Commonwealth Numbered Acts

COMPANY LAW REVIEW ACT 1998 NO. 61, 1998 - SCHEDULE 5--Amendments

Corporations Law

1 Paragraph 117(2)(k)

Repeal the paragraph, substitute:

(k) for a company limited by shares or an unlimited company--the following:

(i) the number and class of shares each member agrees in writing to take up

(ii) the amount (if any) each member agrees in writing to pay for each share

(iii) if that amount is not to be paid in full on registration-- the amount (if any) each member agrees in writing to be unpaid on each share

Omit "The shares have the nominal value specified for them in the application.".

3 Table in section 141

Omit item 41.

4 Subsection 162(4)

Repeal the subsection, substitute:

(4) A special resolution to change an unlimited company that has share capital to a company limited by shares may also provide that a specified portion of its uncalled share capital may only be called up if the company becomes an externally-administered body corporate.

5 Paragraphs 163(3)(a), (b) and (c)

Repeal the paragraphs, substitute:

(a) that the company has prepared a list that sets out the following details about each person to whom the shares will be issued:

(i) name and address

(ii) the number and class of shares the person will take up

(iii) the amount (if any) the person will pay for the shares

(iv) the amount (if any) that will be unpaid on the shares; and

(b) the number and class of shares those persons will take up; and

(c) the amount (if any) those persons will pay for the shares; and

(ca) the amount (if any) that will be unpaid on the shares; and

Add:

(5) The register does not have to show the amount unpaid on the shares (see paragraph (1)(f)) if:

(a) all of the company's shares were issued before Schedule 5 of the Company Law Review Act 1998 commenced; and

(b) the register continues to show amount of unpaid par value for the shares as they were immediately before that commencement.

Repeal the section.

8 At the end of subsection 254A(1)

Add:

Note 3: On the issue of a bonus share there need not be any increase in the company's share capital.

Add:

Note 4: The company cannot issue par value shares (see section 254C) or bearer shares (see section 254F).

Repeal the sections, substitute:

SECT 254C No par value shares Shares of a company have no par value.

Note: Sections 1444-1449 contain application and transitional provisions that deal with the introduction of no par value shares. See also subsection 169(4).

Repeal the section, substitute:

SECT 254H Resolution to convert shares into larger or smaller number (1) A company may convert all or any of its shares into a larger or smaller number of shares by resolution passed at a general meeting.

Note: The variation of class rights provisions (sections 246B-246G) may apply to the conversion.

(a) the day the resolution is passed; or

(b) a later date specified in the resolution.

(4) The company must lodge a copy of the resolution with the ASC within 1 month after it is passed.

12 Section 254K

Repeal the section, substitute:

SECT 254K Other requirements about redemption A company may only redeem redeemable preference shares:

(a) if the shares are fully paid-up; and

(b) out of profits or the proceeds of a new issue of shares made for the purpose of the redemption.

Note: For a director's duty to prevent insolvent trading on redeeming redeemable preference shares, see section 588G.

Repeal the section, substitute:

SECT 254S Capitalisation of profits A company may capitalise profits. The capitalisation need not be accompanied by the issue of shares.

14 Section 254T

Repeal the section, substitute:

SECT 254T Dividends to be paid out of profits A dividend may only be paid out of profits of the company.

Note: For a director's duty to prevent insolvent trading on payment of dividends, see section 588G.

Repeal the paragraphs, substitute:

(c) the amount (if any) paid, or agreed to be considered as paid, on each of those shares; and

(d) the amount unpaid (if any) on each of those shares; and

Omit ", and nominal value,".

17 After the heading to Part 2J.1 and before Division 1 of that Part

Insert:

SECT 256A Purpose This Part states the rules to be followed by a company for reductions in share capital and for share buy-backs. The rules are designed to protect the interests of shareholders and creditors by:

(a) addressing the risk of these transactions leading to the company's insolvency

(b) seeking to ensure fairness between the company's shareholders

(c) requiring the company to disclose all material information.

Repeal the sections, substitute:

SECT 256B Company may make reduction not otherwise authorised (1) A company may reduce its share capital in a way that is not otherwise authorised by law if the reduction:

(a) is fair and reasonable to the company's shareholders as a whole; and

(b) does not materially prejudice the company's ability to pay its creditors; and

(c) is approved by shareholders under section 256C.

Note 1: One of the ways in which a company might reduce its share capital is cancelling uncalled capital.

Note 2: Sections 258A-258F deal with some of the other situations in which reductions of share capital are authorised. Subsection 254K(2) authorises capital reductions involved in the redemption of redeemable preference shares and subsection 257A(2) authorises reductions involved in share buy-backs.

Note 3: For a director's duty to prevent insolvent trading on reductions of share capital, see section 588G.

(a) it relates only to ordinary shares; and

(b) it applies to each holder of ordinary shares in proportion to the number of ordinary shares they hold; and

(c) the terms of the reduction are the same for each holder of ordinary shares.

(3) In applying subsection (2), ignore differences in the terms of the reduction that are:

(a) attributable to the fact that shares have different accrued dividend entitlements; or

(b) attributable to the fact that shares have different amounts unpaid on them; or

(c) introduced solely to ensure that each shareholder is left with a whole number of shares.

(1) If the reduction is an equal reduction, it must be approved by a resolution passed at a general meeting of the company.

Special shareholder approval for selective reduction

(2) If the reduction is a selective reduction, it must be approved by either:

(a) a special resolution passed at a general meeting of the company, with no votes being cast in favour of the resolution by any person who is to receive consideration as part of the reduction or whose liability to pay amounts unpaid on shares is to be reduced, or by their associates; or

(b) a resolution agreed to, at a general meeting, by all ordinary shareholders.

(3) The company must lodge with the ASC a copy of any resolution under subsection (2) within 14 days after it is passed. The company must not make the reduction until 14 days after lodgment.

Information to accompany the notice of meeting

(4) The company must include with the notice of the meeting a statement setting out all information known to the company that is material to the decision on how to vote on the resolution. However, the company does not have to disclose information if it would be unreasonable to require the company to do so because the company had previously disclosed the information to its shareholders.

Documents to be lodged with the ASC

(5) Before the notice of the meeting is sent to shareholders, the company must lodge with the ASC a copy of:

(a) the notice of the meeting; and

(b) any document relating to the reduction that will accompany the notice of the meeting sent to shareholders.

(2) If the company contravenes subsection (1):

(a) the contravention does not affect the validity of the reduction or of any contract or transaction connected with it; and

(b) the company is not guilty of an offence.

Note: Subsection (3) is a civil penalty provision (see section 1317DA).

Other provisions relevant to reductions in share capital
1	section 588G section 1317HA	liability of directors on insolvency Under the combined operation of these sections the directors may have to compensate the company if the company is, or becomes, insolvent when the company reduces its share capital.
2	section 1324	injunctions to restrain contravention Under this section the Court may grant an injunction against conduct that constitutes or would constitute a contravention of this Law.
3	section 733	ASC intervention (application to the Panel) Under this section the ASC may apply to the Corporations and Securities Panel for a declaration if it appears to the ASC that unacceptable circumstances have, or may have, occurred in relation to a reduction in share capital. If the Panel makes a declaration it may exercise a range of powers under section 734.
4	sections 1001A-1001D	continuous disclosure provisions Under these sections a disclosing entity is required to disclose information about its securities that is material and not generally available.
5	Chapter 2E	benefits to related parties to be disclosed Under this Chapter a financial benefit to a director or other related party that could adversely affect the interests of members of a public company, or diminish or endanger its resources, must be approved at a general meeting before it can be given.
6	section 125	provisions in constitution This section deals with the way in which a company's constitution may restrict the exercise of the company's powers and the consequences of a failure to observe these restrictions.
7	sections 246B-246G	variation of class rights These sections deal with the variation of rights attached to a class of shares. This variation may be governed by the provisions of the company's constitution.

19 Section 257AA

Repeal the section.

20 Section 257A

Omit "(other than redeemable preference shares)".

21 Items 6 and 7 in table in section 257J

Omit "256F", substitute "256D".

22 Sections 258E and 258F

Repeal the sections, substitute:

SECT 258E Other share cancellations Any reduction in share capital involved in:

(a) the redemption of redeemable preference shares out of the proceeds of a new issue of shares made for the purpose of the redemption (see section 254K); or

(b) a company's buying-back of its own shares under sections 257A to 257J if the shares are paid for out of share capital; or

(c) the cancellation of a share under subsection 667(3) or 1024E(7);

SECT 258F Reductions because of lost capital A company may reduce its share capital by cancelling any paid-up share capital that is lost or is not represented by available assets. This power does not apply if the company also cancels shares.

23 Item 6 in the table in section 348

Repeal the item, substitute:

6

issued shares

The classes into which the shares are divided and for each class of share issued: * the number of shares in the class * the total amount paid up for the class * the total amount unpaid for the class.

24 Paragraph 601BC(8)(c)

Repeal the paragraph.

25 After section 601BP

Insert:

SECT 601BQ References in pre-registration contracts and other documents to par value in existing contracts and documents (1) This section applies in relation to a company registered under this Part for the purpose of interpreting and applying after registration:

(a) a contract entered into before the registration; or

(b) a trust deed or other document executed before the registration.

(3) A reference to a right to a return of capital on a share is taken to be a reference to a right to a return of capital of a value equal to the amount paid before the registration in respect of the share's par value, or the par value that the share would have had if it had been issued then.

(4) A reference to the aggregate par value of the company's issued share capital is taken to be a reference to that aggregate as it existed immediately before the registration.

26 Subsection 1087(1)

Repeal the subsection, substitute:

(1) A certificate issued after the commencement of Schedule 5 to the Company Law Review Act 1998 specifying shares held by a member of a company must state:

(a) the name of the company and its jurisdiction of registration; and

(b) the class of the shares; and

(c) the unpaid on the shares.

Omit "Subsection 256F(3)", substitute "Subsection 256D(3)".

28 After paragraph 1324(1A)(b)

Insert:

; and (c) a company's contravention of paragraph 256B(1)(a) (fair and reasonable test for share capital reduction) affects the interests of a member of the company.

Insert:

(ia) para graph 256B(1)(b) (share capital reduction not to prejudice ability to pay creditors); or

After "contravention of", insert "paragraph 256B(1)(a) or (b),".

31 After Division 10 of Part 11.2

Insert:

Division 11--Changes resulting from Schedule 5 to the Company Law Review Act SECT 1998 SECT 1443 Meaning of commencement, new Law and old Law In this Division:

commencement means the commencement of Schedule 5 to the Company Law Review Act 1998 .

new Law means this Law as in force after commencement.

old Law means this Law as in force immediately before commencement.

SECT 1444 Share capital--application of new no par value rule to shares issued before commencement Section 254C of the new Law applies to shares issued before commencement as well as shares issued after commencement.

SECT 1445 Share capital--references to amount paid on shares issued before commencement For the purposes of the operation of this Law after commencement in relation to a share issued before commencement:

(a) the amount paid on the share is the sum of all amounts paid to the company at any time for the share (but not including any premium); and

(b) the amount unpaid on the share is the difference between the issue price of the share (but not including any premium) and the amount paid on the share (see paragraph (a)).

SECT 1447 Share capital--use of amount standing to credit of share premium account A company may use the amount standing to the credit of its share premium account immediately before commencement to:

(a) provide for the premium payable on redemption of debentures or redeemable preference shares issued before commencement; or

(b) write off:

(i) the preliminary expenses of the company incurred before commencement; or

(ii) expenses incurred, payments made, or discounts allowed, on or before commencement, in respect of any issue of shares in, or debentures of, the company.

Note: After commencement, a company will be able to issue bonus shares without transferring an amount to the share capital account (see section 254A).

SECT 1449 Share capital--references in pre-commencement contracts and other documents to par value (1) This section applies for the purpose of interpreting and applying after commencement:

(a) a contract entered into before commencement (including a company's constitution); or

(b) a trust deed or other document executed before commencement.

(a) if the share is issued before commencement--the par value of the share immediately before commencement; or

(b) if the share is issued after commencement but shares of the same class were on issue immediately before commencement--the par value that the share would have had if it had been issued then; or

(c) if the share is issued after commencement and shares of the same class were not on issue immediately before commencement--the par value determined by the directors.

(3) A reference to a right to a return of capital on a share is taken to be a reference to a right to a return of capital of a value equal to the amount paid in respect of the share's par value.

(4) A reference to the aggregate par value of the company's issued share capital is taken to be a reference to that aggregate as it existed immediately before commencement and:

(a) increased to take account of the par value of any shares issued after commencement; and

(b) reduced to take account of the par value of any shares cancelled after commencement.

32 Schedule 3

Repeal the item relating to subsection 256C(7).

Insurance Act 1973

33 Paragraph 22(2)(j)

Repeal, substitute:

(j) if the body corporate has a share capital--the body's issued share capital and paid-up share capital;

34 Subsection 23(2)

Repeal the subsection, substitute:

(2) The reference in subsection (1) to the adjusted paid-up share capital of a life company is a reference to the amount of the company's paid-up share capital represented by ordinary shares and irredeemable preference shares.

35 After section 233

Insert:

SECT 233A Transfer by life insurance company to statutory fund This section authorises any share capital reduction that occurs because a life company appropriates or transfers an amount to a statutory fund established and maintained under this Act.

Note: Section 256B of the Corporations Law permits share capital reductions authorised by law to be carried out without shareholder approval.

Repeal the definition.

Pooled Development Funds Act 1992

37 Subsection 4(1) (paragraphs (a), (b) and (c) of the definition of shareholders' funds )

Repeal the paragraphs, substitute:

(a) the amount of the company's share capital; and

Repeal, substitute:

(c) the applicant's issued share capital and paid-up share capital;

[ Minister's second reading speech made in--

House of Representatives on 3 December 1997

Senate on 5 March 1998 ]

(246/97)