New rules on share buybacksPrint publication
New legislation came into force on 6 April 2015, which tidies up some of the law concerning share buybacks.
The regulations :
- clarify that a private company wishing to buy back small quantities of shares using cash can do so using the de minimis exemption introduced in 2013, up to an aggregate purchase price in a financial year of the lower of £15,000 or the nominal value of 5 per cent of its fully paid share capital calculated at the beginning of the financial year
- remove the ability to hold shares in treasury when they are bought back under the de minimis provisions;
- clarify that a buyback under the de minimis provisions should be accounted for in the same ways as other buybacks out of capital
- provide that when shares are repurchased out of capital using the solvency statement procedure (available for repurchases pursuant to an employee share scheme) payment for those shares must be made between five and seven weeks after the date of the special resolution authorising the purchase.
So far, the de minimis provision has not proved very popular. This is in part attributable to deficiencies in the drafting of the original legislation which left private companies that might otherwise have contemplated using the de minimis provision refraining from doing so. In particular, it was not clear what was meant by “the value of 5 per cent of its share capital” and whether this meant nominal capital or whether it included the company’s reserves. The accounting treatment was also not clear.
Aligning the accounting treatment with the treatment for payments out of capital is important. The relevant provision in this context is section 734 of the Companies Act 2006. Section 734 envisages purchases at a discount or premium to nominal value. Accordingly, it will be possible to use the de minimis exemption to buy back at a discount or premium. This gives the provision greater flexibility, albeit that the annual limit is still restrictive.
 The Companies Act 2006 (Amendment of Part 18) Regulations