10.2 Cash Payments by the Company 341Core provisions. The Second Company Law Directive sets out the core rules on
redeemable shares for public limited-liability companies:^70
- Member States have a right but not a duty to permit the issuing of redeemable
shares. - If they do, the conditions set out in Article 39 of the Second Company Law Di-
rective must be complied with. - In particular, redemption must be authorised by the company’s statutes or in-
strument of incorporation before the redeemable shares are subscribed for. - The shares must be fully paid up.
- The terms and the manner of redemption must be laid down in the company’s
statutes or instrument of incorporation. - Redemption can be only effected by using sums available for distribution to
shareholders or the proceeds of a new issue made with a view to effecting such
redemption. - An amount equal to the nominal value or, in the absence thereof, to the ac-
countable par of all the redeemed shares must be included in a reserve which
cannot be distributed to shareholders. It may be used only for the purpose of in-
creasing the subscribed capital by the capitalisation of reserves. However, that
constraint will not apply, where a new issue is made for the purpose of effect-
ing the redemption and the redemption is effected by using the proceeds of the
new issue. Furthermore, funds can be distributed to shareholders in the event of
a reduction in the subscribed capital.
Case: Scania. The use of redeemable shares can be illustrated by the case of
Scania AB, a Swedish manufacturing company.
In 2008, Scania used redeemable shares for tax reasons as follows: (1) Instead of making
dividend payments from unrestricted equity, Scania distributed funds to shareholders from
unrestricted equity through the withdrawal of redemption shares. (2) Scania had A shares
and B shares. The Annual General Meeting (AGM) held on 5 May 2008 approved a divi-
dend of SEK 5.00 per share. (3) The AGM also approved the implementation of a 2:1 split.
As a result of the split, each share was thus being divided into two shares of its original
class (A or B). (4) The reason for implementing the split was that one of the new shares
was to be redeemed through a mandatory withdrawal. The shares to be redeemed were
those labelled as redemption shares. (5) An amount of SEK 7.50 was paid to shareholders
for each redemption share, of which SEK 1.25 was transferred from share capital. SEK 6.25
constituted a premium and was transferred from unrestricted equity. (6) This meant that
share capital was reduced from SEK 2 billion to SEK 1 billion. (7) However, a simultane-
ous bonus issue approved by the general meeting restored restricted equity and share capital
to their original levels before the reduction in share capital. The bonus issue thus increased
the company’s share capital from SEK 1 billion to SEK 2 billion. The capital that was used
to increase the share capital was transferred from unrestricted equity. No new shares were
issued.
(^70) Article 39 of Directive 77/91/EEC (Second Company Law Directive).