Companies Act 2006 s.606 – Power of court to grant relief

(1)A person who—

(a)is liable to a company under any provision of this Chapter in relation to payment in respect of any shares in the company, or

(b)is liable to a company by virtue of an undertaking given to it in, or in connection with, payment for any shares in the company,

may apply to the court to be exempted in whole or in part from the liability.

(2)In the case of a liability within subsection (1)(a), the court may exempt the applicant from the liability only if and to the extent that it appears to the court just and equitable to do so having regard to—

(a)whether the applicant has paid, or is liable to pay, any amount in respect of—

(i)any other liability arising in relation to those shares under any provision of this Chapter or Chapter 5, or

(ii)any liability arising by virtue of any undertaking given in or in connection with payment for those shares;

(b)whether any person other than the applicant has paid or is likely to pay, whether in pursuance of any order of the court or otherwise, any such amount;

(c)whether the applicant or any other person—

(i)has performed in whole or in part, or is likely so to perform any such undertaking, or

(ii)has done or is likely to do any other thing in payment or part payment for the shares.

(3)In the case of a liability within subsection (1)(b), the court may exempt the applicant from the liability only if and to the extent that it appears to the court just and equitable to do so having regard to—

(a)whether the applicant has paid or is liable to pay any amount in respect of liability arising in relation to the shares under any provision of this Chapter or Chapter 5;

(b)whether any person other than the applicant has paid or is likely to pay, whether in pursuance of any order of the court or otherwise, any such amount.

(4)In determining whether it should exempt the applicant in whole or in part from any liability, the court must have regard to the following overriding principles—

(a)that a company that has allotted shares should receive money or money's worth at least equal in value to the aggregate of the nominal value of those shares and the whole of any premium or, if the case so requires, so much of that aggregate as is treated as paid up;

(b)subject to this, that where such a company would, if the court did not grant the exemption, have more than one remedy against a particular person, it should be for the company to decide which remedy it should remain entitled to pursue.

(5) If a person brings proceedings against another (“the contributor”) for a contribution in respect of liability to a company arising under any provision of this Chapter or Chapter 5 and it appears to the court that the contributor is liable to make such a contribution, the court may, if and to the extent that it appears to it, just and equitable to do so having regard to the respective culpability (in respect of the liability to the company) of the contributor and the person bringing the proceedings—

(a)exempt the contributor in whole or in part from his liability to make such a contribution, or

(b)order the contributor to make a larger contribution than, but for this subsection, he would be liable to make.

(6)Where a person is liable to a company under section 604(2) (agreement for transfer of non-cash asset: effect of contravention), the court may, on application, exempt him in whole or in part from that liability if and to the extent that it appears to the court to be just and equitable to do so having regard to any benefit accruing to the company by virtue of anything done by him towards the carrying out of the agreement mentioned in that subsection.

Read section 606 in the full Act → Definitions (5) Cases (3)

Definitions used in section 606

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

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

undertaking

(1) In the Companies Acts“undertaking” means—

(a)a body corporate or partnership, or

(b)an unincorporated association carrying on a trade or business, with or without a view to profit.

Defined in s.1161(1) · see it in the full Act

the court

(1) Except as otherwise provided, in the Companies Acts “the court” means—

(a)in England and Wales, the High Court or the county court;

(b)in Scotland, the Court of Session or the sheriff court;

(c)in Northern Ireland, the High Court.

Defined in s.1156(1) · see it in the full Act

(2) The provisions of the Companies Acts conferring jurisdiction on “the court” as defined above have effect subject to any enactment or rule of law relating to the allocation of jurisdiction or distribution of business between courts in any part of the United Kingdom.

Defined in s.1156(2) · see it in the full Act

allotted shares

(2)References in the Companies Acts to issued or allotted shares, or to issued or allotted share capital, include shares taken on the formation of the company by the subscribers to the company's memorandum.

Defined in s.546(2) · see it in the full Act

Cases considering section 606 (3)

Zavarco Plc v Ranjeet Singh Sidhu

[2022] EWCA Civ 1040 · 22 July 2022Limits

The court held that section 606 provides no power to exempt a subscriber from the contractual obligation, enforced by section 584, to pay cash for shares taken on formation (see paras [105]-[113]). Relief under section 606(1)(a) is confined to liabilities under Chapter 6. A subscriber’s cash-payment obligation arises under section 584 in Chapter 5 and is outside that gateway (see paras [105]-[107]). The court held that section 606(1)(b) does not permit relief from the subscriber’s section 584 obligation. The provision was not construed so as to fill the deliberate absence of a Chapter 5 relief power for that obligation (see paras [108]-[113]). In an alternative and non-dispositive assessment, the court agreed that the judge had properly refused relief. The audited accounts did not establish the value of the acquired shares, and use of them without expert evidence would have been unfair (see paras [114]-[120]).

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

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

Section 606(1) authorised an application for exemption from liability arising under the statutory share-payment provisions. Mr Nasir’s liability under section 593 fell within section 606(1)(a). (see paras [105]-[107]) Section 606(2) required the court to assess whether exemption from statutory liability was just and equitable by considering payments or likely payments connected with the shares. Those considerations did not justify relief because no payment had been made or was likely to be made by another person. (see paras [105]-[109]) Section 606(4) required regard to the overriding principle that the company should receive money or money’s worth at least equal to the nominal value and premium treated as paid up. The court refused relief because that principle and the wider justice of the case required payment of the full nominal value. (see paras [105]; [109]-[116])

Zavarco Plc v Yusof & Anor

[2019] EWHC 1837 (Ch) · 17 July 2019

The earlier court declined to grant relief from the defendant’s obligation to pay for the shares. That determination was part of the earlier proceedings’ final resolution of the share liability (see para [24]).

What each judgment says about section 606 is in the case-law panel in the full Act.

Explanatory note

882.Section 606 restates section 113(1) to (8) of the 1985 Act. It enables the court to grant relief, to the applicant, from a liability to the company which has arisen (under any provision of Chapter 6) in relation to payment in respect of shares in a company or an undertaking given to the company in, or in connection with, payment for any shares in it. There is a minor change in the restatement insofar as the matters to which the court must have regard in applying the just and equitable test in subsection ( 2) also apply where the liability relates to the payment of interest (under section 113 (2)(b)) of the 1985 Act the court is not required to have regard to those matters in applying the just and equitable test).

All the explanatory notes for the Act