The Gazette 1979

MARCH 1979

GAZETTE

The Companies Act 1963 - Section 60 — An Analysis

by

BRIAN J. GALLAGHER

at general meetings of the company have voted in favour of the special resolution, then die Company can so proceed. The net effect of subsection (2) and the supplementary subsections is to allow companies, expecially those involved in take overs and mergers, who wish to furnish such assistance to do so without running foul of the general prohibitions contained in subsection (1). Moreover the conditions ensure that any assistance which is given must have the general support of the shareholders of the company which has to have been declared solvent by the responsible officers. The point of the conditions is not to hamper the free exercise of entrepreneurial acumen but to protect shareholders and creditors from the unknown and unseen risks inherent in any such transaction. Subsection (12) is designed and does give protection from the rigours of the main rule in those actions of the company which otherwise would or might be unlawful, yet which in themselves would be unobjectionable. The payment of dividends properly declared or the discharge of liabilities lawfully incurred are not to be prohibited. This is perhaps an over-cautious approach yet the terms of subsection (1) are wide and strict. It is perhaps those exceptions enacted by subsection (13) that will in any future litigation cause the greatest problems. The subsection contains three:— (1) the first provision allows companies whose ordinary business is the lending of money to give such assistance where it is part of its ordinary business so to do. This proviso is of course designed to protect those institutions whose very business must put them in danger of contravening Section 60; for example the commercial and merchant banks. (2) the second and third provisos can be dealt with together but it must be noted that they are different and in no way the same exception. Brietly they allow companies to make arrangements for the benefit of employees by way of what are more commonly known as profit sharing schemes. The terms of these two provisos are contained in Section 60 (13) (b) and (c) and are as follows: "(b) the provision by a company in accordance with any scheme for the time being in force of money for the purchase of, or subscription for, fully paid shares in the company or its holding company, being a purchase or subscription of or for shares to be held by or for the benefit of The editor and the editorial board regret the large number of typographical errors in the January/February 1979 issue of the Gazette. These were due to circumstances of a technical nature beyond our control.

Section 60, which is an apparently straightforward provision making unlawful the giving of financial assistance by a company for the purchase of its own shares, subject to some exceptions, is perhaps one part of the Act of 1963 which might receive a greater degree of judicial attention that it has hitherto received. The general provision is as follows:— "Subject to subsections (2) (12) and (13) it shall not be lawful for a company to give, whether directly or indirectly, and whether by means of a loan, guarantee the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the company or, where the company is a subsidiary company, in its holding company". Section 60 is derived in part from what is now Section 54 °f the English Act of 1948 and the report of the Company Law Reform Committee. As indicated it prohibits the giving of assistance by a Company in the purchase of its own shares subject to exceptions. It is the exceptions, their scope and inter- relation which gives rise to confusion. These exceptions a r e contained in subsections (2) (12) and (13). Subsections (3) to (11) are mainly concerned with the administration of the rule contained in (2). Subsection (2) allows financial assistance to be given by a company if it is given under the authority of a special resolution of the company passed not more than 12 months previously; that is to say when at least 75% of the members have agreed to the company giving such assistance. This is not all however and for the exceptions to be acceptable the company must furnish to the members and to the Registrar of Companies with the notice of the meeting at which the special resolution is to be put a copy a statutory declaration made by the directors stating:— (i) the form which the assistance is to take (ii) the persons to whom such assistance is to be given (iii) the purpose for which the company intends to use the assistance a nd, most importantly, (iv) that the declarants have made a full inquiry into the afFairs of the company and that having done so they have formed the opinion that the company, having carried out the transaction whereby such assistance is to be given will be able to pay its debts in full as they become due. Even when a company has complied with these conditions rt cannot proceed to give assistance until 30 days have Passed in order that minority shareholders who are not in favour of the scheme might apply to the High Court to have the special resolution cancelled. Where, however, all °f the members of the Company who are entitled to vote

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