Chapter 6CompaniesUnder s 549 private companies may elect by an elect-
ive resolution (see later in this chapter) that the author-
ity given to the directors to allot shares can be given for
an indefinite period or a fixed period of longer than five
years. The fixed period is renewable, and further renew-
able, by the company in general meeting. The authority
may also be varied or revoked by the company in general
meeting. The authority must in all cases state the max-
imum number of relevant securities that may be allotted,
e.g. the whole of the company’s unissued share capital.
Similar permission to allot debenture stock is not
required unless the debentures can, by the terms of
issue, be converted at some time in the future to shares.
Under s 561, when public and private companies wish
to offer shares where the members have given them
power under s 549, they must offer them to existing
members first in proportion to their present holdings,
e.g. one new for three existing shares, or whatever for-
mula covers the number of shares being issued.
This requirement to issue to existing members may
be excluded. A private companycan add to its articles
by a special (or written) resolution a clause stating that
these pre-emption rights, as they are called, shall not
apply to the company and this will last unless and until
the articles are altered by special resolution or the com-
pany ceases to be a private company. It may in fact be
permanent.
A public company(and a private company which
does not adopt the above approach) can disapply the
pre-emption rights by special (or, in the case of a private
company, written) resolution of its members which
may be for a particular issue or a general disapplication
which can only be for five years and then must be
renewed. Alternatively, a public company and a private
company may disapply pre-emption rights temporarily
by a provision in the articles, but this must be renewed
every five years and is not the permanent alteration
referred to above.
The provisions of ss 549 and 561 prevent the directors
from using the power of allotment to issue shares to
persons favourable to themselves in order to keep their
position on the board and thus their control of the com-
pany. This did happen in the past but now the consent
of the members is required, with the exception just
considered, both to allot the shares in the first place
and then to issue them outside to persons other than
existing members.
Even in a private company which has given the dir-
ectors a power of allotment for an indefinite period, or167It is because the security may be lost that the law
allows a secured creditor to register the charge himself
and to claim the costs from the company (s 860).
However, in practice, banks, which commonly lend
money or give overdraft facilities to companies on a
secured debenture, get the signatures of the appropriate
officers of the company on the document registering the
charge and then post it to the Registrar in Cardiff them-
selves. Thus, the company registers the charge but the
bank ensures that this is done.
Failure to register the charge in the company’s regis-
ter leads to a default fine on the company’s officers at
fault, but the charge is still valid.
There are also provisions allowing the court to approve
the registration of particulars of a charge delivered after
21 days. The charge will be valid from the date of its regis-
tration but has no priority over persons who took charges
over the company’s property while it was not registered.
Releasing the charge
Under s 872 and on application being made by the
company to the Registrar of Companies that the charge
has been redeemed or released the Registrar will enter
what is called a memorandum of satisfaction on the
Companies House register of charges. It is in the com-
pany’s interests to clear the register by an entry of satis-
faction in case of further borrowing.
The issue of shares and
debenturesGenerally
Under s 549 the directors of public and private com-
panies (in this case with more than one class of shares)
cannot issue shares without the express authority of the
members. Directors of private companies with only one
class of shares are able to allot them without shareholder
approval unless the articles forbid this.
Authority is usually given by the members by ordinary
resolution at a general meeting of the company. The
authority may be given for a particular allotment of
shares or it may be a general power, though if it is it can
be given only for a maximum period of five years and
then it must be renewed. The authority once given may
be taken away or varied by the members by ordinary
resolution insofar as it has not been exercised.