The acquisition of own shares by limited liability companies

Abstract

This thesis deals specifically with the rules concerning share buybacks by limited liability companies in terms of the Malta Companies Act and the corresponding provisions of UK and EU legislation, as part of the doctrine of capital maintenance. Initially share buybacks were absolutely prohibited, the rationale being the protection of creditors and shareholders against the depletion of the company’s capital. However, a share buyback could have a number of benefits for the company without necessarily causing prejudice to creditors or other shareholders, thus a number of inroads to the absolute prohibition have been developed particularly as a result of the Second Council Directive 77/91/EEC of 13 December 1976, which has now been recast as Directive 2012/30/EU. A company is precluded from subscribing for its own shares whether upon an original or subsequent subscription, but it may acquire its own shares if certain criteria outlined in the law are satisfied. Such criteria need not be adhered to if the share buyback takes places in certain specific circumstances, such as upon a court order or in case of forfeiture or surrender of shares. Whilst a private company in the UK can finance a share buyback out of capital, the issue is not so clear in terms of Maltese law. A company may retain its own shares in treasury, yet there are circumstances where it would be required to cancel or dispose of them within specific time frames. The Malta Companies Act does not deal with treasury shares in a comprehensive manner, and to a certain extent the law is ineffective to prevent abuse, thus various suggestions have been put forward in this regard based upon the more detailed provisions in the UK Companies Act 2006.