PROCEDURE PLAN
Buyback out of Distributable Profits
In order to calculate whether a buy-back will represent the use of a company’s existing share capital, you need to take the
following three steps. Check Articles for prohibition (s.690(1)(b))
Step 1 Ascertain how much it will cost the company to buy the shares back.
Step 2 Add together the company’s ‘distributable profits’ (the figure in the Profit/(Loss) Reserve), and the money (if any)
which the company expects to make from issuing shares to fund the buy-back.
Step 3 If the amount in Step 1 is greater than the amount produced by Step 2, by definition the buy-back will represent
the use of the company’s existing share capital. This is because your calculation has shown that even spending
money representing all of the company’s distributable profits, and spending all the proceeds of issuing new
shares, will not be enough to pay for the buy-back.
Board meeting 1
Prior Decide method of financing buy-back (here, profits)
Prepare accounts to make sure you have sufficient funds for buy-back out of profits – not more than
three months old to ascertain profits (s712(7))
Enough profit and enough cash? If not enough cash, consider selling assets or loan – profit and
loss reserve
BB financing engages in s172 duty (best interests of company)
Make sure the requirements for buy-back can be met:
Company Articles do not forbid it: s690 – MAs are silent.
Shares are fully paid: s691(1) – MA company’s shares (MA21) must be fully paid up, except
subscriber shares.
Company must pay for shares at time of purchase: s691(2)
Company requires a contract to purchase its own shares (s.694(1))
Call MA 9: Any director or authorised company secretary can call
Apply to facts
Notice MA 9: Notice must be given to each director, wherever he is, and need not be in writing.
Contents must include MA9(2): Proposed date and time, location, how the directors will communicate if not
in same place.
The notice itself must be reasonable which is what is usual (Re Homer)
Apply to facts – if small company, what is usual is often same day
Interest s177: Interested directors must make a declaration
Apply to facts and look to exemptions – if directors already aware s177(6)(b)
MA14: Interested directors do not count in quorum nor can they vote
Apply to facts – even if didn’t make declaration won’t be able to count/vote - only for resolutions
they’re interested in
Quorum MA11: Any two of the directors
Is this going to be satisfied? Do we know who is attending?
Say we need at least X and Y – take into account interests – say bare minimum
Resolutions 1 MA3: BR to approve draft terms of purchase (terms of buyback contract) – because need to show SHs
what approval is for that directors are seeking
Why they need shareholder approval?
Authority Must be authorised by shareholders by OR: s694(2)
2 s302: BR to call a GM by BR OR s291 BR to propose a written resolution
Voting MA7: Show of hands by simple majority – more than 50%
State how the decision would pass with what exact directors are needed
MA13: If deadlock, Chair can use their casting vote
Is there a chair? Remember that, practically, avoid doing this – too authoritative
Admin s248/MA15: Directors board minutes/written record of each BR must be kept for 10 years at
company’s registered office or SAIL
Prepare buyback contract
1
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