought to have known amounted to a contravention;

the allottee is liable to pay the company an amount equal to the total of the nominal value of the shares and the whole of any premium (or, if the case so requires, so much of that total as is treated as paid up by the consideration) with interest at the appropriate rate.

(6) A public company shall deliver to the Registrar for registration a copy of the report mentioned in subsection (1) at the same time as a return of the documents is filed under section 42.

(7) If subsection (6) is not complied with, every officer of the company who is in default is guilty of an offence and liable on summary conviction to a fine at level 3 on the standard scale, and for continued contravention to a daily default fine of £500.

Notes

1 S 42E inserted by Ordinance No 20 of 1998 s 4. Not yet in force.

376E

42F Transfer to public company of non-cash asset in initial period1

(1) A public company shall not, unless the conditions of this section have been complied with, enter into an agreement with a person for the transfer by him during the initial period of one or more non-cash assets to the company or another if—

(a) that person is a subscriber to the company’s memorandum; and

(b) the consideration for the transfer to be given by the company is equal in value at the time of the agreement to one-tenth or more of the nominal value of the company’s share capital issued at the time.

(2) In subsection (1) the “initial period” is the period of 2 years beginning with the date on which the company was issued with a certificate by the Registrar under section 91(3) that it was entitled to commence business.

(3) This section applies to a company re-registered as a public company, but in that case—

(a) subsection (I)(a) shall be read as if it referred to a person who is a member of the company on the date of re-registration; and

(b) the initial period is 2 years beginning with the date of re-registration.

(4) The conditions referred to in subsection (1) 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 so be given by the company have been independently valued under Part II of Schedule 15;

(b) a report with respect to the consideration to be so received and given has been made to the company 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 person with whom the agreement in question is proposed to be made is not then a member of the company so entitled, to that person.

(5) A company which has passed a resolution under this section with respect to the transfer of an asset shall, within 15 days of so doing, deliver to the Registrar a copy of that resolution together with the report required by this section.

(6) If subsection (5) is not complied with, the company and every officer of it who is in default is guilty of an offence and liable on summary conviction to a fine at level 3 on the standard scale and for continued contravention to a daily fine of £100.

Notes

1 S 42F inserted by Ordinance No 20 of 1998 s 4. Not yet in force.

376F

42G Authority of company required for certain allotments1

(1) The directors of a public company may not use any power of the company to allot relevant securities, unless they are in accordance with this section authorised to do so by—

(a) the company in general meeting; or

(b) the company’s articles.

(2) In this section “relevant securities” means—

(a) shares in the company other than shares shown in the memorandum to have been taken by the subscribers to it; and

(b) any right to subscribe for, or so convert any security into, shares to the company (other than shares so allotted);

and a reference to the allotment of relevant securities includes the grant of such a right but (subject to subsection (6) below) not she allotment of shares under such a right.

(3) Authority under this section may be given for a general or particular exercise of the power and may be subject to conditions.

(4) The authority shall state the maximum amount of relevant securities that may be allotted under it and the date on which it will expire, which shall be not more than 5 years from whichever is relevant of the following dates—

(a) in the case of an authority contained in she company’s articles at the time of its original incorporation, the date of that incorporation; and

(b) in any other case, the date on which the resolution is passed by virtue of which the authority is given;

but such an authority (including an authority contained in the articles) may be previously revoked or varied by the company in general meeting.

(5) The authority may be renewed or further renewed by the company in general meeting for a period not exceeding 5 years, but the resolution shall state (or restate) the amount of relevant securities which may be allotted under the authority or, as the case may be, the amount remaining to be allotted under it, and shall specify the date on which the renewed authority will expire.

(6) In relation to authority under this section for the grant of such rights as are mentioned in subsection (2)(b), the reference in subsection (4) (and the corresponding reference in subsection (5)), to the maximum amount of relevant securities that may be allotted under the authority is to the maximum amount of shares which may be allotted under the rights.

(7) The directors may allot relevant securities, even if authority under this section has expired, if they are allotted under an offer or agreement made by the company before the authority expired and the authority allowed it to make an offer or agreement which would or might require relevant securities to be allotted after the authority expired.

(8) A resolution of a company to give, vary, revoke or renew an authority shall be forwarded to the Registrar within 15 days of the passing of that resolution.

(9) A director who knowingly and deliberately contravenes or permits or authorises a contravention of this section is guilty of an offence and liable on summary conviction to a fine at level 5 on the standard scale.

(10) Nothing in this section affects the validity of any allotment.

Notes

1 S 42G inserted by Ordinance No 20 of 1998 s 4. Not yet in force.

376G

42H Allotment where issue not fully subscribed1

(1) No allotment may be made of any share capital of a public company offered for subscription unless—

(a) the capital is subscribed for in full; or

(b) the offer states that, even if the capital is not subscribed for in full, the amount of that capital subscribed for may be allotted in any event or in the event of the conditions specified in the offer being satisfied;

and where conditions are so specified, no allotment of the capital may be made by virtue of paragraph (b) unless those conditions are satisfied.

(2) If share may not be allotted under subsection (1) and 40 days have passed after the first issue of the prospectus, all money received from applicants for shares shall be immediately repaid to them without interest.

(3) If any of the money is not repaid within 48 days after the issue of the prospectus, the directors of the company are jointly and severally liable to repay it with interest at the rate of 5 per cent per annum from the expiration of the 48th day, except that a director is not so liable if he proves that the default in repayment was not due to any misconduct or negligence on his part.

(4) This section applies in the case of shares offered as wholly or partly payable otherwise than in cash as it applies in the case of shares offered for subscription (the word “subscribed” in subsection (1) being construed accordingly).

(5) In subsections (2) and (3), as they apply to the case of shares offered as wholly or partly payable otherwise than in cash, references to the repayment of money received from applicants for shares include—

(a) the return of any other consideration so received (including, if the case so requires, the release of the applicant from any undertaking); or

(b) if it is not reasonably practicable to return the consideration, the payment of money equal to its value at the time it was so received.

(6) Any condition requiring or binding an applicant for shares to waive compliance with any requirement of this section is void.

Notes

1 S 42H inserted by Ordinance No 20 of 1998 s 4. Not yet in force.

376H

42I Application of certain private companies of conditions as to share capital1

The provisions of sections 42B to 42F, 47(4) and (5), 54A(5) and 91 and Schedule 15 apply where a private company ceases to be a private company in accordance with section 27 in the same way as those provisions apply to a public company.

Notes

1 S 42I inserted by Ordinance No 20 of 1998 s 4. Not yet in force.

376I

Commissions and Discounts

43 Power to pay certain commissions and prohibition of payment of all other commissions and discounts

(1) It shall be lawful for a company to pay a commission to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in the company, or procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in the company if—

(a) the payment of the commission is authorized by the articles; and

(b) the commission paid or agreed to be paid does not exceed 10 per cent of the price at which the shares are issued or the amount or rate authorized by the articles, whichever is the less; and

(c) the amount or rate per cent of the commission paid or agreed to be paid is—

(i) in the case of shares offered to the public for subscription, disclosed in the prospectus; or

(ii) in the case of shares not offered to the public for subscription, disclosed in the statement in lieu of prospectus, or in a statement in the prescribed form signed in like manner as a statement in lieu of prospectus and delivered before the payment of  the commission to the Registrar for registration, and, where a circular or notice, not being a prospectus, inviting subscription for the shares is issued, also disclosed in that circular or notice; and

(d) the number of shares which persons have agreed for a commission to subscribe absolutely is disclosed in manner aforesaid.

(2) Save as aforesaid, no company shall apply any of its shares or capital money either directly or indirectly in payment of any commission, discount or allowance, to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any share, of the company, or procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in the company, whether the shares or money be so applied by being added to the purchase money of any property acquired by the company or to the contract price of any work to be executed for the company, or the money be paid out of the nominal purchase money or  contract price, or otherwise.

(3) A vendor to, promoter of, or other person who receives payment in money or shares from, a company shall have and shall be deemed always to have had power to apply any part of the money or shares so received in payment of any commission, the payment of which, if made directly by the company, would have been legal under this section.

(4) If default is made in complying with the provisions of this section relating to the delivery to the Registrar of the statement in the prescribed form, the company and every officer of the company who is in default are guilty of offences and are each liable on summary conviction to a fine at level 2 on the standard scale.

377

44 Statement in balance sheet as to commissions and discounts

(1) Where a company has paid any sums by way of commission in respect of any shares or debentures, or allowed any sums by way of discount in respect of any debentures, the total amount so paid or allowed, or so much thereof as has not been written off, shall be stated in every balance sheet of the company until the whole amount thereof has been written off.

(2) If default is made in complying with this section, the company and every officer of the company who is in default are guilty of offences and are liable on summary conviction to default fines.

378

44A Holding of shares in public company by another company

(1) The subscription, acquisition or holding of shares in a public company by another company within the meaning of Article 1 of Council Directive 68/151/EEC of 9 March 1968 on the co-ordination of safeguards for the protection of the interests of members of companies in which that public company directly or indirectly holds a majority of the voting rights or on which it can directly or indirectly exercise a dominant influence will be regarded as having been effected by that public company itself.

(2) Subsection (1) applies where the other company is governed by the law of a country outside the European Economic Area and has a legal form comparable to those listed in Article 1 of Directive 68/151/EEC.

(3) Subsections (1) and (2) do not apply where the subscription, acquisition or holding is effected by the other company in its capacity or in the context of its activities as a professional dealer in securities, provided that it is a member of a stock exchange situated or operating within the European Economic Area or is approved or supervised by an authority of a member State competent to supervise professional dealers in securities.1

Notes

S 44A inserted by Ordinance No 20 of 1998 s 6. Not yet in force.

378A

45 Prohibition of provision of financial assistance by company for purchase of its own shares

(1) Subject as provided in this section, it shall not be lawful for a company to give, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase made or to be made by any person of any shares in the company:

Provided that nothing in this section shall be taken to prohibit—

(a) where the lending of money is part of the ordinary business of a company, the lending of money by the company in the ordinary course of its business;

(b) the provision by a company, in accordance with any scheme for the time being in force, of money for the purchase by trustees of fully-paid shares in  the company to be held by or for the benefit of employees of the company, including any director holding a salaried employment or office in the company;

(c) the making by a company of loans to persons, other than directors, bona fide in the employment of the company with a view to enabling those persons to purchase fully-paid shares in the company to be held by themselves by way of beneficial ownership.

(2) The aggregate amount of any outstanding loans made under the authority of provisoes (b) and (c) to subsection (1) shall be shown as a separate item in every balance sheet of the company.

(2A) The acceptance of the company’s own shares as security, either by the company itself or through a person acting in his own name but on the company’s behalf, shall be treated as falling within the scope of the prohibition set out in subsection (1).1

(2B) Subsection 2A does not apply to transactions concluded by banks and other financial institutions in the normal course of business.2

(3) If a company acts in contravention of this section, the company and every officer of the company who is in default are guilty of offences and are each liable on summary conviction to a fine at level 3 on the standard scale.

Notes

1 Subsection (2A) inserted by Ordinance No 20 of 1998 s 5. Not yet in force.

2 Subsection (2B) inserted by Ordinance No 20 of 1998 s 5. Not yet in force.

379

45A Power of Company to purchase own shares1

(1) Subject to the provision of this section and to any requirements imposed on that company by virtue of any licence or authorization to which it is subject under any other Ordinance, a company limited by shares or limited by guarantee and having a share capital may, if authorised to do so by its articles, purchase its own shares (including any redeemable shares).

(2) A company may exercise the power contained in subsection (1) only if it does so in accordance with the provisions of sections 45B to 45V as to—

(a) the conditions to be met by the company and its directors in respect of any such purchase of its own shares, and

(b) the application to any such purchase of the provisions of this Ordinance.

(3) A failure to comply with the requirements of sections 45B to 45V shall have the effect specified in that respect by those sections including, where so specified, the liability on summary conviction to a fine at level 3 on the standard scale.

Notes

1 S 45A inserted by Ordinance No 7 of 1992 and amended by Ordinance No 30 of 1999. S 45A not yet in force.

379A

45B Acquisition other than for value, in reduction of capital, alteration of objects and on forfeiture

The restrictions of section 45A shall not apply to a company limited by shares or limited by guarantee and by shares which—

(a) acquires any of its own fully paid shares other than for valuable consideration;

(b) acquires its own shares in a reduction of capital duly made;

(c) purchases its own shares in pursuance of an order made under section 6;

(d) accepts its own shares in forfeiture of them, or shares surrendered in lieu, in pursuance of the articles, for failure to pay any sum payable in respect of the shares.

379B

45C Restrictions on power of company to purchase own shares

(1) Section 46 applies to the purchase by a company under section 45A of its own shares as it applies to the redemption of redeemable shares, save that the terms and manner of purchase need not be determined by the articles as required by section 46(3).

(2) A company may not under section 45A purchase its shares if as a result of the purchase there would no longer be any member of the company holding shares other than redeemable shares.

379C

45D Definition of “off-market” and “market” purchase

(1) A purchase by a company of its own shares is “off-market” if the shares either—

(a) are purchased otherwise than on a recognised investment exchange; or

(b) are purchased on a recognised investment exchange but are not subject to a marketing arrangement on that investment exchange.

(2) For this purpose, a company’s shares are  subject to a marketing arrangement on a recognised investment exchange if the company has been afforded facilities for dealings in those shares to take place on that investment exchange without prior permission for individual transactions from the authority governing that investment exchange and without limit as to the time during which those facilities are to be available.

(3) A purchase by a company of its own shares is a “market purchase” if it is a purchase made on a recognised investment exchange other than a purchase which is an off-market purchase by virtue of subsection (1)(b).

(4) In this section “recognised investment exchange,”  means a recognised investment exchange as so listed from time to time in Chapter 11 of Administrative Notice No. 7 issued by the Banking Commissioner under the provisions of the Banking Ordinance 1992.

379D

45E Authority for off-market purchase

(1) A company may only make an off-market purchase of its own shares in pursuance of a contract approved in advance in accordance with this section or under section 45F.

(2) The terms of the proposed contract shall have been authorized by a special resolution of the company before the contract is entered into and subsections (3) to (7) apply with respect to that authority and to resolutions conferring it.

(3) Subject to subsection (4), the authority may be varied, revoked or from time to time renewed by special resolution of the company.

(4) In the case of a public company, the authority conferred by the resolution shall specify a date on which the authority is to expire, and in a resolution conferring or renewing authority the date shall be not be later than 18 months after that on which the resolution is passed.

(5) A special resolution to confer, vary, revoke or renew authority is not effective if any member of the company holding shares to which the resolution relates exercised the voting rights carried by any of those shares in voting on the resolution and the resolution would not have been passed if he had not done so, and for this purpose—

(a) a member who holds shares to which the resolution relates is regarded as exercising the voting rights carried by those shares not only if he votes in respect of them on a poll on the question whether the resolution shall be passed, but also if he votes  on the resolution otherwise than on a poll;

(b) notwithstanding anything in the company’s articles, any member of the company may demand a poll on that question; and

(c) a vote and a demand for a poll by a person as proxy for a member are the same respectively as a vote and a demand by the member.

(6) Such a resolution is not effective for the purposes of this section unless (if the proposed contract is in writing) a copy of the contract or (if not) a written memorandum of its terms is available for inspection by members of the company both—

(a) at the company’s registered office for not less than 15 days ending with the date of the meeting at which the resolution is passed; and

(b) at the meeting itself,

and a memorandum of contract terms so made available shall include the names of any members holding shares to which the contract relates, and a copy of the contract so made available shall have annexed to it a written memorandum specifying any such names which do not appear in the contract itself.

(7) A company may agree to a variation of an existing contract so approved, but only if the variation is authorized by a special resolution of the company before it is agreed to, and subsections (3) to (6) apply to the authority for a proposed variation as  they apply to the authority for a proposed contract, save that a copy of the original contract or (as the case may require) a memorandum of its terms, together with any variations previously made, shall also be available for inspection in accordance with subsection (6).

379E

45F Authority for contingent purchase contract

(1) A contingent purchase contract is a contract entered into by a company and relating to any of its shares—

(a) which does not amount to a contract to purchase those shares; but

(b) under which the company may (subject to any conditions) become entitled or obliged to purchase those shares.

(2) A company may only make a purchase of its own shares in pursuance of a contingent purchase contract if the contract is approved in advance by a special resolution of the company before the contract is entered into, and subsections (3) to (7) of section  45E apply to the contract and its terms.

379F

45G Authority for market purchase

(1) A company shall not make a market purchase of its own shares unless the purchase has first been authorized by the company in a general meeting.

(2) That authority—

(a) may be general for that purpose, or limited to the purchase of shares of any particular class or description; and

(b) may be unconditional or subject to conditions.

(3) The authority shall—

(a) specify the maximum number of shares authorized to be acquired;

(b) determine both the maximum and the minimum prices which may be paid for the shares; and

(c) specify a date on which it is to expire.

(4) The authority may be varied, revoked or from time to time renewed by the company in general meeting, but this is subject to subsection (3), and in a resolution to confer or renew authority the date on which the authority is to expire shall not be later than 18 months after that on which the resolution is passed.

(5) A company may under this section make a purchase of its own shares after the expiry of the time limit imposed to comply with subsection (3)(c) if the contract of purchase was concluded before the authority expired and the terms of the authority permitted the company to make a contract of purchase which would or might be executed wholly or partly after its expiration.

(6) A resolution to confer or vary authority under this section may determine either or both the maximum and minimum prices for purchase by—

(a) specifying a particular sum; or

(b) providing a basis or formula for calculating the amount of the price in question without reference to any person’s discretion or opinion.

(7) A resolution of a company conferring, varying, revoking or renewing authority under this section is subject to section 110 (resolution to be sent to Registrar within 15 days).

379G

45H Assignment or release of company’s right to purchase own shares

(1) The rights of a company under a contract approved under section 45E or 45F, or under a contract for a purchase authorized under section 45G, are not capable of being assigned.

(2) An agreement by a company to release its rights under a contract approved under section 45E or 45F is void unless the terms  of the release agreement are approved in advance by a special resolution of the company before the agreement is entered into, and subsections (3) to (7) of section 45E apply to approval for a proposed release agreement as to authority for a proposed variation of an existing contract.

379H

45J Payments apart from purchase price to be made out of distributable profits

(1) A payment made by a company in consideration of—

(a) acquiring any right with respect to the purchase of its own shares in pursuance of a contract approved under section 45F; or

(b) the variation of a contract approved under section 45E or 45F; or

(c) the release of any of the company’s obligations with respect to the purchase of any of its own shares under a contract approved under section 45E or 45F or under a contract for a purchase authorized under section 45G,

shall be made out of the company’s distributable profits.

(2) If the requirements of subsection (1) are not satisfied in relation to a contract—

(a) in a case within paragraph (a) of the subsection, no purchase by the company of its own shares in pursuance of that contract is lawful under section 45A;

(b) in a case within paragraph (b) of the subsection, no such purchase following the variation is lawful under section 45A; and

(c) in a case within paragraph (c), the purported release is void.

379J

45K Disclosure by company of purchase of own shares

(1) Within the period of 28 days beginning with the date on which any shares purchased by a company under section 45A are delivered to it, the company shall deliver to the Registrar for registration a return in the prescribed form stating with respect to shares of each class purchased the number and nominal value of those shares and the date on which they were delivered to the company.

(2) In the case of a public company, the return shall also state—

(a) the aggregate amount paid by the company for the shares; and

(b) the maximum and minimum prices paid in respect of shares of each class purchased.

(3) Particulars of shares delivered to the company on  different dates and under different contracts may be included in a single return to the Registrar, and in such a case the amount required to be stated under subsection (2)(a) is the aggregate amount paid by the company for all the shares to which the return relates.

(4) Where a company enters into a contract approved under section 45E or 45F, or a contract for a purchase authorized under section 45G, the company shall keep at its registered office—

(a) if the contract is in writing, a copy of it; and

(b) if the contract is not in writing, a memorandum of its terms,

from the conclusion of the contract until the end of the period of 10 years beginning with the date on which the purchase of all the shares in pursuance of the contract is completed or (as the case may be) the date on which the contract otherwise determines.

(5) Every copy and memorandum so required to be kept shall, during business hours (subject to such reasonable restrictions as the company may in general meeting impose, provided that not less than 2 hours in each day are allowed for inspection) be open to inspection without charge—

(a) by any member of the company; and

(b) if it is a public company, by any other person.

(6) If default is made in delivering to the Registrar any return required by this section, every officer of the company who is in default is liable to a fine and, for continued contravention, to a daily default fine.

(7) If default is made in complying with subsection (4), or an inspection required under subsection (5) is refused, the company and every officer of it who is in default is liable to a fine and, for continued contravention, to a daily default fine.

(8) In the case of a refusal of an inspection required under subsection (5) of a copy or memorandum, the court may by order compel an immediate inspection of it.

(9) The obligation of a company under subsection (4) to keep a copy of any contract or (as the case may be) a memorandum of its terms applies to any variation of the contract so long as it applies to the contract.

379K

45L The capital redemption reserve

(1) Where under section 45A shares of a company are redeemed or purchased wholly out of the company’s profits, the amount by which the company’s issued share capital is diminished in accordance with section 46(4) on cancellation of the shares redeemed or purchased shall be transferred to a reserve, called “the capital redemption reserve”.

(2) If the shares are redeemed or purchased wholly or partly out of the proceeds of a fresh issue and the aggregate amount of those proceeds is less the aggregate nominal value of the shares redeemed or purchased, the amount of the difference shall be transferred to the capital redemption reserve.

(3) Subsection (2) shall not apply if the proceeds of the fresh issue are applied by the company in making a redemption or purchase of its own shares in addition to a payment out of capital under section 45M.

(4) The provisions of the Ordinance relating to the reduction of a company’s share capital apply as if the capital redemption reserve were paid-up share capital of the company, except that the reserve may be applied by the company in paying up its unissued shares to be allotted to members of the company as fully paid bonus shares.

379L

Redemption or purchase of own shares out of capital (private companies only)

45M Power of private companies to redeem or purchase own shares out of capital

(1) Subject to—

(a) the following provisions of this section;

(b) sections 45N to 45U; and

(c) any requirements imposed on a company by virtue of any licence or authorization to which it is subject under any other Ordinance,

a private company limited by shares or limited by guarantee and having a share capital may, if so authorized by its articles, make a payment in respect of the redemption or purchase under section 45A or (as the case may be) section 46, of its own shares otherwise than out of its distributable profits or the proceeds of a fresh issue of shares.

(2) References in this section and sections 45N to 45U to payment out of capital are (subject to subsection (6)) to any payment so made, whether or not it would be regarded apart from this section as a payment out of capital.

(3) The payment which may (if authorized in accordance with the provisions of subsections (4) to (6) and sections 45N to 45U) be made by a company out of capital in respect of the redemption or purchase of its own shares is such an amount, as taken together with—

(a) any available profits of the company; and

(b) the proceeds of any fresh issue of shares made for the purchase of the redemption or purchase,

is equal to the price of redemption or purchase, and the payment permissible under this subsection is referred to in subsections (4) to (6) and sections 45N to 45U as the permissible capital payment for the shares.

(4) Subject to subsection (6), if the permissible capital payment for shares redeemed or purchased is less than their nominal amount, the amount of the difference shall be transferred to the company’s capital redemption reserve.

(5) Subject to subsection (6), if the permissible capital payment is greater than the nominal amount of the shares redeemed or purchased, the amount of any capital redemption, reserve, share premium account or fully paid share capital of the company may be reduced by a sum not exceeding (or by sums not in  the aggregate exceeding) the amount by which the permissible capital payment exceeds the nominal amount of shares.

(6) Where the proceeds of a fresh issue are applied by a company in making any redemption or purchase of its own shares in addition to a payment out of capital under this section, the references in subsections (4) and (5) to the permissible capital payment are to be read as referring to the aggregate of that payment and those proceeds.

379M

45N Availability of profits for purposes of section 45M

(1) The reference in section 45M(3)(a) to available profits of the company is to the company’s profits which are available for distribution, as determined as to availability and amount in accordance with subsections (2) to (6).

(2) Subject to subsection (3), the availability of profits for distribution and the amount thereof is to be determined by reference to—

(a) profits, losses, assets and liabilities;

(b) provisions as to depreciation, diminution in value of assets, retentions to meet liabilities, etc.; and

(c) share capital and reserves (including undistributable reserves),

as stated in the relevant accounts for determining the permissible capital payment for shares.

(3) The relevant accounts for this purpose are such accounts, prepared as at any date within the period for determining the amount of the permissible capital payment, as are necessary to enable a reasonable judgment to be made as to the amounts of any of the items mentioned in paragraphs (a) to (c) of subsection (2).

(4) For purposes of determining the amount of the permissible capital payment for shares, the amount of the company’s available profits (if any) determined in accordance with subsections (2) and (3) is treated as reduced by the amount of any distributions lawfully made by the company after the date of the relevant accounts and before the end of the period for determining the amount of that payment.

(5) The reference in subsection (4) to distributions lawfully made by the company includes—

(a) financial assistance lawfully given out of distributable profits as assistance to a person to acquire the shares of the company;

(b) any payment lawfully made by the company in respect of the purchase of any shares in the company (except a payment lawfully made otherwise than out of distributable profits); and

(c) a payment of any description specified in section 45J(1) lawfully made by the company.

(6) References in this section to the period for determining the amount of the permissible capital payment for shares are to the period of 3 months ending with the date on which the statutory declaration of the directors purporting to specify the amount of  that payment is made in accordance with section 45P(3).

379N

45P Conditions for payment out of capital

(1)  Subject to any order of the court under section 45T, a payment out of capital by a private company for the redemption or purchase of its own shares is not lawful unless the requirements of this and the next two sections are satisfied.

(2) The payment out of capital shall have been approved by a special resolution of the company.

(3) The company’s directors shall have made a statutory declaration specifying the amount of the permissible capital payment for the shares in question and stating that, having made full inquiry into the affairs and prospects of the company, they have formed the opinion—

(a) as regards its initial situation immediately following the date on which the payment out of capital is proposed to be made, that there will be no grounds on which the company could then be found unable to pay its debts; and

(b) as regards its prospects for the year immediately following that date, that, having regard to their intentions with respect to the management of the company’s business during that year and to the amount and character of the financial resources which will in their view be available to the company during that year, the company will be able to continue to carry on business as a going concern (and will accordingly be able to pay its debts as they fall due) throughout that year.

(4) In forming their opinion for purposes of subsection (3)(a), the directors shall take into account the same liabilities (including prospective and contingent liabilities) as would be relevant in any winding up by the court to the question whether a company is unable to pay its debts.

(5) The directors’ statutory declaration shall be in the prescribed form and contain such information with respect to the nature of the company’s business as may be so prescribed, and shall in addition have annexed to it a report addressed to the directors by the company’s auditors stating that—

(a) they have inquired into the company’s state of affairs; and

(b) the amount specified in the declaration as the permissible capital payment for the shares in question is in their view properly determined in accordance with sections 45M and 45N; and

(c) they are not aware of anything to indicate that the opinion expressed by the directors in the declaration as to any of the matters mentioned in subsection (3) is unreasonable in all the circumstances.

(6) A director who makes a declaration under this section without having reasonable grounds for the opinion expressed in the declaration is liable on conviction on indictment to imprisonment or a fine, of both.

379P

45Q Procedure for special resolution under section 45P

(1) The resolution required by section 45P shall be passed on, or within the week immediately following, the date on which the directors make the statutory declaration required by that section; and the payment out of capital shall be made no earlier than 5  nor more than 7 weeks after the date of the resolution.

(2) The resolution is ineffective if any member of the company holding shares to which the resolution relates exercises the voting rights carried by any of those shares in voting on the resolution and the resolution would not have been passed if he had not done so.

(3) For purposes of subsection (2), a member who holds such shares is to be regarded as exercising the voting rights carried by them in voting on the resolution not only if he votes in respect of them on a poll on the question whether the resolution shall be passed, but also if he votes on the resolution otherwise than on a poll, and, notwithstanding anything in a company’s articles, any member of the company may demand a poll on that question.

(4) The resolution is ineffective unless the statutory declaration and auditors’ report required by the section are available for inspection by members of the company at the meeting at which the resolution is passed.

(5) For purposes of this section a vote and a demand for a poll by a person as proxy for a member are the same (respectively) as a vote and demand by the member.

379Q

45R Publicity for proposed payment out of capital

(1) Within the week immediately following the date of the resolution for payment out of capital the company shall cause to be published in the Gazette a notice—

(a) stating that the company has approved a payment out of capital for the purpose of acquiring its own shares by redemption or purchase or both (as the case may be);

(b) specifying the amount of the permissible capital payment for the shares in question and the date of the resolution under section 45P;

(c) stating that the statutory declaration of the directors and the auditors’ report required by that section are available for inspection at the company’s registered office; and

(d) stating that any creditor of the company may at any time within the 5 weeks immediately following the date of the resolution for payment out of capital apply to the court under section 45S for an order prohibiting the payment.

(2) Within the week immediately following the date of the resolution the company shall also either cause a notice to the same effect as that required by subsection (1) to be published in a newspaper circulating  in Gibraltar or give notice in writing to that effect to each of its creditors.

(3) References in subsections (4) to (7) to the first notice date are to the day on which the company first publishes the notice required by subsection (1) or first publishes or gives the notice required by subsection (2) (whichever is the earlier).

(4) Not later than the first notice date the company shall deliver to the Registrar a copy of the statutory declaration of the directors and of the auditors’ report required by section 45P.

(5) The statutory declaration and auditors’ report—

(a) shall be kept at the company’s registered office throughout the period beginning with the first notice date and ending 5 weeks after the date of the resolution for payment out of capital; and

(b) shall during business hours on any day during that period be open to the inspection of any member or creditor of the company without charge.

(6) If an inspection required under subsection (5) is refused the company and every officer of it who is in default is liable to a fine and, for continued contravention, to a daily default fine.

(7) In the case of refusal of an inspection required under subsection (5) of a declaration or report, the court may by order compel an immediate inspection of that declaration or report.

379R

45S Objections by company’s members or creditors

(1) Where a private company passes a special resolution approving for purposes of section 45M any payment out of capital for the redemption or purchase of any of its shares—

(a) any member of the company other than one who consented to or voted in favour of the resolution; and

(b) any creditor of the company,

may within 5 weeks of the date on which the resolution was passed apply to the court for cancellation of the resolution.

(2) The application may be made on behalf of the persons entitled to make it by such one or more of their number as they may appoint in writing for the purpose.

(3) If an application is made, the company shall—

(a) forthwith give notice in the prescribed form of that fact to the Registrar, and

(b) within 15 days from the making of any order of the court on the hearing of the application, or such longer period as the court may by order direct, deliver an office copy of the order to the Registrar.

(4) A company which fails to comply with subsection (3), and any officer of it who is in default, is liable to a fine and for continued contravention, to a daily default fine.

379S

45T Powers of court on application under section 45S

(1) On the hearing of an application under section 45S the court may, if it thinks fit, adjourn the proceedings in order that an arrangement may be made to the court’s satisfaction for the purchase of the interest of dissentient member or for the protection of dissentient creditors (as the case may be), and the court may give such directions and make such orders as it thinks expedient for facilitating or carrying into effect any such arrangement.

(2) Without prejudice to its powers under subsection (1), the court shall make an order on such terms and conditions as it thinks fit either confirming or cancelling the resolution, and, if the court confirms the resolution, it may in particular by order alter or extend any date or period of time specified in the resolution or in any provision in section 45A to 45U which applies to the redemption or purchase of shares to which the resolution refers.

(3) The court’s order may, if the court thinks fit, provide for the purchase by the company of the shares of any of its members and for the reduction accordingly of the company’s capital, and may make such alterations in the company’s memorandum and articles as may be required in consequence of that provision.

(4) If the court’s order requires the company not to make any, or any specified, alteration in its memorandum or articles, the company has not then power without leave of the court to make any such alteration in breach of the requirement.

(5) An alteration in the memorandum or articles made by virtue of an order under this section, if not made by resolution of the company, is of the same effect as if duly made by resolution, and this Ordinance applies accordingly to the memorandum or articles as so altered.

379T

45U Effect of company’s failure to redeem or purchase

(1) This section has effect where a company has—

(a) issued shares an terms that they are or are liable to be redeemed; or

(b) agreed to purchase any of its own shares.

(2) The company is not liable in damages in respect of any failure on its part to redeem or purchase any of the shares.

(3) Subsection (2) is without prejudice to any right of the holder of the shares other than his right to sue the company for damages in respect of its failure, but the court shall not grant an order for specific performance of the terms of redemption or purchase if the company shows that it is unable to meet the costs of redeeming or purchasing the shares in question out of distributable profits.

(4) If the company is wound up and at the commencement of the winding up any of the shares have not been redeemed or purchased, the terms of  redemption or purchase may be enforced against the company, and when shares are redeemed or purchased under this subsection they are treated as cancelled.

(5) Subsection (4) does not apply if—

(a) the terms provided for the redemption or purchase to take place at a date later than that of the commencement of the winding up; or

(b) during the period beginning with the date on which the redemption or purchase was to have taken place and ending with the commencement of the winding up of the company could not at any time have lawfully made a distribution equal in value to the price at which the shares were to have been redeemed or purchased.

(6) There shall be paid in priority to any amount which the company is liable under subsection (4) to pay in respect of any shares—

(a) all other debts and liabilities of the company (other than any due to members in their character as such);

(b) if other shares carry rights (whether as to capital or as to income) which are preferred to the rights as to capital attaching to the first mentioned shares, any amount due in satisfaction of those preferred rights,

but, subject to that, any such amount shall be paid in priority to any amounts due to members in satisfaction of their rights (whether as to capital or income) as members.

379U

45V Definitions for sections 45A to 45T

In sections 45A to 45U—

“distributable profits”, in relation to the making of any payment by a company, means those profits out of which it could lawfully make a distribution equal in value to the payment;

“permissible capital payment” means the payment permitted by section 45M;

“prescribed form” means the form prescribed by the Registrar from time to time,

and references to payment out of capital are to be construed in accordance with section 45M.

379V

Issue of Redeemable & Preference Shares and Shares at Discount

46 Power to issue redeemable preference shares

(1) Subject to the provisions of this section, a company limited by shares or limited by guarantee and having a share capital, may, if so authorised by its articles, issue preference shares which are, or are liable, to be redeemed at the option of the company or the shareholder:

Provided that—

(i) no such shares shall be redeemed except out of profits of the company which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the purposes of the redemption;

(ii) no such shares shall be redeemed unless they are fully paid, and the terms of redemption must provide for payment on redemption;

(iii) where any such shares are  redeemed otherwise than out of the proceeds of a fresh issue, there shall out of profits which would otherwise have been available for dividend be transferred to a reserve fund, to be called “the capital redemption reserve fund”, a sum equal to the nominal amount of the shares redeemed, and the provisions of this Ordinance relating to the reduction of the share capital of a company, shall, except as provided in this section, apply as if the capital redemption reserve fund were paid-up share capital of the company;

(iv) the premium, if any, payable on redemption, shall have been provided for out of the profits of the company, which would otherwise have been available for dividend, or out of the company’s share premium account, before the shares are redeemed.

(2) There shall be included in every balance sheet of a company which has issued redeemable preference shares a statement specifying what part of the issued capital of the company consists of such shares and the date on or before which those shares are, or are to be liable, to be redeemed.

If a company fails to comply with the provision of this subsection, the company and every officer of the company who is in default shall be guilty of an offence and liable on summary conviction to a fine at level 3 on the standard scale.

(3) Subject to the provisions of this section, the redemption of preference shares may be effected on such terms and in such manner as may be provided by the company’s articles.

(4) Shares redeemed under this section shall be treated as cancelled on redemption, and the amount of the company’s issued share capital shall be diminished by the nominal value of those shares accordingly; but the redemption of shares by a company is not to be taken as reducing the amount of the company’s authorised share capital.

(5) Where in pursuance of this section a company has redeemed or is about to redeem any preference shares, it shall have power to issue shares up to the nominal amount of the shares redeemed or to be redeemed as if those shares had never been issued, and accordingly the share capital of the company shall not for the purposes of any enactments relating to stamp duty be deemed to be increased by the issue of shares in pursuance of this subsection:

Provided that, where the new shares are issued before the redemption of the old shares, the new shares shall not, so far as relates to stamp duty, be deemed to have been issued in pursuance of this subsection unless the old shares are redeemed within one month after the issue of the new shares.

(6) Where new shares have been issued in pursuance of subsection (5) of this section, the capital redemption reserve fund may, notwithstanding anything in this section, be applied by the company in paying up unissued shares of the company to be allotted to members of the company as fully paid bonus shares.

380

46A Application of premiums received on issue of shares

(1) Where a company on or after the commencement of this section issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate  amount or value of the premiums on those shares shall be transferred to an account to be called “the share premium account”, and the provisions of this Ordinance relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the share premium account were paid up share capital of the company.

(2) The share premium account may, notwithstanding anything in the foregoing subsection, be applied by the company in paying up unissued shares of the company to be allotted to members of the company as fully paid bonus shares, in writing off—

(a) the preliminary expenses of the company; or

(b) the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company;

or in providing for the premium payable on redemption of any redeemable preference shares or of any debentures of the company.

(3) Where a company has before the commencement of this section issued any shares at a premium, this section shall apply as if the shares had been issued after the commencement of this section:

Provided that any part of the premiums which has been so applied that it does not at the commencement of this section form an identifiable part of the company’s reserves shall be disregarded in determining the sum to be included in the share premium account.

380A

47 Power to issue shares at a discount

(1) Subject as provided in this section, it shall be lawful for a company to issue at a discount shares in the company of a class already issued:

Provided that—

(a) the issue of the shares at a discount must be authorized by resolution passed in general meeting of the company, and must be sanctioned by the Registrar of the  court;

(b) the resolution must specify the maximum rate of discount at which the shares are to be issued;

(c) not less than one year must, at the date of the issue, have elapsed since the date on which the company was entitled to commence business;

(d) the shares to be issued at a discount must be issued within one month after the date on which the issue is sanctioned by the court or within such extended time as the Registrar of the court may allow.

(2) Where a company has passed a resolution authorizing the issue of shares at a discount, it may apply to the court for an order sanctioning the issue, and on any such application the Registrar of the court, if, having regard to all the circumstances of the case, he thinks proper so to do, may make an order sanctioning the issue on such terms and conditions as he thinks fit.

(3) Every prospectus relating to the issue of the shares and every balance sheet issued by the company subsequently to the issue of the shares must contain particulars of the discount allowed on the issue of the shares or of so much of that discount as has not been written off at the date of the issue of the document in question. If default is made in complying with this subsection, the company and every officer of the company who is in default are guilty of offences and are liable on summary conviction to default fines.

(4) Notwithstanding subsection (1), shares in a company shall not be allotted at a discount.1

(5) Where shares are allotted in contravention of subsection (4) the allottee shall be liable to pay the company an amount equal to the amount of the discount and shall be liable to pay interest thereon at the appropriate rate.

Notes

1 Subsection (4) amended by Ordinance No 20 of 1998 s 7. Not yet in force.

381

Miscellaneous Provisions as to Share Capital

48 Power of company to arrange for different amounts being paid on shares

A company, if so authorized by its articles, may do any one or more of the following things:—

(a) make arrangements on the issue of shares for a difference between the shareholders in the amounts and times of payment of calls on their shares;

(b) accept from any member the whole or a part of the amount remaining unpaid on any shares held by him, although no part of that amount has been called up;

(c) pay dividend in proportion to the amount paid up on each share where a larger amount is paid up on some shares than on others.

382

49 Reserve liability of limited company

A limited company may by special resolution determine that any portion of its share capital which has not been already called up shall not be capable of being called up, except in the event and for the purposes of the company being wound up, and thereupon that portion of its share capital shall not be capable of being called up except in the event and for the purposes aforesaid.

383

50 Power of company limited by shares to alter its share capital

(1) A company limited by shares or a company limited by guarantee and having a share capital, if so authorized by its articles, may alter the conditions of its memorandum as follows, that is to say, it may—

(a) increase its share capital by new shares of such amount as it thinks expedient;

(b) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares;

(c) convert all or any of its paid-up shares into stock, and reconvert that stock into paid-up shares of any denomination;

(d) subdivide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum, so, however, that in the sub-division the proportion between the amount paid and the amount (if any) unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived;

(e) cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled.

(2) The powers conferred by this section must be exercised by the company in general meeting.

(3) A cancellation of shares in pursuance of this section shall not be deemed to be a reduction of share capital within the meaning of this Ordinance.

384

51 Notice to Registrar of consolidation of share capital and conversion of shares into stock

(1) If a company having a share capital has—

(a) consolidated and divided its share capital into shares of larger amount than its existing shares; or

(b) converted any shares into stock; or

(c) re-converted stock into shares; or

(d) subdivided its shares or any of them; or

(e) redeemed any redeemable preference shares; or

(f) cancelled any shares, otherwise than in connection with a reduction of share capital under section 55,

it shall within one month after so doing give notice thereof to the Registrar specifying, as the case may be, the shares consolidated, divided, converted, subdivided, redeemed or cancelled, or the stock re-converted.

(2) If default is made in complying with this section, the company and every officer of the company who is in default are guilty of offences and are liable on summary conviction to default fines.

385

52 Notice of increase of share capital

(1) Where a company having a share capital, whether its shares have or have not been converted into stock, has increased its share capital beyond the registered capital, it shall within fifteen days after the passing of the resolution authorizing the increase, give to the Registrar notice of the increase, and the Registrar shall record the increase.

(2) The notice to be given shall include such particulars as may be prescribed with respect to the classes of shares affected and the conditions subject to which the new shares have been or are to be issued, and there shall be forwarded to the Registrar together with the notice a printed copy of the resolution authorizing the increase.

(3) If default is made in complying with this section, the company and every officer of the company who is in default are guilty of offences and are liable on summary conviction to default fines.