Companies Act 2006 s.594 – Exception to valuation requirement: arrangement with another company

(1) Section 593 (valuation of non-cash consideration) does not apply to the allotment of shares by a company (“company A”) in connection with an arrangement to which this section applies.

(2)This section applies to an arrangement for the allotment of shares in company A on terms that the whole or part of the consideration for the shares allotted is to be provided by—

(a)the transfer to that company, or

(b)the cancellation,

of all or some of the shares, or of all or some of the shares of a particular class, in another company (“company B”).

(3)It is immaterial whether the arrangement provides for the issue to company A of shares, or shares of any particular class, in company B.

(4)This section applies to an arrangement only if under the arrangement it is open to all the holders of the shares in company B (or, where the arrangement applies only to shares of a particular class, to all the holders of shares of that class) to take part in the arrangement.

(5)In determining whether that is the case, the following shall be disregarded—

(a)shares held by or by a nominee of company A;

(b)shares held by or by a nominee of a company which is—

(i)the holding company, or a subsidiary, of company A, or

(ii)a subsidiary of such a holding company;

(c)shares held as treasury shares by company B.

(6)In this section—

(a) “arrangement” means any agreement, scheme or arrangement (including an arrangement sanctioned in accordance with—

(i)Part 26 [^F909or 26A^F909] (arrangements and reconstructions), or

(ii)section 110 of the Insolvency Act 1986 (c. 45) or Article 96 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)) (liquidator in winding up accepting shares as consideration for sale of company property)), and

(b) “company”, except in reference to company A, includes any body corporate.

Read section 594 in the full Act → Definitions (6) Cases (3)

Definitions used in section 594

share

(1) In the Companies Acts “share”, in relation to a company, means share in the company's share capital.

Defined in s.540(1) · see it in the full Act

company

“company” means a company formed and registered under this Act, that is—

(a)

a company so formed and registered after the commencement of this Part, or

(b)

a company that immediately before the commencement of this Part—

(i)

was formed and registered under the Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)), or

(ii)

was an existing company for the purposes of that Act or that Order,

(which is to be treated on commencement as if formed and registered under this Act).

Defined in s.1(1) · see it in the full Act

(4) In this section and that Schedule “company” includes any body corporate.

Defined in s.1159(4) · see it in the full Act

holding company

(1) The Secretary of State may by regulations amend the provisions of section 1159 (meaning of “subsidiary” etc) and Schedule 6 (meaning of “subsidiary” etc: supplementary provisions) so as to alter the meaning of the expressions “subsidiary”, “holding company” or “wholly-owned subsidiary”.

Defined in s.1160(1) · see it in the full Act

subsidiary

Defined in s.1160(1) · see it in the full Act

1 The provisions of this Part of this Schedule explain expressions used in section 1159 (meaning of “subsidiary” etc) and otherwise supplement that section.

Defined in Sch.6 para.1 · see it in the full Act

treasury shares

(5)In the Companies Acts references to a company holding shares as treasury shares are to the company holding shares that—

(a)were (or are treated as having been) purchased by it in circumstances in which this section applies, and

(b)have been held by the company continuously since they were so purchased (or treated as purchased).

Defined in s.724(5) · see it in the full Act

body corporate

“body corporate” and “corporation” include a body incorporated outside the United Kingdom, but do not include—

(a)

a corporation sole, or

(b)

a partnership that, whether or not a legal person, is not regarded as a body corporate under the law by which it is governed;

Defined in s.1173(1) · see it in the full Act

Cases considering section 594 (3)

Zavarco Plc v Tan Sri Syed Mohd Yusof Bin Tun Syed Nasir

[2017] EWHC 2877 (Ch) · 14 November 2017Disapplies

Section 594 disapplies the valuation requirement only where the allotment is connected with an arrangement satisfying the statutory conditions. The alleged arrangement did not qualify because it was not settled by the relevant date. (see paras [84]-[89]) Section 594(2) required an arrangement for the allotment of shares in one company on terms that consideration would be provided by transferring or cancelling shares in another company. The initial allotment was not made on those terms. (see paras [84]; [86]-[89]) Section 594(4) required the arrangement to be open to all holders of the relevant shares in the other company. The court was not satisfied that this condition was met because a shareholder was not offered shares in the acquiring company. (see para [90]) Section 594(6) gives “arrangement” a broad meaning covering any agreement, scheme or arrangement. The court nevertheless held that the arrangement had to be settled sufficiently for its terms to be identified at the material time. (see paras [84]-[89])

Zavarco Plc v Ranjeet Singh Sidhu

[2022] EWCA Civ 1040 · 22 July 2022Disapplies

Since section 593 did not apply to subscriber shares, the court did not decide whether the purported share-for-share transaction was an arrangement within section 594. That question was left for a case in which it properly arises (see paras [103]-[104]).

Zavarco Plc v Yusof & Anor

[2019] EWHC 1837 (Ch) · 17 July 2019

The provision was identified in the earlier proceedings as relevant to the alleged arrangement for satisfying the share consideration by transferring shares in another company. The earlier court rejected the existence of that arrangement (see paras [23]-[24]).

What each judgment says about section 594 is in the case-law panel in the full Act.

Amendments and notes

1 notes from legislation.gov.uk

Amendments

F909Words in s. 594(6)(a)(i) inserted (26.6.2020) by Corporate Insolvency and Governance Act 2020 (c. 12), s. 49(1), Sch. 9 para. 33(4) (with ss. 2(2), 5(2))