Reorganisations
Explanatory Memorandum
Variation in Capital
Section 83 on variation of company capital is drawn from sections 68 and 69 of the Companies Act 1963 and section 210 of the Companies Act 1990. It sets out the provisions relating to the consolidation, division, increase, reduction, conversion and cancellation of shares.
Subsection (1) sets out a procedure by which a LTD may vary its share capital by ordinary resolution. Account has been taken of the abolition of “authorised-nominal capital”. Paragraphs (c), (d) and (e) contain provisions in relation to the undenominated capital of the LTD. The position is clarified with regard to a resulting credit when there is reduction in the nominal value of a share. The resulting credit from a reduction in the nominal value of the share may not go into a share premium account. This provision is in line with the law as it stood prior to the introduction of the Act. This satisfies the requirements of the Fourth Company Law Directive.
Paragraph (f) reproduces paragraphs (a) and (e) of section 68(1) CA 1963 and, in light of the abolition of “authorised-nominal capital”, restricts their application to those LTD’s whose constitutions state an authorised share capital.
Subsection (2) provides that a cancellation of share capital under subsection (1)(f)(ii) will not be considered to be a reduction of capital within the meaning of this Act.
Subsection (3) permits a LTD to convert its shares into redeemable shares, subject to certain limitations. This provision is drawn from section 210(1) CA 1990.
Subsection (4) provides that a shareholder may notify the LTD, before a conversion, that he or she does not wish to have his or her shares converted, and that where a shareholder does so, their shares cannot be converted. Subsection (5) provides that such a shareholder may invoke the jurisdiction of the court if the LTD does attempt to convert their shares. Subsections (4) and (5) re-enact sections 210(2) and (3) CA 1990. The requirement to maintain 10 per cent non-redeemable shares, which is contained in section 210(4) CA 1990 has been removed.
Subsections (6) and (7) require a LTD to deliver a copy of a resolution under subsection (1) to the Registrar and failure to do so amounts to a category 3 offence. This notification requirement is taken from section 69 CA 1963.
Section 84 allows a LTD to reduce its capital, provided that its constitution does not stipulate otherwise. Section 72(2) of the Companies Act 1963 already provides that a company may reduce its share capital by a special resolution approved by the court. Section 84 re-enacts that provision and also introduces the option that a LTD may reduce its capital by means of the Summary Approval Procedure set out in Part 4. Section 84 now expresses the ability to reduce share capital as a positive entitlement rather than as an exception to a prohibition on the reduction of share capital of the company.
Subsection (3) is new. It stipulates the date on which the reduction approved by the Summary Approval Procedure shall take effect.
Subsections (4), (5) and (6) are new. Subsection (4) provides that a LTD may only reduce its capital using the methods outlined in this section. Subsections (5) and (6) state that any transaction in breach of this section is voidable at the instance of the LTD and that where a LTD acts in contravention of this section both the LTD and every officer in default shall be guilty of a category 3 offence.
Section 85 sets out the procedure by which a special resolution to reduce capital may be confirmed by the court. This section is drawn from sections 73 and 74 of the Companies Act 1963 and also contains new provisions.
A new element has been added in subsection (2) in that the requirement to advertise the passing of the special resolution is now limited to one daily newspaper in the State and notification by post to creditors outside the State. In determining any preliminary application for directions as to the hearing of an application, the court must consider whether the LTD has complied with subsection (2).
Subsection (4) deals with creditor protection and the creditors’ right to object to a proposed reduction of capital. Subsection (5) qualifies subsection (4); it provides that the court may, if it thinks proper to do so, direct that subsection (4) shall not apply.
Subsections (6) and (7) set out the circumstances in which a court may confirm the resolution to reduce the capital. Subsection (8) gives the court the power, when confirming a resolution for the reduction of capital, to order the LTD to publically give reasons for the reduction or such other information as it deems fit.
Subsection (9) is new and it clarifies the meaning of the termination of a debt or claim for the purposes of this section.
Section 86 provides that the Registrar must register the order of the court confirming the resolution reducing the capital and the minute of the altered capital, when furnished with those documents. This is based on section 75 of the Companies Act 1963.
Section 87 sets out the consequences for shareholders where a LTD’s capital has been reduced and it also deals with creditor protection following a reduction of capital. Subsections (2) to (4) are an amended version of section 76 of the Companies Act 1963. Subsection (5) lays down the offences under this section and is taken from section 77 CA 1963.
Section 88 provides that a LTD may alter or modify the rights attached to any class of shares provided certain conditions are met. It is drawn principally from section 38 of the Companies (Amendment) Act 1983.
Subsections (1) to (7) are re-enactments of sections 38(1) to 38(7) C(A)A 1983. Subsection (1) has been amended insofar as the phrase “whether or not the company is being wound up” has been newly inserted and the phrasing of subsection (6) has also been amended.
Subsection (2) provides that where the LTD’s constitution does not attach rights to a class of shares and does not provide for the variation of rights, a variation of rights may be effected either with the written sanction of 75% of the holders of the class of shares the rights of which are being affected, or a special resolution of that class sanctioning the variation.
Subsection (3) imposes certain limitations on the variation of rights in accordance with the constitution. It deals with circumstances where it is proposed to vary rights attached to a class of shares where such variation is concerned with either the giving, variation, revocation or renewal of an authority for the purposes of section 69(1) (i.e. the authority to allot shares) or a reduction of the company’s capital under section 84. In these circumstances, the rights cannot be varied unless the holders of 75% of the issued shares of the relevant class consent in writing to the variation or alternatively, a special resolution is passed which sanctions the variation, such resolution being passed at a meeting of the holders of shares of the relevant class.
Under subsection (4), where a variation of rights attached to a class of shares is not connected with the authority to allot shares or connected with a reduction in company capital, those rights may only be varied in accordance with the provision of the constitution that deals with the variation of those rights. This is the case in relation to rights attached by the constitution or otherwise. Where the rights are attached by the constitution, the provision in respect of their variation must have been included in the constitution at the time of the company’s incorporation, otherwise this subsection will not apply. Where the rights are attached otherwise than by the constitution, it is enough that the constitution contains a provision in relation to their variation for this subsection to apply – the provision does not need to have been in the constitution from the date of the company’s incorporation.
Subsection (5) provides that where the constitution does attach rights to a class of shares but does not provide for the variation of those rights, the rights may be varied with the agreement of all of the members.
Subsection (6) lays down the procedure to be followed at a meeting of the members holding a particular class of shares where a special resolution referred to in this section is proposed.
Subsection (7) provides that an amendment in the constitution of a LTD for the variation of rights attached to a class of shares is to be treated itself as a variation of those rights.
Subsections (8) and (9) re-enact subsections (9) and (10) of section 38 C(A)A 1983, respectively. Subsection (8) clarifies the meaning of the term “variation”. Subsection (9) makes it clear that the provisions of this section do not derogate from the court’s powers under sections 212, 451 and 455 of this Act.
Subsection (10) provides that where there are preference shares or shares with other rights, the issue of further shares having similar rights is not to be regarded as an alteration of the rights of the first shareholders. This provision is equivalent to Model Regulation 4 of Part I of Table A of the First Schedule to the Companies Act 1963.
Section 89 sets out a mechanism by which members holding a class of shares may apply to the court to seek to have a variation of the rights attached to that class, under section 88, cancelled. This section is drawn from section 78 of the Companies Act 1963. Subsections (1) and (2) re-enact subsection (1) of section 78 CA 1963. However, subsection (1) now expressly refers to section 89, which permits the variation of rights attached to class shares. Subsections (3) to (8) re-enact subsections (2) to (6) of section 78 CA 1963. They describe the manner in which an application to the court should be made and provide that the court can confirm or disallow the variation, having regard to all the circumstances of the case. The decision of the court can be appealed on a question of law only. The LTD is obliged to deliver to the Registrar a certified copy of the court order within 21 days from when such order is made and failure to do so will result in a category 4 offence. Subsection (7) now makes reference to a categorised offence, in line with the changes made in this Act with regards to offences.
Section 90 requires the delivery to the Registrar of particulars of special rights attaching to shares that have not previously been registered. This is taken from section 39 of the Companies (Amendment) Act 1983. Failure to comply with this section constitutes an offence and the LTD and any officer in default shall be guilty of a category 4 offence.
Section 91 is new and deals with variation of company capital on reorganisation. A company may dispose of assets, liabilities and undertakings in exchange for securities in the transferee being allotted to members of the company (rather than to the transferor company). This facilitates what is sometime referred to as the “three way re-organisation” where a company spins out some of its assets in return for the issue of shares to its shareholders. This will now be permitted by either employing the Summary Approval Procedure; or adopting the traditional procedure of passing a special resolution that is to be confirmed by the court under section 85 of the Act.
Subsections (1) and (2) permit a LTD to enter into a transaction to dispose of assets, undertakings or liabilities, or a combination thereof, to a body corporate in return for shares or securities being allotted to the members of the LTD or its holding company as consideration. It is clarified in subsection (1) that a company may lawfully transfer or dispose of assets and/or undertakings (or parts thereof) where the re-organisation of company capital is not the purpose of the transaction removing any doubt as to whether the transaction permitted by the section can lawfully be carried out where this is plainly not the purpose or may only be a secondary purpose.
Under subsection (3), the provisions of subsection (2) apply whether or not the terms of the transfer or disposal also involve the payment of cash to the members. Subsection (4) provides that such transactions are only given effect following the approval by the LTD under the Summary Approval Procedure or by special resolution which has been confirmed by the court under section 86 of the Act. If the transaction is given effect, subsection (5) provides for a reduction in the capital of the LTD to the value of the asset(s) and/or undertaking(s) transferred or disposed. Under subsection (6), any transaction in contravention of this section shall be voidable at the instance of the LTD against any person who had notice of the facts constituting such contravention.
Section 92 provides that an alteration of share capital, other than an increase in share capital, must be notified to the Registrar within 30 days. Failure to provide such notification constitutes a category 3 offence. This section is based on section 69 of the Companies Act 1963.
Section 93 provides that, where a LTD has an authorised share capital, notice of an increase of capital must be delivered to the Registrar within 30 days after the passing of the resolution to increase the capital. Not providing this notification constitutes a category 3 offence. This is taken from section 70 of the Companies Act 1963.
The text in italics on this page is sourced from the DEJI website and is re-published under the Licence for Re-Use of Public Sector Information made pursuant to Directive 2003/98/EC Directive 2013/37/EU of the European Parliament and of the Council on the re-use of public sector information transposed into Irish law by the European Communities (Re-Use of Public Sector Information) Regulations 2005 to 2015.