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1.6
Having reached a decision on the recommendations regarding
distributable profits we were able to return to the subjects of the
purchase by a company of its own shares and of Section 48.
1.7
With regard to the purchase by a company of its own shares,
the Standing Committee's Report for 1985 explained that the relevant
provisions in Britain (formerly Sections 45 62 of the Companies
Act 1981, now Sections 159 - 181 of the Companies Act 1985) allow both
private and public companies to purchase their own shares. Rather
oddly, in the opinion of the Standing Committee, the procedure for
purchase by a public company is the simpler of the two. The
provisions are fairly complicated, as one would expect, but basically they
allow both private and public companies to buy their own shares out of
distributable profits or the proceeds of a fresh issue of shares made
for the purpose, subject to prior approval by a special resolution in
the case of a private company and by an ordinary resolution in the
case of a public company buying its listed shares. In addition, a
private company can purchase its own shares out of capital if there are
insufficient distributable profits and if there are insufficient proceeds
from any fresh issue of shares (although there is no compulsion to make
such an issue).
1.8
Members recalled that prior to 1981, any suggestion that
a company should be allowed to purchase its own shares would have been
regarded as rank heresy in Britain. Indeed, the Companies Act 1980
had contained a specific prohibition of such purchase; the prohibition
had previously depended on case law. Members noted that when the
British Government gave notice of its intention to amend the law to
allow a company to purchase its own shares, it had stated in its
consultative document that this would have the following advantages:
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