O purchasing dissident members shares may increase

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o Purchasing dissident member’s shares may increase harmony ad efficiency Potential abuses of share buy backs: o If company becomes insolvent before the buy-back or as a result, the shareholders and not creditors benefit o Selective buy backs may discriminate o Directors may engage in insider trading C.1 General Prohibition against Self Acquisition A company cannot acquire shares in itself or take security over its shares or the shares the company controls {s 259A and B Corporations Act} This is the general prohibition against self acquisition However by {s 257A Corporations Act} this creates and exception to this rule in the form of the share buy back. It is permitted where: o (a) buy back does not materially prejudice the company’s ability to pay creditors o (b) the company follows the procedures laid down in s 257B C.2 “does not materially prejudice creditors” Like with reduction in share capital, there is a requirement that the buy back not materially prejudice creditors; see above 3
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The big issue in relation to buy backs is making sure the company complied with the procedural requirements C.3 Procedural requirements Firstly, despite the type of buy back, the are two requirements that are common to all buy backs: o {s 257F Corporations Act} the company must notify ASIC prior to the buy back o {s 257H Corporations Act} once a buy back agreement is operative, all rights attaching to the shares are suspended and, on re-transfer to the company the shares are cancelled Secondly its important to consider what type of buy back you are dealing with Equal Access Scheme o A buy back offer confined to ordinary shares that offers the same terms to all shareholders and provides a reasonable time to accept those offers {s 257B(2) and (3) Corporations Act} o If the offer exceeds 10/12 limit the terms of the buy back must be approved by ordinary resolution of shareholders prior to buy back being made {s 257C(1) Corporations Act} o Material information known to the company must be provided to the shareholders before the meeting and copies lodged with ASIC {s 257C(2) and (3) Corporations Act} o The company must also include with the buy back offer itself a statement that sets out the information known to the company that is material to the shareholders decision {s 257G Corporations Act; Frazer v NRMA} Selective Buy Back o Occurs where only a select group of shareholders are bought back o Requirements for selective buy back are the same as for equal access except for: Instead of an ordinary resolution, a special resolution needs to be passed with no votes being cast in favour of the resolution by any person (or associate) whose shares are proposed to be bought back {s 257D Corporations Act} Or it can be a unanimous resolution of all ordinary shareholders {s 257D Corporations Act} On Market Buy Back o Where the buy back is made a listed corporation on a prescribed financial market in the ordinary course of trading on that market {s 257B(6) Corporations Act} o
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