13th March 2013
The Government has published its response to the consultation on share buy backs following the Nuttall Report on Employee Ownership which was released in July 2012.
The Nuttall Report identified that the current rules on the buyback of shares by companies from departing employees can be overly burdensome.
The Government accepted the recommendation in the Report that it should consult on the operation of internal share markets. In particular, it invited views on:
- the extent to which the company law rules on buy backs were an impediment to employee ownership;
- changes to the rules on the authorisation and financing of share buy backs and the holding of shares in treasury; and
- the costs of compliance with existing regulations and potential benefits of being able to hold treasury shares for subsequent re-issue (rather than having to cancel these shares and issue new ones).
In the light of the consultation, the Government has announced that it intends to:
- lower the shareholder approval threshold by permitting share buybacks by private companies to be authorised by ordinary, rather than special, resolution (so a simple majority will be sufficient);
- permit private limited companies to authorise in advance multiple share buyback contracts, but only if connected to an employees’ share scheme.
- allow private limited companies to pay for bought back shares in instalments if the buyback is in connection with an employees’ share scheme. The Government expects that the use of instalments should not be the default position for share buybacks and does not therefore intend to impose specific terms, such as time limits;
- allow private companies to finance buybacks in connection with an employees’ share scheme out of capital, subject to approval by special resolution supported by a solvency statement (this is a significant simplification);
- permit private limited companies to buy back small numbers of shares (up to the lower of £15,000 or 5% of share capital in any financial year) where the company’s articles so allow and without having to specify that the cash is from distributable reserves (and without this being treated as having been paid out of capital). A special resolution will be required if there is no relevant enabling provision in the articles; and
- allow private companies and unlisted public companies to hold shares in treasury in the same way as certain public companies already do.
The Government intends to amend the Companies Act 2006 by secondary legislation to implement the proposals, on the understanding that the changes should come into force in the course of 2013.
It also plans to conduct a review three years after enactment. This review will consider, among other things, whether:
- allowing share buybacks by ordinary resolutions has had any adverse consequences
- short notice resolutions should be allowed;
- payment by instalment disadvantages departing shareholders and creditors; and
- there might be any advantage in allowing shares bought back out of capital or from a fresh issue to be held as treasury shares.
The full text of the Government’s Response can be found at: