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GAZETTE
N O V
E M B E R
1983
Companies (Amendment) Act, 1983
Part 2
by
William Earley, Solicitor
T
HIS is the second of what will now be three articles on
the Companies (Amendment) Act, 1983, and deals
with portion of Part III of the Act dealing with the capital
of a company. The balance of Part III and the rest of the
Act will be dealt with in the final Article.
Issue of Share Capital
Section 20 of the Act provides that directors of either a
private company or a public company (but subject to
subsection (9) discussed below) may not exercise any
power of the company to allot "relevant securities" unless
they are given an express authority to do so. The purpose
of this part of the Act is to give greater control to share-
holders over the issue of share capital and the position is
significantly different from that under the previous
legislation pursuant to which a company's Articles could
give the directors unrestricted authority (subject to
existing provisions relating to issue of shares to the
public) to allot or grant options over the share capital of a
company.
"Relevant securities" are defined in Section 20 sub-
section (10) as all shares and rights to subscribe for or
convert into shares other than subscribers' shares and
shares allotted under an employee's share scheme.
"Employee's Share Scheme" is defined in Section 2 of the
Act and means any scheme for the time being in force, in
accordance with which the company encourages or
facilitates the holding of shares or debentures in the
company or its holding company by or for the benefit of
employees or former employees of the company or any
subsidiary of thccompany including any person who is or
was a director holding a salaried employment or office
in the company or any subsidiary of the company. (It
should be noted that this definition is somewhat different
from the corresponding English Act: c.f. Section 87 (1)
U.K. Act of 1980).
The authority must be given either under the
company's Articles or by an ordinary resolution of the
company and must state the maximum amount of the
relevant securities that may be issued under it and the date
on which it is to expire, which must not be later than five
years after the date of incorporation of the company, if
the authority is in the original Articles, or the date of the
resolution in any other case. The authority may be a
general authority in respect of all relevant securities or it
may be more specific and it may be conditional or
unconditional. The authority may be renewed from time
to time by the company in general meeting for a further
period or periods not exceeding five years or it may be
revoked or varied.
Any such ordinary resolution must be filed in the
Companies Office and annexed to the company's Articles
and is valid notwithstanding that it may vary the Articles.
Relevant securities may be allotted by the directors
after an authority has expired if they are allotted pursuant
to an offer or agreement made before such expiration
provided that the authority itself permitted the making of
an offer or agreement in circumstances when the
securities might have to be allotted after the authority
expired; this latter point should be borne in mind when
the authority is drafted.
Section 20 sub-section (9) provides that these
provisions apply immediately to a newly-incorporated
public limited company but otherwise do not apply to the
allotment of securities made under an offer or agreement
which is made before the end of the transitional period or
before the first general meeting of the company after
registration or re-registration as a public limited company
if that occurs before the end of the transitional period.
The validity of any allotment made in contravention of
these provisions is not affected but any director who is
knowingly a party to any such contravention is guilty of
an offence.
Further, an offence is created by Section 21 of the Act
where a private company offers or allots its shares or
debentures to the public or with a view to such shares
being offered to the public; this does not, however,
invalidate any such allotment or agreement to allot. Any
officer of the company in default is also guilty of an
offence.
Section 22 provides that public limited companies may
not allot shares offered for subscription unless the shares
are fully subscribed or the offer states that they will be
allotte4even if the shares offered are not fully subscribed.
It should be noted that this provision does not affect the
existing prohibition on the allotment of shares offered to
the public for subscription unless the sum payable on
application for the "minimum amount" has been paid.
Also, this provision has, in practice, been complied with
in public issues for some time.
Pre-emption Rights
Subject to the exceptions outlined below both private
and public limited companies must comply with the new
statutory pre-emption provisions either immediately, in
the case of newly-incorporated public limited companies,
or, in other cases, after the end of the transitional period
or (if earlier) the date on which the company holds its first
general meeting after re-registration as a public limited
company.
Subject to the exceptions, Section 23(1) of the Act
provides neither a private nor a public company may allot
"equity securities" for cash unless it has first offered them
on a pre-emptive basis to holders of either "relevant
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