New legislation will come into force in April 2015 which will clarify the procedural requirements for share buybacks.
We reported in 2013 on the Companies Act 2006 (Amendment of Part 18) Regulations 2013 which came into force on 30 April 2013 and were designed to relax regulatory requirements on private companies purchasing their own shares.
On 9 March 2015 a new set of regulations, the Companies Act 2006 (Amendment of Part 18) Regulations 2015 (new regulations), were published, together with an explanatory memorandum. These further amend the buyback provisions of the Companies Act 2006 as it was noted that there were minor omissions in the 2013 regulations which prevented companies from taking full advantage of those provisions.
The new regulations
The proposed amendments to the buyback provisions are as follows:
- de minimis exemption - the provisions permitting private companies to make small buybacks out of capital in a financial year without first having to exhaust all distributable reserves will be re-drafted to make them clearer. The de minimis exemption remains subject to the annual aggregate purchase price limit of the lower of £15,000 or 5% of share capital, but the new regulations make it clear that the second limb of that limit is 5% of the nominal value of the company's fully paid share capital as at the beginning of the financial year
- accounting treatment - for accounting purposes, the new regulations confirm that any buybacks made under the de minimis exemption will be treated in the same way as buybacks out of capital. They will also prevent shares bought back under that exemption from being held in treasury. These changes are aimed at ensuring consistent accounting treatment for shares bought back under the de minimis exemption and those bought back out of capital
- timing for payment of shares - the new regulations will also clarify the timing between when the shares being bought back are surrendered and when payment (out of capital for the purposes of, or pursuant to, an employee share scheme) must be made. The requirement to make payment between five and seven weeks of surrender in this situation will be removed, making it clear that payments can be made by instalments
- statement of capital - the requirement to deliver a statement of capital when the shares are cancelled following a buyback out of capital for the purposes of, or pursuant to, an employee share scheme will be removed if it will merely be replicating one already delivered
The new regulations will come into force on 6 April 2015.
The 2013 regulations made the financing of share buybacks more flexible and eased the regulatory requirements for approving them. While the new regulations make no substantive changes to the regime introduced in 2013, much needed clarity will be introduced, providing further understanding for private companies who wish to buy back shares in connection with an employees' share scheme, to authorise and finance a buy back, and to hold shares in treasury.