The BIS consultation on the recommendations in the Nuttall Review of Employee Ownership closed in November 2012.
We reported in December on the proposals set out in the consultation paper.
BIS has now published draft regulations with the aim of removing some of the regulatory restrictions on the ability for private companies to buy back their shares, particularly where the shares form part of an employees' share scheme.
Simplifying share buy backs
The draft regulations are intended to reflect some of the suggestions made by respondents to the consultation, with BIS noting broad support for the main consultation proposals namely: to lower the threshold for shareholder approval of authorising buy-backs; to allow for payment by instalments; to widen the range of options to finance a buy-back; and allow private companies to hold treasury shares.
Additional suggestions being taken forward are to allow for advance approval of multiple buy-backs and to allow unlisted public companies and private companies to hold their own shares as treasury shares.
The draft regulations provide:
- a reduction in the shareholder consent required to approve a buy-back contract to a simple majority or ordinary resolution, rather than a special resolution
- extended methods for private companies to finance buy-backs, with both:
- a new ability to pay with cash, up to a maximum in one financial year of £15,000 or 5% of share capital if lower, without having to identify it as distributable reserves
- reduced requirements for making a payment out of capital for buy-backs relating to an employees' share scheme, subject to the signing of a solvency statement, a special resolution and the payment being made within the five and seven-week "window" after surrender of the shares (removing the requirement for an auditors' report and publication of a notice in the Gazette)
- the following for buy-backs relating to employees' share schemes in private companies:
- ability to authorise in advance multiple buy-backs of shares
- ability to pay in instalments
- ability for private companies to hold their own shares in treasury, previously only available for listed and traded shares
The draft regulations are intended to enter into force on 30 April 2013.
The proposed regulations will provide a welcome change for private companies looking to undertake buy-backs, particularly where these relate to employees' share schemes, giving a broader range of options for financing and easing the regulatory requirements for approving the buy-backs.