(1)The directors of a company must not exercise any power of the company—
(a)to allot shares in the company, or
(b)to grant rights to subscribe for, or to convert any security into, shares in the company,
except in accordance with section 550 (private company with single class of shares) or section 551 (authorisation by company).
(2)Subsection (1) does not apply—
(a)to the allotment of shares in pursuance of an employees' share scheme, or
(b)to the grant of a right to subscribe for, or to convert any security into, shares so allotted.
(3)Subsection (1) does not apply to the allotment of shares pursuant to a right to subscribe for, or to convert any security into, shares in the company.
(3A)Subsection (1) does not apply to anything done for the purposes of a compromise or arrangement sanctioned in accordance with Part 26A (arrangements and reconstructions: companies in financial difficulty).
(4)A director who knowingly contravenes, or permits or authorises a contravention of, this section commits an offence.
(5)A person guilty of an offence under this section is liable—
(a)on conviction on indictment, to a fine;
(b)on summary conviction, to a fine not exceeding the statutory maximum.
(6)Nothing in this section affects the validity of an allotment or other transaction.
Cases considering section 549 (5)
[2022] EWHC 1819 (Ch) · 20 July 2022
Applies the statutory restrictions relevant to the allotment of shares. The allotment of 10,000 shares was invalid because the statutory and constitutional requirements were not satisfied (see paras [5.2]; [144]; [149]).
[2021] EWHC 1418 (Ch) · 25 May 2021Disapplies
The court recognised section 549(1) as conferring rights relating to approval of directors’ allotments. Their statutory disapplication in the Plan context did not prevent shareholders from being affected by the Plan. (see paras [28]-[31])
The court accepted that section 549(3A) disapplies section 549(1) for acts done for a compromise or arrangement sanctioned under Part 26A. It rejected the argument that this meant the Plan did not affect shareholders’ rights. (see para [30])
[2016] EWHC 1143 (Ch) · 17 May 2016
The directors breached the prohibition on exercising the company’s allotment power without the required authorisation. The breach attracted the statutory consequence that the allotment remained valid under subsection (6), subject to the pleaded and proved basis for setting it aside. (see paras [106]; [108]-[113])
The subsection preserved the validity of an allotment made without the required authority. The court held that the allotment to Open Fibre remained valid because no operative improper-purpose case or relevant bad faith and knowledge had been established. (see paras [106]; [109]-[113])
What each judgment says about section 549 is in the case-law panel in the full Act.
844.This section replaces section 80(1), (2), (9) and (10) of the 1985 Act. It provides that the directors may not allot shares (or grant rights to subscribe for shares or to convert any security into shares) except in accordance with one of the following two sections.
845.Subsection ( 2) of this section provides that directors may allot shares in pursuance of an employees’ share scheme without having to comply with one of the following two sections. This mirrors the current position (see section 80(2) of the 1985 Act).
846.Similarly, where a right to subscribe for, or to convert any security into, shares already exists, then the directors may allot shares pursuant to that right without having to comply with one of the following two sections (see sub section 3 ).
847.A director who knowingly allots shares in contravention of the requirements imposed by this section commits an offence. Such an allotment is not, however, invalid.