Q&As

Can a company which has distributable reserves buyback shares allotted to the company's employee share ownership trust (ESOT) in circumstances where the shares were never paid for by the ESOT (it is showing as a debt on the balance sheet), but the shares were allotted fully paid. Can the money used by the company to pay for the shares be used by the ESOT to repay the debt?

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Published on LexisPSL on 10/11/2016

The following Share Incentives Q&A provides comprehensive and up to date legal information covering:

  • Can a company which has distributable reserves buyback shares allotted to the company's employee share ownership trust (ESOT) in circumstances where the shares were never paid for by the ESOT (it is showing as a debt on the balance sheet), but the shares were allotted fully paid. Can the money used by the company to pay for the shares be used by the ESOT to repay the debt?

If such a company proposes to carry out a share buyback, one key issue to consider is whether the shares to be bought back are fully-paid or not, which is a question of fact.

If the shares are not, in fact, fully-paid (ie, if amounts remain unpaid in respect of their nominal value and any premium on it) they cannot be bought back as this would be in breach of section 691(1) of the Companies Act 2006 (CA 2006).

If they are fully-paid, then they can be bought back, provided that all the other requirements of CA 2006, Pt 18 relating to share buybacks are com

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