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GAZETTE
JUNE 1992
A Company Purchasing its Own
Shares
by Frank Brennan (Brilton
Publications, £34.75, 290pp,
hardback).
Legal rules for the maintenance of
the issued share capital of a limited
liability company can be traced back
more than one hundred years to the
decision of the House of Lords in
the case of
Trevor
-v-
Whitworth.
The primary objection to the
depletion of issued share capital is
that it constitutes the ultimate
recourse for the creditors of a
limited liability company.
However, other jurisdictions enable
companies to purchase their own
shares subject to safeguards. Capital
may be returned to a shareholder
who wishes to leave the business. At
the same time existing shareholders
need not buy the shares (they may
not have the money or inclination to
increase their stake) or run the risk
of a sale to a third party.
In the area of the quoted company,
buyback schemes are relatively
common in the USA where they
enable companies to reduce the
number of shares in issue, thereby
increasing the asset value per share
ratio and (hopefully) increasing the
share price.
The EC Second Directive on
Company Law contemplates
corporate entities being allowed to
purchase their own shares. In
England the Companies Act, 1981
enabled limited liability companies to
purchase or redeem their own shares.
Part XI of our own Companies Act,
1990 which was brought into force
on 1 July, 1991 now allows for
acquisition of own shares and shares
in one's holding company. The
provisions are somewhat intricate
and, while similar, are not the same
as those contained in the English
legislation.
In this book Frank Brennan seeks to
provide a comprehensive guide to
not only Part XI of the Companies
Act, 1991, but also provides suitable
references to English law, in
particular, where it differs from Part
XI. For example, our law enables
existing shares to be re-designated as
redeemable shares and allows
redeemed shares to be retained as
treasury shares. English law has no
equivalent provisions.
Mr. Brennan endeavours to outline
the legislative, accountancy, tax and
company secretarial requirements in
detail. To illuminate what is a
technical but very practical subject
he gives examples throughout the
text and rounds off his discussion
with two case studies. There are also
very useful checklists at the end of
the book.
Whilst only affecting quoted
companies, it might be useful in the
next edition of this book to make
reference to guidelines of investor
protection bodies such as the Irish
Association of Investment Managers
and to interrelate these guidelines
with the requirements of the Stock
Exchange.
The legal practitioner might be
tempted to limit his or her reading to
the chapter dealing with the legislative
position and company secretarial
requirements. However, this would be
a mistake because much relevant
information is to be found in the
other chapters. The second case study
shows how Part XI might be used to
fund Capital Acquisitions Thx
liabilities on a death while minimising
adverse tax consequences of the
funding procedure.
The author emphasises that
redemption and purchase of shares
are two distinct procedures with
different legal and tax consequences.
For example, a company may
purchase any shares provided the
issued share capital after purchase
consists of at least 10% non-
redeemable shares. A company may
only redeem shares designated as
redeemable. A purchase by a
company may be regarded by the
Revenue Commissioners as a
stampable transaction subject to 1%
duty whereas a redemption would
not. The treatment for Corporation
Tax purposes of the payment made
may differ depending on whether a
redemption or purchase has occurred.
This pioneering work combining
legal, accounting and tax learning
with practical hints and precedents
will be very valuable to any
practitioner engaged in advising on
any aspect of corporate law.
Kevin Hoy
•
Report on the Reform of the Civil
Law of Defamation
(Dublin, The Law Reform
Commission, £7.00, 143pp,
paperback).
The road to law reform in Ireland is
long and tortuous. Reform of the
law of defamation has reached an
important halting post on this
journey. Following a request in
January 1988 from the Attorney
General, the Law Reform
Commission in 1991 published
Consultation Papers
outlining the
present law of civil defamation,
criminal defamation, and contempt
of court, tentatively suggesting
reform and inviting comments. The
Consultation Paper on the Civil Law
of Defamation
was widely welcomed,
and occasioned much discussion. On
the basis of its own tentative
proposals in the
Consultation Paper
and of the submissions which were
made upon it, the Law Reform
Commission has now published its
Report on the Reform of the Civil
Law of Defamation (the Report).
It is a well thought out and
compelling document. Irish law of
defamation will be changed radically
if its proposals become law. They
ably meet the requirements of
constitutional consistency and
practical coherence. They are shaped
by an appreciation of the protection
of the various aspects of the rights
to free speech, communication and
good name in the Irish Constitution
and under the European Convention
on Human Rights. This appreciation
is a welcome development in the
Report
as it was markedly absent
from the
Paper.
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