SHARE BUYBACK

Re Exchange Banking Co –Jessel

MR

The creditor…gives credit to the company on the faith of the

representation that the capital shall be applied only for the
purpose of the business and he has therefore a right to say
that the corporation shall keep its capital and not return it to
the shareholders
Purchasing own shares – Why not?

■ Amount to return of the capital to the

members
■ To protect the creditors.
■ May allow the current board and senior
management to use share buyback to have
control.
■ May allow for manipulation of share price
 Case: Trevor v Whitworth

F : The executors of W ( deceased shareholder) sold his

shares in the company to it. Payment–by two
installments. Prior second installment – the
company went into liquidation. The executors
claimed the payment from the company’s
liquidator,T.
( The company’s AOA authorised purchasing own
shares)
Held: A company had no power to purchase its own
shares even if its articles permitted such acquisition
“…they are entitled to assume that no part of
the capital which has been paid into the
coffers of the company has been
subsequently paid out, except in the
legitimate course of its business”
per Lord Watson
 Mookapillai v Liquidator, Sri
Saringgit Sdn Bhd

F: An agreement between majority and minority

shareholders. The company would purchase the
shares of the minority at a certain price.

H: Sec 67 (Companies Act 1965) clearly prohibits the

purchase by the company of its own shares or any
direct or indirect financial assistance by it for the
purchase of its own shares.
Share buyback - Companies Act 2016

Sec 123 (1) :

■ Company cannot give financial assistance and
■ Company cannot purchase its own shares

sec 123(1)(b) …or in any way purchase, deal

in…its own shares
 Sec 127; allow purchase by a company of
its own shares
■ (1)Public listed company if authorise by its
constitution
■ (2) A company shall not purchase its own shares
unless:
(a) solvent – will not cause insolvency
(b) through Stock Exchange, in accordance with its
rules (exception if permitted by stock exchange rules
–subsec(3))
(c) good faith, company’s interests
 Sec 127(2)(a) – company is solvent
Solvency statement & Solvency test

■ Sec 113 – Solvency Statement

- Sign by majority of directors
- Stating that the company satisfies the solvency test
and they had made inquiries into the affairs of the
company and taking into account liabilities of the
company
- Directors declare that it is necessary to share buyback
and the share buyback is made in good faith and in the
interests of the company
■ Sec112(2) – Solvency test for share buyback
- Company will not become insolvent and capital not
impaired at the date of the insolvency statement
- Company remains solvent during 6 months after date
of declaration i.e. solvency statement

- Sec 114: director commits a criminal offence if ‘no

reasonable grounds’ for the insolvency statement
made.
In addition to Sec 127

■ Chapter 12 of BM Listing Requirement

- para 12.03; authorized by ordinary
resolution
Funding for share buyback

■ Sec 127(2)(a): borrowing

■ para 12.11 of BMLR; borrowing is allowed
The shares purchase;directors may

■ Sec 127(4); cancel or retain as treasury

shares, or retain part and cancel the
remainder
■ Sec 127(5);unless held in treasury shall
deemed to be cancelled immediately upon
purchase
Where shares are held as treasury share, the directors
may: (sec 127(7))
(a) Distribute it as dividend
(b) Resell in accordance with the rules of the stock
exchange
(c) Transfer the shares under an employees’ share
scheme
(d) Transfer the shares as purchase consideration
(e) Cancel the shares
(f) Sell, transfer or use for purpose describe by the
Minister
Other Exceptions

■ Sec 346(2) (c)

- there is injustice or oppression; court order
company to purchase the member’s shares

■ Sec 72(2)
- redemption of redeemable preference
shares