Companies Act 1993

Shares and debentures - Company may acquire its own shares

67: Enforceability of contract to repurchase shares

You could also call this:

“When a company can be made to buy back its shares”

If you make a contract with a company for them to buy back their own shares, you can make the company follow through with the deal. But there’s a catch. The company can only do this if they can still pay their bills after buying the shares. This is called the “solvency test”.

If the company says they can’t afford to buy the shares, they have to prove it. They need to show that buying the shares would make them unable to pay their bills.

If the company hasn’t bought all the shares they promised to buy yet, you still have rights. You can get paid as soon as the company can afford it. If the company is being closed down, you’ll be paid after the people the company owes money to, but before other shareholders.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM320198.

Topics:
Business > Industry rules
Business > Fair trading

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“What happens to shares when a company buys them back”


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Part 6 Shares and debentures
Company may acquire its own shares

67Enforceability of contract to repurchase shares

  1. A contract with a company providing for the acquisition by the company of its shares is specifically enforceable against the company except to the extent that the company would, by performance, be unable to satisfy the solvency test in accordance with section 52.

  2. The company has the burden of proving that performance of the contract would result in the company being unable to satisfy the solvency test in accordance with section 52.

  3. Until the company has fully performed a contract referred to in subsection (1), the other party to the contract retains the status of a claimant entitled to be paid as soon as the company is lawfully able to do so or, prior to the removal of the company from the New Zealand register, to be ranked subordinate to the rights of creditors but in priority to the other shareholders.