ABSTRACT
In respect of private companies only, the 1985 Act allows the use of capital to finance a redemption or purchase of their own shares.54 The company must, however, use its available distributable profits and the proceeds of any fresh issue of shares made for the purposes of redemption or purchase first and then any shortfall can be made up from capital. This is known as the ‘permissible capital payment’.55 The conditions which have to exist before the payment out of capital can be made are that: (a) there has to be authorisation in the company’s articles for redemption or
purchase out of capital. Article 35 of Table A does contain such authorisation;
(b) there must be a statutory declaration by the company’s directors specifying the amount of the permissible capital payment for the shares and stating that, having made full enquiry into the affairs and prospects of the company, they have formed an opinion that there will be no grounds on which the company could be found to be unable to pay its debts immediately following the payment of the capital and that the company will be able to continue to carry on business as a going concern to pay its debts as they fall due during the year immediately following that date;56
(c) there must be attached to the statutory declaration a report addressed to the directors from the company’s auditors stating that, inter alia, they are not aware of anything to indicate that the opinion expressed by the directors in the declaration is unreasonable;57 and
(d) there must be a special resolution approving the payment out of capital.58 The resolution will be ineffective if any member of the company who holds shares to which the resolution relates, exercises the voting rights carried by the shares in voting on the resolution and the resolution would not have been passed if he had not done so.59
