Treasury Shares - DTI Consultation Paper

Profession:Herbert Smith

The DTI issued a further consultation paper in September 2001 on treasury shares for UK companies, which includes draft Regulations to amend the Companies Act to allow for treasury shares. The documents says that the government plans to introduce the changes to the Companies Act as soon as possible during 2002.

The Regulations would allow a company that buys back its own shares to hold those shares in treasury for re-sale at a later date. At present, when a UK company buys back its own shares, it must automatically cancel those shares.

The consultation follows an earlier consultation in 1998 as to whether or not UK company law should be changed to allow for shares to be held in treasury. This is the position in many other jurisdictions, and it was thought that the UK law should also allow for this flexibility. As a result of the responses to that initial consultation, the government has decided to go ahead with the proposal and is now consulting on the detailed terms of the Regulations, and in particular the limits and requirements that will be imposed.

The key limits proposed in the Regulations are that the maximum number of shares which could be held in treasury at any one time would be 10% of the company's issued share capital and that the only companies which will be allowed to hold shares in treasury would be companies whose shares are listed in the UK, are on AIM, or are listed or traded on an equivalent market in another EEA state.

The draft Regulations currently provide that an investment company...

To continue reading