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New Zealand law explained for everyone

Companies Act 1993

Shares and debentures - Redemption of shares

71: Special redemption of shares

You could also call this:

“Buying back shares from shareholders under specific conditions”

You can buy back shares from shareholders in a special way, but you need to follow some rules. The board of directors must agree that buying back the shares will be good for the other shareholders. They also need to make sure the price they’re paying for the shares is fair to everyone else.

When the directors decide to do this, they have to write down why they think it’s a good idea. The directors who agree must sign a paper saying they believe it’s the right thing to do.

You can’t buy back the shares if the directors change their minds and don’t think it’s a good idea anymore.

Before you buy back any shares, you need to send all the shareholders a document that explains everything. This document must follow the rules in section 72.

After you send out the document, you have to wait at least 10 working days, but not more than 30, before you can buy back the shares.

If a shareholder or the company thinks buying back the shares isn’t a good idea or the price isn’t fair, they can ask a court to stop it from happening.

If the directors don’t sign the paper saying they agree, or if the company doesn’t send out the explanation document, they can get in trouble with the law.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM320413.

Topics:
Business > Industry rules
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70: Company must satisfy solvency test, or

“A company must be able to pay its debts after buying back its own shares”

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72: Disclosure document, or

“Document explaining share redemption process and rules”

Part 6 Shares and debentures
Redemption of shares

71Special redemption of shares

  1. A company may exercise an option to redeem shares under section 69(1)(b)(ii) only if the board has previously resolved—

  2. that the redemption of the shares is of benefit to the remaining shareholders; and
    1. that the consideration for the redemption of the shares is fair and reasonable to the remaining shareholders.

      1. The resolution must set out in full the grounds for the directors' conclusions.

      2. The directors who vote in favour of a resolution required by subsection (1) must sign a certificate as to the matters set out in that subsection.

      3. A company must not exercise an option to redeem shares under section 69(1)(b)(ii) if, after the passing of a resolution under subsection (1) and before the option is exercised, the board ceases to be satisfied that—

      4. the redemption of the shares is of benefit to the remaining shareholders; or
        1. the consideration for the redemption of the shares is fair and reasonable to the remaining shareholders.

          1. Before the option is exercised pursuant to a resolution under subsection (1), the company must send to each shareholder a disclosure document that complies with section 72.

          2. The option must be exercised not less than 10 and not more than 30 working days after the disclosure document has been sent to each shareholder.

          3. A shareholder or the company may apply to the court for an order restraining the proposed exercise of the option on the grounds that—

          4. it is not in the best interests of the company or of benefit to remaining shareholders; or
            1. the consideration for the redemption is not fair or reasonable to the company or remaining shareholders.

              1. Every director who fails to comply with subsection (3) commits an offence and is liable on conviction to the penalty set out in section 373(1).

              2. If a company fails to comply with subsection (5),—

              3. the company commits an offence and is liable on conviction to the penalty set out in section 373(1); and
                1. every director of the company commits an offence and is liable on conviction to the penalty set out in section 374(1).