The Gazette 1983

GAZETTE

N O V

E M B E R

1983

A public company may not allot shares, except under

an employees' share scheme, unless at least 25 per cent of

the nominal value and the whole of any premium has been

received and where shares are allotted in contravention of

this requirement they are treated as if 25 per cent, of the

nominal value and the premium had been received. The

allottee in such situation is liable to pay the company the

minimum amount which should have been received,

(except in the case of bonus shares where the allottee is not

liable unless he knew or ought to have known of the

irregularity).

Furthermore under Section 29, a public company shall

not allot shares "otherwise than in cash" if the considera-

tion includes an undertaking that may be performed more

than five years after the allotment and accordingly any

such undertaking should be subject to a condition that it

is to be performed withinfive years. There is moreover, in

Section 26(2), an absolute prohibition on a public

company accepting, in payment of its shares, an under-

taking to do work or perform services. As stated earlier,

the meanings of "cash" and "otherwise than in cash"

require careful consideration: cash includes foreign

currency, a cheque where the directors have no reason to

believe it will be dishonoured, the release of an obligation

to pay a liquidated sum and an undertaking to pay cash at

a future date to the company (but not to any other

person).

Even where non-cash consideration is permitted

certain conditions have to be complied with, unless the

allotment of shares relates to an offer by the company to

all the shareholders of another company to acquire some

or all of their shares or the company proposes to acquire

all the assets and liabilities of another company in

exchange for the issue of shares to the shareholders of that

other company.

Expert's Report

Section 30 provides that a public limited company is

not permitted to allot shares as fully or partly paid up (as

to their nominal value or any premium payable on them)

otherwise than in cash unless —

(a) the consideration has been valued by an expert in

accordance with the Act;

(b) a report with respect to its value has been made to

the company by the expert within six months prior

to allotment; and

allottee. (It should be noted that there is no express

obligation in the Act on the Company to send the

report to the allottee but presumably it arises

indirectly by virtue of this provision.)

The "expert" must be an independent person qualified

to be auditor of the company at the time of the report

(presumably the actual auditors will largely be used) save

that the expert, in respect of specific assets forming part

the consideration, may use the services of a person who

appears to him to have the requisite knowledge and

experience to value such assets, e.g. land, intellectual

property, etc.

Section 30 sets out detailed provisions as to the

contents of the report of the expert or any other person

whom he arranges to make the valuation.

290

The Section does not apply:

(a) to shares allotted by way of bonus issue;

(b) to shares issued in connection with an "arrange-

ment" (defined in sub-section 30(14)) whereby the

consideration for the shares is to be produced by the

transfer to the company of all or some of the shares

in another company, or of shares of a particular

class in that other company, has by the cancellation

of all or some of the shares in that other company

(with or without the issue to the company of any

shares in the other company);

defined in sub-section (4) of that company with

another company.

The Act imposes civil liabilities for contravention of

these rules. For example, if a public company accepts an

undertaking to do work or perform services the holder of

the shares will be liable to pay to the company the amount

of capital or premium that was treated as being paid up by

the undertaking, together with interest; if shares are

issued at a discount the allottee will be liable to pay the

amount of the discount; and in certain other

circumstances the allottee will also be liable to pay to the

company an amount equal to the amount of capital or

premium that has been treated as paid up, together with

interest, where there has been a contravention of these

rules.

The Act also lays down in Section 32 conditions

relating to the acquisition of non-cash assets from

subscribers to the Memorandum of a public company

within two years of the date of registration or re-registra-

tion as a public company. A company may not enter into

an agreement with such person for the "transfer" (defined

in Section 2(4)b) of the Act) of non-cash assets where the

value of the consideration will exceed 10% of the nominal

value of the share capital except in the ordinary course of

its business, where the agreement is entered into under the

supervision of the Court or where, in other cases, certain

conditions have been satisfied. These conditions are (i)

that an independent person has valued the non-cash

assets to be received by the company together with any

non-cash consideration to be given for them by the

company, (ii) that independent person has submitted a

report to the company, (iii) copies of the report have been

circulated to members and (iv) the terms of the agreement

governing the proposed acquisition have been approved

by an ordinary resolution of the company.

Where a public company acquires a non-cash asset

from a member in contravention of these provisions and

the member knew or ought to have known of the contra-

vention, then the company is entitled to recover from the

member the amount of any consideration that it has

given, which did not consist of the allotment of shares. If

the whole or part of the consideration is the allotment of

shares, the allottee is liable to pay to the company an

amount equal to the capital or the premium that is to be

treated as paid up by the non-cash asset.

The Act also contains, in relation to these rules,

provision for the extension of liability to subsequent

holders, relief in certain circumstances from civil liability,

provisions for contribution by other person and criminal

sanctions for contravention.

•

(ContUucd).