HC Deb 12 November 1980 vol 992 cc197-8W
Mr. Stevens

asked the Secretary of State for Trade whether he will bring forward proposals to amend section 56 of the Companies Act 1948.

Mr. Eyre

Section 56 requires companies to account for all acquisitions and mergers effected by way of a share exchange on the basis of a fair value of the consideration given or received, thereby requiring the creation of a non-distributable share premium account.

The Government consider that there are circumstances in which it would be right to relieve companies of this obligation. It therefore proposes to make amendments to the Companies Acts in the next Companies Bill to provide the following exceptions from the present requirements:

  1. (i) in the case of a combination by the formation of a new holding company, that is where a new holding company acquires all the share capital of two or more companies, the acquiring company will be permitted to distribute to its own shareholders any pre-acquisition profits distributed to the holding company by any one of the acquired companies, subject to an overall limit determined by reference to the nominal value of the shares issued and the net profit position of that acquired company at the time of acquisition;
  2. (ii) in the case of intra-group reorganisations involving the transfer of a subsidiary from one wholly-owned subsidiary to another such subsidiary, or from the holding company to such a subsidiary, the amount of the share premium for the purpose of section 56 is to be permitted to be regarded as not less than the excess, if any, of the cost or book value of the shares transferred over the aggregate nominal value of the shares issued by the acquiring company;
  3. (iii) in the case of the formation of a new company to acquire all the share capital of a company, the shares acquired are to be permitted to be stated at their nominal value plus any existing share premium account or 198 capital redemption reserve fund in the company acquired.

These exemptions will apply from a date to be specified in the Bill.

There has been some uncertainty in the past about companies' obligations under section 56 in the case of acquisitions and mergers by way of share exchange. The Government therefore also propose to relieve companies generally and retrospectively, from a date to be specified in the Bill, from the obligation to account on a fair value basis for past share-for-share acquisitions of subsidiary companies.