Wide Options On Share Buyback Wide Only For Equity Recast

The new Companies Bill permits buyback of shares by a company only as a means of restructuring equity and not for treasury operations. This means that shares bought back have to be extinguished and cannot be reissued. Buyback will also be permitted from the free reserves, securities premium account and the proceeds of an issue made specifically for the purpose. The shares could also be bought from the existing shareholders on a proportionate basis, from the open market, from odd lots, employees stock option and through negotiated deals.

However companies will be permitted to restructure their equity from the free reserves, out of the securities premium account and out of the proceeds of any issue made specifically for buyback, provided it is backed by a resolution passed at the annual general meeting and the debt does not exceed twice the capital and free reserves of the company.

In keeping with the recommendations of the expert group, buyback will have to be backed by a special resolution and will have to be conducted in a transparent manner, whereby companies will have to inform shareholders upfront the necessity for buyback, the class of securities to be purchased, the amount to be invested and the time limit within which the buyback will be completed.

A company that buys back its securietes will have to maintain a register of the securieties bought, the consideration paid, the date of cancellation and other particulars.

A company will also file with the registrar a return containing the particulars within 60 days of the completion of the buyback. If the comapny defults in complying with the rules, the company and the officer will be punishable with a two year prison term.