Companies Act 1993

Shareholders and their rights and obligations - Minority buy-out rights

115: Court may grant exemption if company insolvent

You could also call this:

“Court can excuse company from buying shares if it can't afford them”

If someone tells a company they want to sell their shares, the company might have a problem if buying those shares would make it run out of money. This is called failing the solvency test. If this happens, and the company can’t find anyone else to buy the shares, they need to ask a court for help.

The company needs to tell the court that they can’t afford to buy the shares and that they tried really hard to find someone else to buy them. If the court believes the company, it can do a few things to help:

  1. It can say the company doesn’t have to buy the shares at all.
  2. It can say the company can wait a while before buying the shares.
  3. It can make other decisions to help solve the problem.

The court wants to make sure the company doesn’t get into financial trouble by buying shares it can’t afford. It also wants to be fair to the person who wants to sell their shares. The court will look at all the information and decide what’s best for everyone.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM320601.

Topics:
Business > Industry rules
Business > Fair trading
Money and consumer rights > Banking and loans

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Part 7 Shareholders and their rights and obligations
Minority buy-out rights

115Court may grant exemption if company insolvent

  1. If—

  2. a notice is given to a company under section 111; and
    1. the board has resolved that the purchase by the company of the shares to which the notice relates would result in it failing to satisfy the solvency test; and
      1. the company has, having made reasonable efforts to do so, been unable to arrange for the shares to be purchased by another person in accordance with section 111(2)(b),—
        1. the company must apply to the court for an order exempting it from the obligation to purchase the shares.

        2. The court may, on an application under subsection (1), if it is satisfied that—

        3. the purchase of the shares would result in the company failing to satisfy the solvency test; and
          1. the company has made reasonable efforts to arrange for the shares to be purchased by another person in accordance with section 111(2)(b),—
            1. make—
            2. an order exempting the company from the obligation to purchase the shares:
              1. an order suspending the obligation to purchase the shares:
                1. such other order as it thinks fit, including any order referred to in section 114(2).