Companies Act 2006 – CHAPTER 4

PUBLIC COMPANIES: ALLOTMENT WHERE ISSUE NOT FULLY SUBSCRIBED

Section 578: Public companies: allotment where issue not fully subscribed

874. The provisions of this section restate section 84 of the 1985 Act and relate to the
allotment of shares by public companies, and apply where not all the shares offered are taken
up. A public company must not allot shares following an offer to subscribe for shares unless
all the shares offered are taken up or the offer is made on the basis that it will go ahead even
if all the shares offered are not taken up or if other conditions specified in the offer are met. It
is not possible for the terms of the offer to override the requirements of this section
(subsection 6)).

875. The purpose of this rule is to protect persons who apply for shares, by ensuring that if
the increase in capital is not fully subscribed, the capital will be increased by the amount of
the subscriptions received only if the conditions of the issue so provide (Article 28 of the
Second Company Law Directive (77/91/EEC)).

876. If 40 days after first making the offer, the offer is unsuccessful because not enough
shares have been applied for under the offer, any money or other consideration received from
those that did apply for shares under the offer must be repaid or returned (subsection (2)).
Interest becomes payable after the expiration of the 48th day after the offer was first made
(subsection (3)). The rate of interest will be as specified at the time under section 17 of the
Judgments Act 1838 (currently 8%). This is a change from section 84(3) of the 1985 Act
which sets the interest rate at 5% per annum.

877. The 40 day and 48 day time limits imposed by subsections (2) and (3) now run from
the making of the offer rather than from the issue of any prospectus (as was the case under
section 84 of the 1985 Act) given that the requirement or otherwise for a prospectus is a
matter of securities law.

878. The regulation of public offers, especially requirements relating to prospectuses, is
generally a matter of securities law. Sections 82 and 83 of the 1985 Act are, therefore, not
restated in this Act.

Section 583: Meaning of payment in cash

879. This section replaces section 738(2) to (4) of the 1985 Act. It provides a definition of
“payment in cash” for the purposes of the Companies Acts and is relevant to a number of
provisions (for example section 593 requires public companies to obtain an independent
valuation of any non-cash consideration where it allots shares otherwise than for cash).

880. Subsection (3) provides a definition of “cash consideration” which lists the items
currently contained in section 738(2) of the 1985 Act. It is generally accepted that certain
forms of payment, in addition to those listed in subsection (3), constitute “payment in cash”
where shares in a company are deemed to be paid up or allotted for cash, for example an
assured payment obligation under the CREST assured payment system, but this matter is not
beyond doubt. (An assured payment obligation is the creation of an obligation to make
payment to or for the account of the company in accordance with the rules and practices of
the operator of a relevant system as defined by regulation 2(1) of the Uncertificated Securities
Regulations 2001). The power contained in subsection (4) will enable the Secretary of State
to make provision for other forms of payment to be regarded as falling within the definition
of “payment in cash”. This will eradicate the uncertainty which currently surrounds certain
forms of payment and will also “future proof” the current definition should other settlement
systems be developed in the future (or should other settlement systems within the EU be
identified).

Section 589: Power of court to grant relief

881. Section 589 restates section 113(1) to (7) of the 1985 Act. It enables the court to grant
relief, to the applicant, from a liability to the company which has arisen as a result of a
contravention of section 585, 587(2) or (4) or 588. There is a minor change in the restatement
insofar as the matters to which the court must have regard in applying the just and equitable
test in subsection (3) also apply where the liability relates to the payment of interest (under
section 113 (2)(b)) of the 1985 Act the court is not required to have regard to those matters in
applying the just and equitable test).

Section 606: Power of court to grant relief

882. Section 606 restates section 113(1) to (8) of the 1985 Act. It enables the court to grant
relief, to the applicant, from a liability to the company which has arisen (under any provision
of Chapter 6) in relation to payment in respect of shares in a company or an undertaking
given to the company in, or in connection with, payment for any shares in it. There is a minor
change in the restatement insofar as the matters to which the court must have regard in
applying the just and equitable test in subsection (2) also apply where the liability relates to
the payment of interest (under section 113 (2)(b)) of the 1985 Act the court is not required to
have regard to those matters in applying the just and equitable test).

CHAPTER 7: SHARE PREMIUMS

883. Under section 130 of the 1985 Act, where shares in a company are issued at a
premium, (that is, at a price which is greater than their nominal value), an amount equal to the
premium paid on those shares must be transferred to a non-distributable reserve: the share
premium account. This account can only be used in a limited number of circumstances
described in section 130.

Section 610: Application of share premiums

884. In line with the recommendations of the CLR (Completing the Structure, paragraph
7.8), this section further restricts the application of the share premium account and in the
future, companies will not be able to use the share premium account to write off preliminary
expenses (that is, expenses incurred in connection with the company’s formation).
Companies will continue to be able to use the share premium account to write off any
expenses incurred, or commission paid, in connection with an issue of shares but the
application of the share premium account in these circumstances will be limited so that the
company will only be able to use the share premium account arising on a particular issue of
shares to write off expenses incurred or commission paid in respect of that issue. As now,
companies will also be able to use the share premium account to pay up new shares to be
allotted to existing members as fully paid bonus shares.

885. A further change is that in future companies will not be able to use the share premium
account to write off any expenses incurred, commission paid or discount allowed in respect
of an issue of debentures or in providing for the premium payable on a redemption of
debentures.