The Gazette 1983

N O V E M B E R

1983

GAZETTE

Companies (Amendment) Act, 1983

Part 2

by William Earley, Solicitor

T HIS is the second of what will now be three articles on the Companies (Amendment) Act, 1983, and deals with portion of Part III of the Act dealing with the capital of a company. The balance of Part III and the rest of the Act will be dealt with in the final Article. Issue of Share Capital Section 20 of the Act provides that directors of either a private company or a public company (but subject to subsection (9) discussed below) may not exercise any power of the company to allot "relevant securities" unless they are given an express authority to do so. The purpose of this part of the Act is to give greater control to share- holders over the issue of share capital and the position is significantly different from that under the previous legislation pursuant to which a company's Articles could give the directors unrestricted authority (subject to existing provisions relating to issue of shares to the public) to allot or grant options over the share capital of a company. "Relevant securities" are defined in Section 20 sub- section (10) as all shares and rights to subscribe for or convert into shares other than subscribers' shares and shares allotted under an employee's share scheme. "Employee's Share Scheme" is defined in Section 2 of the Act and means any scheme for the time being in force, in accordance with which the company encourages or facilitates the holding of shares or debentures in the company or its holding company by or for the benefit of employees or former employees of the company or any subsidiary of thccompany including any person who is or was a director holding a salaried employment or office in the company or any subsidiary of the company. (It should be noted that this definition is somewhat different from the corresponding English Act: c.f. Section 87 (1) U.K. Act of 1980). The authority must be given either under the company's Articles or by an ordinary resolution of the company and must state the maximum amount of the relevant securities that may be issued under it and the date on which it is to expire, which must not be later than five years after the date of incorporation of the company, if the authority is in the original Articles, or the date of the resolution in any other case. The authority may be a general authority in respect of all relevant securities or it may be more specific and it may be conditional or unconditional. The authority may be renewed from time to time by the company in general meeting for a further period or periods not exceeding five years or it may be revoked or varied. Any such ordinary resolution must be filed in the Companies Office and annexed to the company's Articles

and is valid notwithstanding that it may vary the Articles. Relevant securities may be allotted by the directors after an authority has expired if they are allotted pursuant to an offer or agreement made before such expiration provided that the authority itself permitted the making of an offer or agreement in circumstances when the securities might have to be allotted after the authority expired; this latter point should be borne in mind when the authority is drafted. Section 20 sub-section (9) provides that these provisions apply immediately to a newly-incorporated public limited company but otherwise do not apply to the allotment of securities made under an offer or agreement which is made before the end of the transitional period or before the first general meeting of the company after registration or re-registration as a public limited company if that occurs before the end of the transitional period. The validity of any allotment made in contravention of these provisions is not affected but any director who is knowingly a party to any such contravention is guilty of an offence. Further, an offence is created by Section 21 of the Act where a private company offers or allots its shares or debentures to the public or with a view to such shares being offered to the public; this does not, however, invalidate any such allotment or agreement to allot. Any officer of the company in default is also guilty of an offence. Section 22 provides that public limited companies may not allot shares offered for subscription unless the shares are fully subscribed or the offer states that they will be allotte4even if the shares offered are not fully subscribed. It should be noted that this provision does not affect the existing prohibition on the allotment of shares offered to the public for subscription unless the sum payable on application for the "minimum amount" has been paid. Also, this provision has, in practice, been complied with in public issues for some time. Pre-emption Rights Subject to the exceptions outlined below both private and public limited companies must comply with the new statutory pre-emption provisions either immediately, in the case of newly-incorporated public limited companies, or, in other cases, after the end of the transitional period or (if earlier) the date on which the company holds its first general meeting after re-registration as a public limited company. Subject to the exceptions, Section 23(1) of the Act provides neither a private nor a public company may allot "equity securities" for cash unless it has first offered them on a pre-emptive basis to holders of either "relevant

288