Clause 577
Company Law Reform Bill [Lords]
12:30 pm
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
I beg to move amendment No. 431, in clause577,page283,leave out lines 25 and 26.
John Bercow (Buckingham, Conservative)
With this it will be convenient to discuss amendment No. 432, in clause577,page283,line26,at end insert—
‘(3) Where a limited company purchases its own shares, the shares may be paid for in cash or non-cash consideration.’.
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
We turn to the power of a company to purchase its own shares. Amendment No. 431 probes why shares must be paid for on purchase. Does the clause as it stands allow for delayed payment provisions, which could help the company’s cash flow? Amendment No. 432 suggests that the consideration should be in cash or non-cash.
Vera Baird (Parliamentary Under-Secretary, Department for Constitutional Affairs; Redcar, Labour)
We are not aware of any evidence that there are companies that are in a position to purchase their own shares but find it difficult to pay for them in cash. We believe that the requirement for cash payment makes sense, and unless there is some real problem, we do not see any reason to change the provision.
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
The difficulty could be cash flow—the amount that the company has to pay at a certain time.
Vera Baird (Parliamentary Under-Secretary, Department for Constitutional Affairs; Redcar, Labour)
I do not know that we have found that that is a problem. I said that we are not aware of any evidence of that situation occurring readily. The point is to pay cash at the time of the purchase. There is a framework of rules around the purchase of own shares to ensure that it does not undermine the company’s capital, which has to be maintained to protect the interests of creditors or shareholders. It is important that the value that is being transferred is visible and clear. That is best achieved by requiring the consideration to be satisfied by a payment of a monetary sum. I repeat that we cannot see any reason why it should not be paid in cash at the time. Let me see whether there is anything further that indicates that we are at all aware of such a problem. No, we are not aware of any such evidence, and therefore invite the hon. Gentleman to withdraw the amendment.
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
The point is that if, for example, a company is paying a dividend and it does not have the cash to pay that dividend, it will seek a loan to pay that dividend. It has the reserves to pay the dividend but not the money. I should have thought that giving the company the adaptability to defer payment terms might, in relation to a purchase of shares—where, of course, the reserve situation is pretty much the same as with paying a dividend—be helpful to it. However, on the basis of what the Minister has said I beg to ask leave to withdraw the amendment.
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
I beg to move amendment No. 455, in clause586,page291,line26,at end add—
‘(8) Where a company proposes to redenominate its share capital or any class of its share capital into another currency pursuant to this section it may by the same resolution convert any share premium account, capital redemption reserve or redenomination reserve into the same currency at the same time and at the same rate of exchange.’.
The purpose of the amendment is to provide a simple method of converting a share premium account, a capital redemption reserve or a redenomination reserve into the same currency if share capital is being redenominated pursuant to the clause. The amendment is tabled at the suggestion of the Law Society.
Vera Baird (Parliamentary Under-Secretary, Department for Constitutional Affairs; Redcar, Labour)
While the proposition may seem attractive, the amendment is unnecessary because, in contrast to the position on a company’s share capital, there is nothing in the Bill, or for that matter in the 1985 Act, to prevent companies from redenominating their statutory reserves. The introduction of such a scheme may reduce the flexibility that is currently available to companies to redenominate as they think fit. In short, as there is no statutory bar to redenomination there seems to be no reason to amend the Bill in this way, and I hope that the hon. Gentleman will not press the amendment.
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
On the basis of the Minister’s clarification, I beg to ask leave to withdraw the amendment.