in advance. So far as PLCs are concerned (but not pri-
vate companies), the resolution must specify the dura-
tion of authority to make the contract being a period not
longer than 18 months.
Section 694 allows the company to make a contract
for an off-market purchase conditional upon its approval
by the shareholders.
2 The special resolution is not effective unless the draft
contract is made available for inspection by the mem-
bers at the registered office or an alternative place to be
specified in regulations during the 15 days immediately
preceding the meeting and at the meeting. Where the
written resolution procedure is used there will not, of
course, be a meeting and so the draft contract will have
to be circulated to the members with their copy of the
resolution for signature. This applies wherever in this
text it is stated that documents must be available at
a meeting.
3 The special resolution is invalid if passed by the votes
of the member whose shares are being purchased. Thus
there must be sufficient other shareholders’ votes to give
the necessary majority of 75 per cent of those voting in
person or by proxy. The member whose shares are being
purchased can vote other shares he may have which are
not being purchased on a poll but he cannot in any event
vote on a show of hands.
Off-market contingent contracts
All companies may make contingent purchase contracts.
These are contracts by the company to buy its own shares
on the happening of a future event, for example a con-
tract to buy the shares of an employee on retirement.
This is permitted if the procedures for an off-market
purchase set out above are followed.
It should be noted that the company cannot assign
its right to buy the shares to someone else. This is to
prevent a market developing in contingent purchase
contracts.
The company cannot release, i.e. give up, its right to
buy except by authorisation of a special resolution of the
members.
Purchase of own shares: miscellaneous
provisions
When a company has purchased its own shares it
must within 28 days disclose the fact to the Registrar,
giving the number and nominal value of the shares pur-
chased and the date they were delivered to the company.
Furthermore, the contract of purchase must be kept at
the registered office for ten years and can be inspected
by members. In a PLC it can be inspected also by any
other person without charge.
If a company fails to purchase the shares when it has
agreed to do so there is no action by the member for
damages. However, he can bring an action for specific
performance but the court will not make such an order
unless the company can pay for the shares from its dis-
tributable profits.
Payment for shares purchased by the company (or
redeemed by it) must be made at the time of purchase
(or redemption). A creditor cannot be created following
the relevant transaction. Until case law came along it
had been assumed that a payment in cash was required.
However, the matter was considered in BDG Roof-Bond
Ltdv Douglas(2000) where the court found it accept-
able that a payment for shares by the company was made
by some cash plus a piece of property and a car owned
by the company.Purchase (or redemption) partly from capital –
private companies only
This provision is intended for private companies who
have some distributable profits but these are not enough
to purchase or redeem the shares and the company is
either unwilling or unable to raise money from a fresh
issue of shares. In such a case it can purchase or redeem
its shares partly from capital.
It is in effect an easier procedure for private com-
panies to reduce their share capital or to satisfy the claims
of a retiring member or the estate of a deceased member
in respect of shares in the company which might not be
easily saleable elsewhere.
As regards the conditions, there is now no require-
ment for prior authorisation in the articles. The ‘per-
missible capital payment’ (PCP) is the shortfall after
taking into account distributable profits or the proceeds
of a fresh issue of shares, which the company must
utilise first. If there are no distributable profits or pro-
ceeds of a fresh issue of shares, there can be no purchase
or redemption wholly from capital. This restricts the
advantages of the section to some extent.
There must be a statutory declaration of solvency by
the directors. This says that the company will be solvent
immediately after making the purchase (or redemption)
and for one year afterwards. The statutory declara-
tion states the PCP and the declaration itself is based
on accounts prepared within three months before thePart 2Business organisations