Special Committee Companies Bill, 1962 debate -
Tuesday, 5 Feb 1963

SECTION 72.

Mr. J. Lynch

I move amendment No. 27 :

Before subsection (1) to insert a new subsection as follows :

" () Except in so far as this Act expressly permits, it shall not be lawful for a company limited by shares or a company limited by guarantee and having a share capital to purchase any of its shares or to reduce its share capital in any way."

This is an amendment requiring the insertion of a new subsection. Section 72 sets out the circumstances under which share capital may be reduced. During the course of evidence taken by the Jenkins Committee, it was pointed out that there was no specific provision in the law prohibiting a company from purchasing its shares or reducing its share capital in any other way and they recommend that this should be remedied. This has been recognised as a matter of common law for very many years and the purpose of this amendment is to write into the Bill that share capital may not be reduced otherwise than in accordance with the provisions of Section 72.

Major de Valera

We are still on the amendment ?

Chairman

Yes, on the amendment.

Mr. Sweetman

It is very desirable for clarification in the drafting.

Amendment agreed to.

Question proposed : " That Section 72, as amended, stand part of the Bill."

Major de Valera

How does this section deal with the case of calls in arrear ? If shares are issued in successive calls, and they are not met, how does this section affect that situation ? Does it mean subject to the confirmation of the court ?

Mr. J. Lynch

Normally, the question of unpaid calls is dealt with by the Articles of the company and suitable provisions are set out in Table A of this Bill.

Major de Valera

I agree that you do not gain anything by bringing it into this section but does the section bring it in by implication and make it necessary to have confirmation of the court ?

Mr. J. Lynch

No. That would not be necessary. I do not think there is any danger of that arising.

Major de Valera

Paragraph (a) reads: " extinguish or reduce the liability on any of its shares in respect of share capital not paid up; or ".

Mr. J. Lynch

The primary purpose of that paragraph would be to deal with the situation where there were pound shares with only 10/- paid up and it was proposed to cancel the uncalled balance.

Major de Valera

What I am getting at is that very frequently in articles of association there are forfeiture clauses.

Mr. Sweetman

Yes. That is dealt with in page 195.

Major de Valera

In this there are forfeiture clauses. There is no reference here to articles of association except: " may, if so authorised by its articles, by special resolution reduce. . ." Again it is subject to the confirmation of the court. Heretofore if you had pound shares issued and there were only ten issues paid up in allotment and there were calls in arrear after that, the articles would operate, and no court procedure was involved.

Mr. J. Lynch

The section does not change the existing law at all. There are many court cases about these old sections which make it clear what the director's powers are in relation to the cancellation of shares, forfeiture of shares and other matters that might have a bearing on the reduction of capital, and it is quite clear what they can do under their own powers and in what circumstances they must come to the court. I do not think that in the normal forfeiture process a director would feel that he was in difficulties because of Section 72.

Major de Valera

This is not completely the old law. There is a change in this. What was the corresponding provision ?

Mr. J. Lynch

There is no change in the law. This new subsection merely states in statutory form what is already well established case law. There is no difference of substance.

Major de Valera

This is new legislation and we should be fairly satisfied in regard to what we are providing in this legislation. My point is that heretofore the articles allowed forfeiture of shares which had calls in arrear to be effected by routine procedure within the company itself. I am making my words as general as possible. It seems to me on reading this section that henceforth although that may be done, it is a sine qua non that confirmation be obtained from the court. In other words, application to the court is imported into it and in every case an application would have to be made to the court.

Mr. J. Lynch

I do not think there is any danger of that situation arising unless outright reduction was involved.

Major de Valera

It is not a question of danger. Deputy Sweetman could talk more authoritatively on this than I could and he can say whether there is forfeiture.

Mr. Sweetman

Talk more; I will not say " authoritatively ".

Major de Valera

No, authoritatively. If forfeitures do occur under this procedure without going to court, then my reading of this is that if this section becomes law every such forfeiture in future will have to go to court. I may be wrong but that is the opinion I have formed on reading the section and if I am right that is a change of legislation.

Mr. J. Lynch

I think this will answer the point. It is well established that if you adopt articles similar to those in Table A, no one can challenge you. You can exercise the powers given by Table A and by the Act in relation to cancellation and forfeiture and provided you do not go beyond the limits indicated by the case law, you will not run into any trouble.

Mr. Sweetman

If you have a share that is forfeited because a call has not been paid, the share is not cancelled. It is the ownership of that share that is forfeited and the directors have the right to sell that share to somebody else——

Major de Valera

Quite.

Mr. Sweetman

——for the benefit of the company as a whole and that is not a reduction of capital under the section.

Major de Valera

No. I quite agree it is not a reduction of capital under the section but can that section capture the case I am making : " extinguish or reduce the liability on any of its shares in respect of share capital not paid up "?

Mr. Sweetman

Not as I understand it.

Chairman

I do not think so. There is one other matter I wish to raise and which has some bearing on what Deputy de Valera is saying. It is in relation to line 20, the phrase : " if so authorised by its articles ". Is it necessary that that phrase should be in, considering application must be made to the court anyway ?

Mr. J. Lynch

It is necessary because it is something on which members of the company should agree between themselves beforehand.

Mr. Sweetman

Could they not agree by resolution ?

Mr. J. Lynch

They could, and if, in fact, the power were not in their articles they could on the same day amend their articles both to include the power and also carry the resolution for reduction.

Mr. Sweetman

What is the necessity for making them amend their articles ?

Chairman

It seems to duplicate the procedure unnecessarily.

Mr. J. Lynch

That is something which is fairly common throughout the Bill.

Mr. Sweetman

I know. In this case they can only do this by special resolution.

Mr. J. Lynch

It has this advantage : if you have it in the articles people dealing with the company and or looking at its files in the Companies Office will know this is a company that has power to reduce its share capital.

Mr. Sweetman

I am afraid not. That is taking entirely too theoretical a view of the matter. I think it is put in there because it has always been in that form. It is not necessary although I will say that where a thing has always been in that form and where it is not objectionable it is sometimes undesirable to remove it because by doing so you are upsetting a large amount of case law and throwing yourself into vagueness.

Mr. J. Lynch

That is the point we have been making all along in connection with suggestions of a similar nature.

Mr. Sweetman

Only if it is not objectionable.

Chairman

I do not press the point. I merely wanted to know what was the reason for it.

Mr. Sweetman

Where is the provision that under Section 72 the resolution must be a special resolution ?

Mr. J. Lynch

Line 21.

Question put and agreed to.