The Gazette 1979

GAZETTE

MARCH 1979

employees or former employees of the company

or of any subsidiary of the company including

any person who is or was a director holding a

salaried employment of office in the company or

any subsidiary of the company".

In short the provision by the company of money

for the purchase or subscription of shares by or on

behalf of the employees.

"(c) the-making by a company of loans to persons,

other than directors,

bona fide in the

employment of the company or any subsidiary

of the company with a view to enabling those

persons to purchase or subscribe for fully paid

shares in the company or its holding company to

be held by themselves as beneficial owners

thereof", (authors italics).

In short the making of loans to employees for the purpose

or enabling them to acquire shares in the company. It

must not of course be forgotten that the proviso extends

to cover subsidiaries of the company and the employees

of subsidiaries. There are two intriguing points about the

provisos the first is that it could be argued that (c) is

contained and dealt with in (b) in that a loan comes quite

easily within the ambit of the term provision. The second

perhaps goes some way to explain the difference in that as

between these provisos there is a divergence in the

treatment of directors.

Paragraph (c) excludes directors with the result that

even if they are holding a salaried employment, bona fide

loans to them in this context are not authorised, whereas

provios (b) specifically allows directors who are holding, or

have held a salaried employment to participate in the

schemes envisaged. In support of this view reference can be

made to Palmer's

Company Law,

Volume 1, page 303 of

the 22nd edition.

The restriction contained in proviso (c) has caused

problems to companies, and those who control them who

wish to make loans to directors, in order for them to

acquire shares in the company without recourse to the

provisions of subsection (2) and has caused them and

their legal advisers to seek, or attempt to seek ways

around the subsection. One attempt has been to argue

that this whole question is dealt with by proviso (b), and

that so long as there is a valid scheme in operation, a

provision of money by way of a loan to a director in

accordance with the scheme, is a lawful loan. This is a

spuriously attractive argument. In the first place the

whole of Section 60 must be read together, and from just

such a reading it will be seen that the purpose of the

section is to prohibit a company giving any financial

assistance for the purpose of or in connection with the

purchase or subscription of shares in the Company.

Subsection (13) admits of certain exceptions. As between

those exceptions there appears to be something of an

overlap and/or dissonance between the terms of (b) and

(c)-

As to the existence of a scheme or not, the first

question must be "what is a scheme?" The answer to that

question can only be answered by way of litigation in

each particular case.

The second question is "where does it appear in the

Act that Section 60 (13) (c) is ro apply only where there is

no scheme in force"? Subsectibn 13 paragraph (c) quite

clearly has been enacted to m n e statutory provision for

the making of loans by the company to persons for their

benefit, and not for the making of loans by the company

where no scheme for such loans exists. Such an

interpretation would cut down the effect of paragraph (c),

making it almost nugatory. However, the construction of

a statute cannot look to the desires of the subject, only to

the intent of the legislature as evinced by the statute.

Furthermore, upon a careful reading of subsections (b)

and (c) there does not have to be an overlap or dissonance

at all. Accepting that words should be possessed of their

natural and ordinary meaning for the purpose of

construction, save where the context otherwise demands,

it is quite clear that the phrase "provision of money" does

not admit of a loan of money, notwithstanding views to

the contrary — provision means to give — of course if

you lend money, you in fact give it, but there is a world of

difference between giving and lending, although in certain

respects the transaction may be very similar.

In paragraph (b) the giving of money to trustees or to

individuals, or groups of individuals is quite clearly

envisaged. There is no question of the money being lent

— the legislature would have said so — the money is

provided for the purchase of shares in the company by

employees. As to loans, they are dealt with in paragraph

all types are excluded.

There is no real difficulty in attempting to reconcile

paragraphs (b) and (c), unless one wishes to benefit

directors by way of loans without recourse to subsection

(2). Subsection 13 (c) is also unambiguous in its treatment

of loans while subsection 13 (b) even for the moment

accepting that it might cover loans, is ambiguous when

read together with paragraph (c).

Paragraph (c) quite clearly is concerned with the

making of loans to persons for themselves, and in the final

analysis if there has to be a conflict with paragraph (b),

then paragraph (c) must prevail as it is the general rule

that the later enactment will override the earlier — but as

sugoested above there is no need.

Putting the relationship of paragraphs (b) and (c) aside,

and accepting that paragraph (b) does not trespass upon

the making of loans, it is of interest to investigate the

effect of each of the provisos. For assistance to be

allowable under paragraph (b) a scheme must first of all

be in existence. A scheme simply enough is a plan

involving the participation of employees or former

employees in the assistance that is sought to be given.

However, as suggested earlier, schemes might in time find

themselves the subject of litigation, perhaps on the ground

that the scheme is one that is not for the benefit of the

employees as such, bst for the benefit of a select few. For

example — a scheme benefiting all employees of 10 years

service or more would perhaps be quite acceptabte but

one benefiting a group of managers might well not be; the

point being, that whilst on the face of it a scheme is simple

and straight forward, it could cover a multitude of

practices and designs, which m ght not be countenanced

by the Court.

Once however, a scheme is in operation for the

purchase of shares, these shares are to be held by or for

the benefit of employees. This is to say the shares may be

held by the employees themselves, or for them by

trustees.

The company provides this money, and it is a moot

point whether the Act, unlike the English Act, which is

somewhat differently worded, allows the company to

provide the money direct to the employees etc., or