The Companies Act 2014 restricts the ability of a PLC to issue bearer shares, such as share warrants, which was previously permissible. A renounceable letter of allotment is permitted. Shares represented by the letter of allotment may be transferred by renunciation and delivery within a period, which must not be more than 30 days.
PLCs have the capacity to offer, allot and issue securities to the public, subject to compliance with the provisions of the Companies Act in relation to the public offer of securities.
Shares may not be allotted by a PLC unless authorised either specifically or by a general authority under ordinary resolution or in the constitution of the PLC. The authority is to specify the maximum number of shares that may be allotted and the date on which the authority will expire, which is to be not more than five years. The authority may be renewed by an ordinary resolution in general meeting, for a further three-year period. Contravention is a category 3 offence.
Where shares are allotted, a return must be made of allotments within 30 to the CRO. Failure to do so is an offence. However, this does not affect the validity of the allotment. The provision does not apply to employees share scheme shares. It includes rights to subscribe for shares or to convert into shares.
Pre-Emption Right I
Shareholders have a statutory right of pre-emption in respect of the issue of securities by a PLC. The provisions apply to shares and “equity securities” as defined. An equity security is widely defined and includes rights to subscribe for and rights of conversion to such securities.
The PLC must first make an offer to each person who holds shares or employee shares, to allot shares on the same or more favourable terms, a proportion of the securities, as nearly as practicable, equal to the proportion in nominal value held by him of the aggregate of the relevant shares or employee shares, as the case may be. It may not allot shares until the requisite period for acceptance has expired.
Securities may be allotted to a person to whom members renounce their shares, under renounceable letters of allotment.
Pre-Emption Right II
The pre-emption right does not apply to securities paid-up other than in cash. It does not apply to the allotment of securities which apart from renunciation or assignment, would be held under an employee share scheme.
The offer of securities is to be open for acceptance for not less than 14 days. The offer may not be withdrawn during this period. There are provisions in relation to the parties to whom the offers must be made. There is a reference date at which the directors may draw a line as to who qualifies for the right.
In the case of contravention, the PLC and every officer who knowingly authorised or permitted it, is jointly and severally liable to compensate persons to whom an offer should have been made. The proceedings must be taken within two years.
Disapplication of Rights
Where directors are authorised generally to issue shares, they may be given the power to issue the shares as if the right of pre-emption did not apply or as if it applied with such modifications as the directors might determine.
Where the directors are authorised, the PLC may resolve by special resolution, that the pre-emption right shall not apply to a specified allotment of securities, to be made pursuant to an authority or that the rights shall not apply to the allotment with such modifications as the resolution may provide. The power will expire on the terms provided for in the special resolution or when it is revoked or expires. The resolution may be renewed.
Notwithstanding that the power under the resolution has expired, the directors may allot securities in pursuance of an offer or agreement made before expiry, provided that this was within the terms of the power, notwithstanding that it has since expired.
A special resolution to renew an authority shall not be proposed unless it is recommended by the directors and there has been circulated with notice of the meeting at which the resolution is proposed, to the members having an entitlement to notice, a statement of the reasons why the directors are making the recommendation.
There are restrictions on the extent to which public limited companies may issue shares for non-cash consideration. A PLC may not accept undertakings to do work or perform services in return for the issue of shares.
Where it does so, the holder of the shares is liable to pay the PLC, the whole of the nominal value together with the whole of the premium attributed to them and interest. A person buying such shares is also jointly liable unless he acquired them without actual notice of the contravention.
Where shares are allotted without being fully paid up, a minimum of 25% of nominal value must be paid up at the time of allotment. This does not apply to employee share schemes shares.
Where shares are issued in contravention of the requirement, the person to whom they are allotted becomes immediately liable to pay the minimum amount, being at least, one-quarter of the nominal value of the shares and the whole of the premium.
Breach of the above requirements is an offence. The PLC and any officers in default are guilty of a category 3 offence.
A PLC may not allot shares as fully paid up (as to nominal value or premium otherwise than in cash) if the consideration includes an undertaking that may be performed more than five years after the date of the allotment. Where shares are issued in contravention, the person to whom they are issued is liable to pay an amount equal to the nominal value and the whole of the premium or such proportion of the amount as is treated as paid up. He must pay interest at the appropriate rate.
Where consideration is to be a non-cash consideration or an undertaking, it is to be performed within five years. If it is not in fact performed, the person to whom the shares were allotted must pay the nominal value together with the whole of the premium and interest, at the end of the five-year period. Contravention is a category 3 offence by the company and any officer in default.
Valuation of Consideration
A PLC may not allot shares as fully or partly paid up as to the nominal value or premium for non-cash consideration unless it has been valued by an independent person. A report must be made to the PLC in relation to the value, within the previous six months. It must be sent to the allotee. A copy of the report is to be filed with the CRO. A person to whom shares are allotted in contravention must pay the nominal value together with any premium together with interest.
The independent person must be a person qualified to be the auditor. He may adopt the valuation of another person (subject to the restrictions as to his connection with the PLC) who appears to be independent and to possess the knowledge required for valuation. There are exemptions where the non-cash consideration consists of the shares of another company. It must be open to the holders of all the shareholders in the other company or in the case of particular classes, the whole of the members of that class. Other conditions apply.
Where the allotment by a PLC is in connection with a proposed merger or a division of the company, the valuation report may be by an independent person responsible for certain other reports required in the context of mergers and divisions.
The restriction does not apply to an allotment of shares by a PLC in connection with an arrangement providing for the allotment of shares as to the whole or part of the consideration, provided by the transferor to that PLC or the cancellation of shares of a particular class in another company, with or without issue to that PLC of shares or shares of any particular class in that other company.
Valuation Report I
The report of the independent person shall state—
- the nominal value of the shares to be wholly or partly paid for by the consideration in question;
- the amount of any premium payable on those shares;
- the description of the consideration and, as respects so much of the consideration as the independent person himself or herself has valued, a description of that part of the consideration, the method used to value it and the date of the valuation; and
- the extent to which the nominal value of the shares and any premium are to be treated as paid up by the consideration and in cash.
Where any consideration is valued by a person other than the independent person, the latter’s report shall state that fact and shall also state the former’s name and what knowledge and experience that the other person has to carry out the valuation;describe so much of the consideration as was valued by that other person, the method used to value it and state the date of valuation.
Valuation Report II
The report of the independent person shall contain a note by the independent person, or be accompanied by such a note
- in the case of a valuation made by another person, that it appeared to the independent person reasonable to arrange for it to be so made, or to accept a valuation so made;
- irrespective of whether the valuation has been made by that person or the independent person, that the method of valuation was reasonable in all the circumstances;
- that it appears to the independent person that there has been no material change in the value of the consideration in question since the valuation; and
- that on the basis of the valuation the value of the consideration, together with any cash by which the nominal value of the shares or any premium payable on them is to be paid up, is not less than so much of the aggregate of the nominal value and the whole of any such premium as is treated as paid up by the consideration and any such cash.
A person carrying out the report is entitled to require information and explanations from officers of the PLC, as is required to carry out the report. It is an offence to make a false or misleading statement in relation to the report, either to the person making the report or in response to enquiries or other communications.
PLCs may issue shares in consideration of transferable securities or certain money market instruments, subject to terms and conditions. The value of the securities to be given for the allotment is to be not less than the weighted average price at which they are traded on a regulated market during five days immediately prior to the date on which the consideration is treated as paid. This must not be calculated with reference to a period during which the price has been affected by exceptional circumstances or where the market has become illiquid.
Notice of Allotment
Notice of the proposed allotment (without a valuation) including prescribed details, must be delivered to the CRO. The notice shall contain
- a description of the consideration other than in cash;
- the value of that consideration, the source of the valuation and, where appropriate, the method of valuation;
- a statement whether the value arrived at corresponds at least to the number and nominal value of, and (where appropriate) to the premium on, the shares to be issued for that consideration.
Where shares have been allotted as above, the notice of the allotment must be delivered to the CRO to the Registrar in respect of those shares which shall contain
- a description of the consideration other than in cash at issue;
- the value of that consideration, the source of its valuation and, where appropriate, the method of valuation; and
- a statement whether the value arrived at corresponds at least to the number and nominal value of, and (where appropriate) to the premium on, the shares issued for that consideration; which may be by reference to the particulars delivered prior to the allotment; and
- a statement that no exceptional circumstances or a situation as mentioned above with regard to the original valuation arose prior to the allotment.
Further Non-Cash Issues
Share may be allotted in a PLC for non-cash consideration (other than the securities and money market instruments) without an independent report, provided that conditions are satisfied. They include that
- the non-cash consideration is valued by reference to an opinion as to its fair value by an expert who, in the opinion of the PLC, possesses the requisite degree of independence from the interests concerned in the transaction and holds an appropriate qualification;
- the fair value was determined as on a date not more than 6 months before the date on which the non-cash consideration is treated as consideration given for the allotment of the shares in question;
- that valuation of fair value has been performed in accordance with generally accepted valuation standards and principles in the State (or such standards and principles in another Member State as are equivalent to them) and, in either case, is applicable to the class of assets concerned;
- the giving of such consideration is approved by ordinary resolution of the PLC; or following 14 days’ notice by the board of directors (of the PLC’s intention to give that consideration) to the members, by a resolution of the board of directors of the PLC, and, in either case, that approval is granted not more than 30 days before the date on which the agreement to allot the shares in question is entered into. Where such agreement is subject to conditions that require fulfilment before the agreement can be carried into effect, the date is that on which the conditions are fulfilled. The resolution is to include a statement by the board of directors that they are satisfied that there are no exceptional circumstances known to them, that in their opinion, have significantly changed the fair value of the assets at the date
The exception is not available where certain circumstances apply, which would affect the proper valuation of the assets in question.
Members who hold at least 5% of the shareholding at the date of resolution may request that an independent valuation be carried out as above, in which event, it must be carried out.
References and Sources
Companies Act 2014 (Irish Statute Book)
Companies Act 2014: An Annotation (2015) Conroy
Law of Companies 4th Ed. (2016) Courtney
Keane on Company Law 5th Ed. (2016) Hutchinson
Other Irish Sources
Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury
Introduction to Irish Company Law 4th Ed. (2015) Callanan
Bloomsbury’s Guide to the Companies Act 2015 Courtney & Ors
Company Law in Ireland 2nd Ed. (2015) Thuillier
Pre-2014 Legislation Editions
Modern Irish Company Law 2nd Ed. (2001) Ellis
Cases & Materials Company Law 2nd Ed. (1998) Forde
Company Law 4th Ed. (2008) Forde & Kennedy
Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy
Companies Acts 1963-2012 (2012) MacCann & Courtney
Constitutional Rights of Companies (2007) O’Neill
Court Applications Under the Companies Act (2013) Samad
Company Law – Nutshell 3rd Ed. (2013) McConville
Questions & Answers on Company Law (2008) McGrath, N & Murphy
Make That Grade Irish Company Law 5th Ed. (2015) Murphy
Company Law BELR Series (2015) O’Mahony
Companies Act 2006 (UK) (Legilsation.gov.uk)
Statute books Blackstone’s statutes on company law (OUP)
Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington
Company Law in Context 2nd Ed. (2012) D Kershaw
Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam
Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington
UK Practitioners Services
Tolley’s Company Law Handbook
Gore-Browne on Companies
Palmer’s Company Law