Simplification and rationalization of provisions applicable to capital reduction, share buyback and financial assistance. SIMPLIFICATION AND ASSISTANCE PROVISIONS APPLICABLE TO CAPITAL REDUCTION, SHARE BUYOUT AND FINANCIAL ASSISTANCE. Capital maintenance rules and share capital: simplification and rationalization of the provisions applicable to capital reduction, share buybacks and financial assistance.
Company Law Reform Committee (CLRC) 05 This is the second consultation paper to be issued in the area of law relating to capital maintenance rules and share capital. Simplification and rationalization provisions applicable to shares where the basic premise of the review is to determine whether the existing capital maintenance rules serve the purpose of protecting creditors. This consultation paper is the result of a CLRC Working Group B consultation discussing the following capital maintenance rules viz. on share buybacks, financial assistance and reduction of capital provisions in the Companies Act of 1965.
Rules for capital maintenance and share capital: Simplification and streamlining of provisions. Rules for capital maintenance and share capital: Simplification and streamlining of provisions applicable to capital reduction, share buybacks and financial assistance.
MEMBERS OF THE SECRETARIAT (CLRC)
SECTION B - EXECUTIVE SUMMARY
Background
Proposals
Applies to capital reduction, share buybacks and financial assistance. f) a creditor who did not have reasonable grounds to object must pay costs. g) Criminal liability is imposed on directors in connection with the declaration of solvency; and. h) liability to members for the amount they have received as a result of the reduction, unless they have received the distribution in good faith. The company is able to meet the solvency test if:. i) the company is able to pay its debts as they fall due in the normal course of business ("cash-flow" solvency); and. ii) the value of the company's assets is greater than the value of its liabilities, including contingent liabilities (“balance sheet” solvency). In determining whether the value of the company's assets is not less than the value of its liabilities, the directors shall. i) the company's latest annual accounts; and (ii) any other circumstances known or ought to be known to the directors. knows, affects or can affect the value of the company's assets and the value of the company's liabilities, including its contingent liabilities;.
This means that the company's own shares cannot be sold. only on the stock exchange, but also through direct business transactions.
SECTION C - CAPITAL MAINTENANCE RULES AND SHARE CAPITAL : SIMPLIFYING AND
REDUCTION OF CAPITAL INTRODUCTION
The CLRC proposes for the time being to retain the existing section 64 of the Companies Act 1965. In this situation, it will not be necessary to obtain confirmation from the court. Corporate Law Reform Committee (CLRC) 23 or in any other case, the company is able to pay its debts as they fall due during the year immediately following the date of the statement ("cash flow" solvency).
Directors must also form an opinion that the value of the company's assets is not less than the value of its liabilities. 9 Section 7A of the Singapore Companies Act, as amended by section 6 of the Singapore Companies Act (Amendment) No. paid-up share.
18Section 28 of the Singapore Companies (Amendment) Act 2005 inserting new section 78D into the Singapore Companies Act. Corporate Law Reform Committee (KLRC) 27 to be informed of the reduction proposal and an appropriate time frame should be specified to facilitate any challenges made by creditors to the reduction. Do you agree that the current procedure of obtaining confirmation from the court which is provided for in section 64 of the Companies Act 1965 should still be retained?
If yes, should all directors or majority of directors pass the solvency test. The CLRC considers that the same solvency test as proposed for capital reduction should be adopted for the share buyback provision. Nevertheless, the CLRC believes that there should be an automatic waiver in such situations.
Section 726 of the UK Companies Act 2006 states that “a company shall not exercise any right in respect of its own shares and any purported exercise of such right shall be void. Do you agree with the introduction of the solvency test as mentioned above as part of section 67A. Do you agree that the solvency declaration for buyback of shares should be given only by the majority of the directors.
Singapore has revised its provision for financial assistance as part of the comprehensive company law review program undertaken by the Company Law and Regulatory Framework Committee ('CLRFC'). The current statutory provisions on financial assistance are the result of Report of the Company Law and Regulatory Framework Committee ('CLRFC') (2002).
REFORMING SECTION 67 OF THE COMPANIES ACT 1965
33Singapore's provision in the Companies Act (Act 42 of 1967) on financial assistance, i.e. section 76(1), originates from Great Britain and is also modeled on section 129 of the Australian Companies Act 1961 and is similar to section 67 of the Malaysian Companies Act. Act 1965. 34See UK Company Law Review, Modern Company Law: Company Formation and Capital Maintenance: Consultation Document (October 1999), paragraph 3.41, where it is stated that “As noted in the Strategic Consultation Document, financial support is normally regarded as part of the capital maintenance regime, although transactions involving financial support do not in fact reduce a company's share capital. Corporate Law Reform Committee (CLRC) 41 (b) the financial support is approved by the shareholders, with disclosure of.
The New Zealand Companies Act 1993 has the same solvency test for any distribution to shareholders, financial assistance and the payment of dividends.38 The New Zealand Companies Act 1993 allows the following types of financial assistance: a) if the board decides to provide financial assistance and have the unanimous approval of the shareholders; 39 or. b) when the directors decide that the granting of financial assistance is for the benefit of those shareholders who do not receive the assistance and that the terms and conditions in which the assistance is given are fair and reasonable for those shareholders who do not receive the assistance; 40 or. c) financial assistance provided when the amount of financial assistance, including the amounts of any other financial assistance from the company must not exceed 5 percent of the total amount received by the company in connection with the issuance of shares and reserves as disclosed in the statements the latest financial statements of the company. 41. Corporate Law Reform Committee (CLRC). immediately after the grant of financial assistance, complete the solvency test, any financial assistance provided by the company is considered unauthorized. The declaration of solvency must be made by a majority of directors and must also be accompanied by an auditor's report for companies which must have their accounts audited.
The CLRC is of the view that financial assistance in the form of unanimous shareholder approval may not be viable for a listed company and allowing financial assistance in itself gives too much discretion to directors and may be open to abuse. However, if it is proposed that it should be possible for directors to approve the provision of financial assistance without having to obtain shareholder approval, this should be the case. Corporate Law Reform Committee (CLRC) 43 limited to e.g. financial assistance if the amount of the financial assistance, including the amounts of any other financial assistance from the company, does not exceed 5 percent (equivalent to New Zealand) or 10 percent (equivalent to Singapore) of the shareholders' fund or, where applicable, on a consolidated basis as stated in the company's latest annual accounts.
The shareholders' funds are chosen as the basis for the calculation as this ensures that any losses have been taken into account whereas a consolidated position would be a more accurate assessment of the company's financial position. Since the CLRC also proposes the introduction of a solvency test for a reduction of capital and a share buyback proposal, the CLRC recommends the same solvency test as is proposed for a reduction of capital and a buyback of shares for the financial assistance. The CLRC also suggests that the solvency declaration should be made by a majority of the directors.
Do you agree that a company (subject to compliance with the solvency test) may only provide financial assistance if the company obtains a special resolution from the shareholders. Do you agree that a company (subject to compliance with the solvency test) can also provide financial assistance without obtaining the approval of the shareholders, if the board of directors so decides. If so, you agree that the amount of the financial assistance, including the amounts of any other financial assistance from the Company, shall not exceed 5 percent of the sum of the amounts received by the Company for amounts received by the Company in respect of the total paid-in by the Company capital and reserves as stated in the company's latest annual accounts.
