481

Part IVA: Distribution of Profits and Assets

147A Certain distributions prohibited1

(1) A public company may not make a distribution except out of funds available for the purpose.

(2) In this Part “distribution” means every description of distribution of a company’s assets to its members, whether by cash or otherwise, except distribution by way of—

(a) an issue of shares as fully or partly paid bonus shares;

(b) the redemption of any of the company’s own shares out of capital (including the proceeds of any issue of shares) or out of unrealised profits;

(c) the reduction of share capital by extinguishing or reducing the liability of any of the members of any of the company’s shares in respect of share capital not paid up, or by paying-off paid-up share capital; and

(d) a distribution of assets to members of the company on its winding up.

(3) For the purposes of this Part, a public company’s profits available for distribution are its accumulated realised profits, so far as not previously utilised by distribution or capitalisation, less its accumulated realised losses, so far as not previously written off in a reduction or reorganisation of capital duly made.

Notes

1 S 147A inserted by Ordinance No 20 of 1998 s 12. Not yet in force.

481A

147B Further provisions as to distributions1

(1) A public company may only make a distribution at any time—

(a) if at that time the amount of its net assets is not less than the total of its called-up share capital and its undistributable reserves: and

(b) if, and to the extent that, the distribution does not reduce the amount of those assets to less than the total

(2) A public company may not include any uncalled share capital as an asset in any accounts relevant for the purposes of this section.

(3)

(a) Subject to the following provisions of this section, an investment company may also make a distribution at any time out of its accumulated realised revenue profits, so far as not previously utilised by distribution or capitalisation, less its accumulated revenue losses (whether realised or unrealised) so far as not previously written off in a reduction or reorganisation of capital duly made—

(i) if at that time the amount of its assets is at least equal to one and a half times the total of its liabilities: and

(ii) if, and to the extent that, the distribution does not reduce the amount to less than one and a half times that total.

(b) In subsection (3)(a) “liabilities” includes any provision except to the extent that it is taken into account for the purposes of that subsection in calculating the value of any assets of the company in question.

(c) In this section “investment company” means a public company which has given notice (which has not been revoked) to the Registrar of its intention to carry on business as an investment company (the “requisite notice”) and has since the date of that notice complied with the following requirements—

(i) that the business of the company consists of investing its funds mainly in securities, with she aim of spreading investment risk and giving members of the company the benefit of the results of the management of its funds;

(ii) that none of the company’s holdings in companies (other than companies which are for the time being investment companies) represents more than 10 per cent by value of the investing company’s investment;

(iii) that the distribution of the company’s capital profits is prohibited by its memorandum or articles of association; and

(iv) that the company has not retained, otherwise than in compliance with this Part, in respect of any accounting reference period more than 15% of the income it derives from securities.

(d) An investment company may not make a distribution by virtue of subsection (3)(a) unless during the period beginning with the first day of the accounting reference period in which the proposed distribution is to be made or, where the distribution is proposed to be made during the company’s first accounting reference period, the first day of that period and ending with the date of the distribution, it has not—

(i) distributed any of its capital profits; or

(ii) applied any unrealised profits or any capital profits (realised or unrealised) in paying up debentures or any amounts unpaid on any of its issued shares.

(e) An investment company may not make a distribution by virtue of subsection (3)(a) unless the company gets the requisite notice before the beginning of the period referred to in subsection (3)(d.)

(f) A notice by a company to the Registrar under subsection (3)(c) may be revoked at any time by she company on giving notice to the Registrar that is no longer wishes so be an investment company within the meaning of this section, and. on giving that notice the company shall cease to be such an investment

(4)

(a) Where an insurance Company carries on a long-term business, any amount included in the relevant part of the balance sheet is to that part of the balance sheet which represents a surplus in the fund or funds maintained by it in respect of that business and which has not been allocated so policy holders an accordance with section 86 of the Insurance Companies Ordinance and any deficit in that fund or those funds shall be respectively treated for the purposes of this Part as a realised profit and a realised toss, and, subject to this, any profits or loss arising in that business will be left out of account for those purposes.

(b) In paragraph(a)—

(i) the reference to a surplus in any fund of an insurance company is a reference to an excess of the assets representing that fund or those funds over the liabilities of the company attributable to its long-term business, as shown by an actuarial investigation;

(ii) the reference to the relevant part of the balance sheet is to that part of the balance sheet which represents Liabilities item A V (profit and loss account) in the balance sheet format set out in section B of Chapter 1 of Schedule 1 to the Insurance Companies (Accounts Directive) Regulations 1997; and

(iii) the reference to a deficit in any such fund or funds is a reference to the excess of those liabilities over those assets, as so shown.

(5) In this Part—

“actuarial investigation” means an investigation to which section 78 of the Insurance Companies Ordinance 1987 (periodic actuarial investigation of insurer with long-term business) applies or which is made in pursuance of a requirement imposed by section 82 of that Ordinance (power for Commissioner to order actuarial investigation);

“insurance company” means an insurance company to which that Ordinance applies;

“long-term business” has the same meaning as in that Ordinance;

“relevant capitalisation” is any capitalisation except a transfer of profits of the company to its capital redemption reserve; and

“undistributable reserves” means—

(a) the share premium accounts;

(b) the capital redemption reserve;

(c) the amount by which the company’s unrealised profits, so far as not previously utilised by a relevant capitalisation exceed its accumulated unrealised losses (so far as not previously written off in a reduction or reorganisation of capital duly made); and

(d) any other reserve which the company is prohibited from distributing by any provision of this Ordinance, or by its memorandum or articles.

Notes

1 S 147B inserted by Ordinance No 20 of 1998 s 12. Not yet in force.

481B

147C Consequences of unlawful distribution1

(1) Where a distribution, or part of one, made by a public company to one of its members is made in contravention of this Part and, at the time of the distribution, that member knows or has reasonable grounds to believe that it is so made, he is liable to repay it (or that part of it as the case may be) to the company or (in the case of a distribution made otherwise than in cash) to pay the company a sum equal to the value of the distribution or part at that time.

(2) Subsection (1) is without prejudice to any obligation imposed apart from this section on a member of a company to repay a distribution unlawfully made to him but this section does not apply in relation to—

(a) financial assistance given by a company in contravention of section 45; or

(b) any payment made by the company in respect of the redemption by the company of shares in itself.

Notes

1 S 147C inserted by Ordinance No 20 of 1998 s 12. Not yet in force.

481C

147D Amount of distribution which may be made1

(1) The amount of a distribution which may be made without contravening section 147A or 147B shall be determined by reference to the following items as stated in the company’s last annual accounts or interim accounts—

(a) profits, losses, assets and liabilities;

(b) provisions for depreciation, diminution in value of assets and any amounts written off by way of such provisions; and

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

(2) In relation to a proposed distribution by a public company the interim accounts must have been properly prepared or have been so prepared subject only to matters which are not material, for determining by reference to items mentioned in subsection (1), whether the distribution would contravene section 147A or 147B.

(3) In this section—

“interim accounts” means those accounts necessary to enable a reasonable judgment to be made as to the amounts mentioned in paragraphs (a) to (c) of subsection (1) where a distribution would contravene section 147A or 147B if reference were made only to the company’s last annual accounts;

“properly prepared” in relation to interim accounts means that the accounts must comply with any requirements imposed by or under this Ordinance and any balance sheet comprised in the accounts must have been signed in accordance with section 121.

Notes

1 S 147D inserted by Ordinance No 20 of 1998 s 12. Not yet in force.