Nuttall Review - implementation of share buy back changes
Partners Graeme Nuttall and Laurence Lumb demonstrate Field Fisher Waterhouse LLP's flair for innovation by changing UK company law
The government has announced changes to the statutory regime for share buy backs as recommended in Graeme Nuttall's report to the Government – the Nuttall Review. These changes are to encourage employee share ownership in private companies through improving the operation of internal share markets. The changes do, however, go wider than this.
The changes are significantly wider than the original government proposals consulted upon in October 2012. Our article "The Nuttall Review: simplifying share buy backs to encourage employee ownership" (which first appeared in Tax Adviser on 1 February 2013) discussed those proposals, and suggested further steps that would benefit employee owned companies undertaking share buy backs. These suggestions are now included in a package of six specific measures to facilitate the buy back process:
Authorising a share buy back
- off-market share buy backs can be authorised by an ordinary, rather than special, resolution of the shareholders;
- a single ordinary resolution may be used to authorise multiple share buy backs for the purposes of or pursuant to an employees' share scheme (subject to certain financial and time limits);
Financing a share buy back
- a private company can agree with a selling shareholder to pay in instalments for shares that are being bought back for the purposes of or pursuant to an employees' share scheme;
- a private company is permitted to buy back shares each financial year up to a limit of either £15,000 or the cash equivalent of 5% of its share capital (whichever is lower) without having to identify whether this is funded from capital or distributable profits;
- a private company buying back shares out of capital for the purposes of or pursuant to an employees' share scheme may do so using a special resolution and directors' solvency statement only
Disposal of repurchased shares
- shares of all limited companies can be held as treasury shares following a buy back, and subsequently be reissued to new shareholders.
As will be apparent, three of the six measures are not restricted to buy backs in connection with an employees' share scheme, and will assist private companies generally (and also, in relation to treasury shares, public companies whose shares are not currently "qualifying shares").
The government is expected to publish shortly the statutory instrument which will effect the necessary amendments to Part 18 of the Companies Act 2006, with a view to this coming into force in April 2013.
As explained in the Nuttall Review, using direct employee share ownership is just one of the possible forms of employee ownership, and this will hopefully be the first part of a wider set of measures to help make employee ownership a mainstream part of the UK economy.