The Gazette 1983

GAZETTE

N O V E M B E R

1983

The Section does not apply: (a) to shares allotted by way of bonus issue;

A public company may not allot shares, except under an employees' share scheme, unless at least 25 per cent of the nominal value and the whole of any premium has been received and where shares are allotted in contravention of this requirement they are treated as if 25 per cent, of the nominal value and the premium had been received. The allottee in such situation is liable to pay the company the minimum amount which should have been received, (except in the case of bonus shares where the allottee is not liable unless he knew or ought to have known of the irregularity). Furthermore under Section 29, a public company shall not allot shares "otherwise than in cash" if the considera- tion includes an undertaking that may be performed more than five years after the allotment and accordingly any such undertaking should be subject to a condition that it is to be performed withinfive years. There is moreover, in Section 26(2), an absolute prohibition on a public company accepting, in payment of its shares, an under- taking to do work or perform services. As stated earlier, the meanings of "cash" and "otherwise than in cash" require careful consideration: cash includes foreign currency, a cheque where the directors have no reason to believe it will be dishonoured, the release of an obligation to pay a liquidated sum and an undertaking to pay cash at a future date to the company (but not to any other person). Even where non-cash consideration is permitted certain conditions have to be complied with, unless the allotment of shares relates to an offer by the company to all the shareholders of another company to acquire some or all of their shares or the company proposes to acquire all the assets and liabilities of another company in exchange for the issue of shares to the shareholders of that other company. Expert's Report Section 30 provides that a public limited company is not permitted to allot shares as fully or partly paid up (as to their nominal value or any premium payable on them) otherwise than in cash unless — (a) the consideration has been valued by an expert in accordance with the Act; (b) a report with respect to its value has been made to the company by the expert within six months prior to allotment; and (c) a copy of the report has been sent to the proposed allottee. (It should be noted that there is no express obligation in the Act on the Company to send the report to the allottee but presumably it arises indirectly by virtue of this provision.) The "expert" must be an independent person qualified to be auditor of the company at the time of the report (presumably the actual auditors will largely be used) save that the expert, in respect of specific assets forming part the consideration, may use the services of a person who appears to him to have the requisite knowledge and experience to value such assets, e.g. land, intellectual property, etc. Section 30 sets out detailed provisions as to the contents of the report of the expert or any other person whom he arranges to make the valuation. 290

(b) to shares issued in connection with an "arrange- ment" (defined in sub-section 30(14)) whereby the consideration for the shares is to be produced by the transfer to the company of all or some of the shares in another company, or of shares of a particular class in that other company, has by the cancellation of all or some of the shares in that other company (with or without the issue to the company of any shares in the other company); (c) shares issued in connection with a "merger" (as defined in sub-section (4) of that company with another company. The Act imposes civil liabilities for contravention of these rules. For example, if a public company accepts an undertaking to do work or perform services the holder of the shares will be liable to pay to the company the amount of capital or premium that was treated as being paid up by the undertaking, together with interest; if shares are issued at a discount the allottee will be liable to pay the amount of the discount; and in certain other circumstances the allottee will also be liable to pay to the company an amount equal to the amount of capital or premium that has been treated as paid up, together with interest, where there has been a contravention of these rules. The Act also lays down in Section 32 conditions relating to the acquisition of non-cash assets from subscribers to the Memorandum of a public company within two years of the date of registration or re-registra- tion as a public company. A company may not enter into an agreement with such person for the "transfer" (defined in Section 2(4)b) of the Act) of non-cash assets where the value of the consideration will exceed 10% of the nominal value of the share capital except in the ordinary course of its business, where the agreement is entered into under the supervision of the Court or where, in other cases, certain conditions have been satisfied. These conditions are (i) that an independent person has valued the non-cash assets to be received by the company together with any non-cash consideration to be given for them by the company, (ii) that independent person has submitted a report to the company, (iii) copies of the report have been circulated to members and (iv) the terms of the agreement governing the proposed acquisition have been approved by an ordinary resolution of the company. Where a public company acquires a non-cash asset from a member in contravention of these provisions and the member knew or ought to have known of the contra- vention, then the company is entitled to recover from the member the amount of any consideration that it has given, which did not consist of the allotment of shares. If the whole or part of the consideration is the allotment of shares, the allottee is liable to pay to the company an amount equal to the capital or the premium that is to be treated as paid up by the non-cash asset. The Act also contains, in relation to these rules, provision for the extension of liability to subsequent holders, relief in certain circumstances from civil liability, provisions for contribution by other person and criminal sanctions for contravention. • (ContUucd).