Clarification of share buyback rules
The share buyback regulations introduced in 2013 relaxed certain Companies Act 2006 requirements that would otherwise apply when a company undertakes a buyback of its shares.
One of the main changes gave a private company the ability to effect a buyback of shares from cash without the need to be holding distributable reserves. The maximum purchase price for the shares acquired under this relaxed provision in any financial year is however currently limited to the lower of £15,000 and the ‘value of 5% of its share capital’ (the de minimis exemption).
Unfortunately, the 2013 regulations created both legal and accounting uncertainties. On 6 April 2015, new regulations were brought into force to clarify these uncertainties although the use of the de minimis exemption continues to be limited given the financial constraints (2015 regulations).
The 2015 regulations:
- clarify that the annual limit for the de minimis exemption is the lower of £15,000 and 5% of the company’s paid up nominal capital as at the beginning of the relevant year;
- align the treatment of a purchase under the de minimis exemption with the purchase made out of capital; and
- provide that the shares purchased under the de minimis exemption may not be held in treasury.
The Department for Business Innovation and Skills has published a revised version of its guidance explaining the changes now made to the share buyback regime.
This makes clear that as a result of the changes made by the 2015 regulations, the purchase price for a buyback made under the de minimis exemption does not have to be the nominal value of the shares.
The new guidance states that it remains the government’s intention to carry out a full review of the share buyback provisions in 2016, which will include the amendments made by the 2015 regulations.
We will keep you informed of developments.
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