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GAZETTE
MARCH 1979
The Companies Act 1963 - Section 60
— An Analysis
by
BRIAN J. GALLAGHER
Section 60, which is an apparently straightforward
provision making unlawful the giving of financial
assistance by a company for the purchase of its own
shares, subject to some exceptions, is perhaps one part of
the Act of 1963 which might receive a greater degree of
judicial attention that it has hitherto received.
The general provision is as follows:—
"Subject to subsections (2) (12) and (13) it shall not be
lawful for a company to give, whether directly or
indirectly, and whether by means of a loan, guarantee
the provision of security or otherwise, any financial
assistance for the purpose of or in connection with a
purchase or subscription made or to be made by any
person of or for any shares in the company or, where
the company is a subsidiary company, in its holding
company".
Section 60 is derived in part from what is now Section 54
°f the English Act of 1948 and the report of the
Company Law Reform Committee.
As indicated it prohibits the giving of assistance by a
Company in the purchase of its own shares subject to
exceptions. It is the exceptions, their scope and inter-
relation which gives rise to confusion. These exceptions
a r
e contained in subsections (2) (12) and (13).
Subsections (3) to (11) are mainly concerned with the
administration of the rule contained in (2).
Subsection (2) allows financial assistance to be given
by a company if it is given under the authority of a special
resolution of the company passed not more than 12
months previously; that is to say when at least 75% of the
members have agreed to the company giving such
assistance.
This is not all however and for the exceptions to be
acceptable the company must furnish to the members and
to the Registrar of Companies with the notice of the
meeting at which the special resolution is to be put a copy
a statutory declaration made by the directors
stating:—
(i) the form which the assistance is to take
(ii) the persons to whom such assistance is to be given
(iii) the purpose for which the company intends to use
the assistance
a
nd, most importantly,
(iv) that the declarants have made a full inquiry into
the afFairs of the company and that having done so
they have formed the opinion that the company,
having carried out the transaction whereby such
assistance is to be given will be able to pay its
debts in full as they become due.
Even when a company has complied with these conditions
rt cannot proceed to give assistance until 30 days have
Passed in order that minority shareholders who are not in
favour of the scheme might apply to the High Court to
have the special resolution cancelled. Where, however, all
°f the members of the Company who are entitled to vote
at general meetings of the company have voted in favour
of the special resolution, then die Company can so
proceed.
The net effect of subsection (2) and the supplementary
subsections is to allow companies, expecially those
involved in take overs and mergers, who wish to furnish
such assistance to do so without running foul of the
general prohibitions contained in subsection (1).
Moreover the conditions ensure that any assistance
which is given must have the general support of the
shareholders of the company which has to have been
declared solvent by the responsible officers.
The point of the conditions is not to hamper the free
exercise of entrepreneurial acumen but to protect
shareholders and creditors from the unknown and unseen
risks inherent in any such transaction.
Subsection (12) is designed and does give protection
from the rigours of the main rule in those actions of the
company which otherwise would or might be unlawful,
yet which in themselves would be unobjectionable. The
payment of dividends properly declared or the discharge
of liabilities lawfully incurred are not to be prohibited.
This is perhaps an over-cautious approach yet the terms
of subsection (1) are wide and strict.
It is perhaps those exceptions enacted by subsection
(13) that will in any future litigation cause the greatest
problems. The subsection contains three:—
(1) the first provision allows companies whose ordinary
business is the lending of money to give such
assistance where it is part of its ordinary business so
to do. This proviso is of course designed to protect
those institutions whose very business must put them
in danger of contravening Section 60; for example the
commercial and merchant banks.
(2) the second and third provisos can be dealt with
together but it must be noted that they are different
and in no way the same exception. Brietly they allow
companies to make arrangements for the benefit of
employees by way of what are more commonly
known as profit sharing schemes.
The terms of these two provisos are contained in
Section 60 (13) (b) and (c) and are as follows:
"(b) the provision by a company in accordance with
any scheme for the time being in force of money
for the purchase of, or subscription for, fully
paid shares in the company or its holding
company, being a purchase or subscription of or
for shares to be held by or for the benefit of
The editor and the editorial board regret the large
number
of
typographical
errors
in
the
January/February 1979 issue of the Gazette. These
were due to circumstances of a technical nature
beyond our control.
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