21.9 CONTROVERSIAL ASPECTS OF BUYBACKS AND CONVERSION OF SHARE CAPITAL
QUESTION
A small company that is not regulated performs a buyback of shares of 10% of the shares in the company.
This transaction now falls within the ambit of S114(2) because it is more than 5%.
In this situation an independent expert needs to be appointed to do a report. Is this really necessary for a smaller company? Can a waiver be signed?
ANSWER
The question specifically looks at a company that is not regulated, however if it was regulated then one could make application to the TRP and ask for an exemption which would mean that the company does not have to comply with the provisions of S114 as it is exempted. Of course, one must do the solvency and liquidity test and the necessary special resolutions.
In the case above because the company is not regulated and the share buyback is more than 10% S114 kicks in. The conditions of S114 and S115 have to be complied with. The real bad part of this means that the company even if it is a smaller company has to appoint an independent expert to do a report. For the smaller company this seems to be ridiculous as the costs would not warrant the production of the report.
One of the views is that S114 only applies if the buyback is more than 10% of the share capital and is bought back from directors. This interpretation is based on the word “and” between s48 (8) (a) and (b). In this instance the onerous provisions of appointing an independent expert to produce a report may be ignored.
In the event that you wish to adopt the literal interpretation and you are a small company you may ignore the provisions but it will be necessary to do a waiver. The risk with this is that if any party is disgruntled it could pose a problem in the future in that the transaction could be set aside.