30 March, 2015
Accountants should be aware of changes to share buyback rules, which are soon to come into effect.
New Regulations have been published which seek to clarify the operation of share buyback provisions in the Companies Act 2006, following significant changes in 2013. The draft Companies Act 2006 (Amendment of Part 18) Regulations 2015 are due to come into force on 6 April 2015.
Prior to the changes implemented in 2013 (the Companies Act 2006 (Amendment of Part 18) Regulations 2013), the general rule held that a share buyback was to be either funded by distributable profit or the proceeds of a new issue of shares, or with capital - providing certain statutory requirements were complied with.
The 2013 changes made it possible for private companies to make small share buybacks using small amounts of cash (up to an amount not exceeding the lower of £15,000 or 5% of share capital in any financial year) without having to use distributable profits or capital, as long as it was permitted in the Articles of Association. The regulations have now clarified that the 'amount' referred to is the aggregate purchase price of buybacks made in a financial year and the 5% refers to the nominal value of the company's share capital based on the share capital at the start of the financial year (and excludes any share premium).
Under the new draft regulations the de minimis exemption has been given its own section in the Companies Act 2006 (s 692(1ZA)). In addition, the accountancy consequences have been clarified and it is clear that such a buyback is to be treated as a buyback out of capital. In other words, the de minimis exemption falls under s734 CA 2006 in relation to accounting consequences (see regulation 9) and the regulations prevent shares bought back under this exemption from being held in treasury (regulation 7).
Timing and Deferred Payments
The regime for buybacks pursuant to an employees' share scheme, where shares were to be bought back out of capital, was simplified under the 2013 changes. However, the timing requirements meant that those private companies using the simplified regime under the 2013 regulations were not able to pay for the shares on a deferred basis.
The new regulations now amend the timing requirements to ensure that companies can take advantage of the changes made in 2013 - rather than making reference to the timing of the capital payment, it is the shares which must be surrendered between five and seven weeks after the special resolution approving the capital payment.
Statements of Capital
Under the 2015 Regulations, regulation 4 removes the obligation to file at Companies House two identical statements of capital when shares are bought back out of capital in connection with an employees' share scheme , if the statement of capital would be identical to the one to be delivered upon the cancellation of those shares (under section 720B(1) CA 2006).