The UK Government has announced changes to the Companies Act 2006 to help promote employee ownership following recommendations made by Fieldfisher partner, Graeme Nuttall, in his independent report on employee ownership.
Changes in how share buy backs can be financed are a step towards addressing the lack of resources, including funding, to create and maintain employee ownership. These deregulatory changes help overcome concerns about the complexity of employee ownership arrangements.
The Government intends to amend the Companies Act 2006 by secondary legislation so that the following measures will come into force during 2013:
In relation to authorising share buy backs these amendments will:
- allow off-market share buy backs to be authorised by ordinary (rather than special) resolution; and
- allow for the prior approval of multiple off-market share buy backs for the purposes of or pursuant to an employees’ share scheme, to be authorised by a single ordinary resolution.
In relation to financing share buy backs these amendments will:
- allow private limited companies to pay for its own shares in instalments (where the buy back is for the purposes of or pursuant to an employees’ share scheme)
- allow for private limited companies to finance buy backs (for the purposes of or pursuant to an employees’ share scheme) out of capital, subject to the signing of a solvency statement by the board of directors and shareholder approval by special resolution.
- allow for private limited companies to buy back shares using small amounts of cash (an amount not exceeding the lower of £15,000 or the cash equivalent of 5% of share capital in any financial year) that does not have to be identified as distributable reserves.
In relation to treasury shares these amendments will:
- allow all companies limited by shares to hold their own shares in treasury and to deal with such shares as treasury shares.
Graeme Nuttall, a partner at law firm Fieldfisher said:
"These changes are more wide ranging than originally expected and are an important start in making employee ownership mainstream in the UK. They target improvements in the operation of internal share markets, to support companies using direct employee share ownership. This is just one of the possible forms of employee ownership. This announcement shows the Government is prepared to back its many recent words of support for employee ownership, with ambitious action."
Nicholas Thompsell, a partner in Fieldfisher's corporate department, added
"The deregulatory changes to the Companies Act recently announced will be seen as a landmark, not just for employee owned companies, but for company law generally."
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