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You are here: BAILII >> Databases >> The Law Commission >> SHAREHOLDERS REMEDIES [1997] EWLC 246(APPENDIX C) (24 October 1997) URL: http://www.bailii.org/ew/other/EWLC/1997/246(APPENDIX_C).html Cite as: [1997] EWLC 246(APPENDIX C)

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Draft Regulation 119: Exit Right

(1) The company in general meeting may at any time pass an ordinary resolution under this regulation, and in this regulation

(a) "specified" and "named" respectively mean specified and named in the resolution;

(b) references to an independent person are to be construed in accordance with paragraph (13).

(2) The resolution may provide that if a specified event (or one of a number of specified events) affects a named shareholder he has an exit right which

(a) is exercisable by notice given to the company and named shareholders within a specified period, and

(b) consists of the right to require those shareholders to buy the affected shareholder's shares for a fair price.

(3) A specified event may be, for example

(a) the removal of a shareholder who is a director from his position as a director, otherwise than where he is in serious breach of his duties as a director;

(b) the death of a shareholder.

(4) The affected shareholder's shares are shares in the company which fulfil these conditions

(a) they must be held by him when the notice is given;

(b) they must have been held by him when the resolution was passed or have been allotted directly or indirectly in right of shares so held.

(5) If a specified event is the death of the affected shareholder the person entitled to shares by reason of the death may exercise the exit right to which the affected shareholder was entitled.

(6) The resolution is invalid unless it contains provision as to the meaning of a fair price, and in particular it may provide for any of the following

(a) a price which represents a fair value as decided by an independent person (acting as an expert valuer and not as arbitrator or arbiter);

(b) a price representing a rateable value (found as mentioned in paragraph (7));

(c) in the case of shares which carry a right to participate in surplus assets on a winding up, a price representing their net asset value as decided by an independent person;

(d) in the case of shares which do not carry a right to participate in surplus assets on a winding up, a price equal to the capital paid up on them;

and the resolution may contain different provision for different events.

(7) A rateable value of shares of a particular class (the shares in question) is one decided by an independent person (acting as an expert valuer and not as an arbitrator or arbiter) by taking the market value of all the shares of that class in issue and multiplying it by the fraction

(a) whose numerator represents the capital paid up on the shares in question, and

(b) whose denominator represents the capital paid up on all the shares of that class in issue;

and the market value of all the shares of a particular class in issue is a value found by assuming a sale by a willing seller to a willing buyer of all the company's issued share capital.

(8) The resolution may provide that the net asset value of shares is to take account of or to disregard intangible assets (depending on the terms of the resolution).

(9) Unless the resolution otherwise provides, any value must be found by reference to the state of affairs obtaining at the beginning of the day when the notice exercising the exit right is given.

(10) The following rules apply if a value has to be decided by an independent person for the purposes of the resolution

(a) as soon as is reasonably practicable after it receives the notice the company must instruct the independent person to decide the value;

(b) as soon as is reasonably practicable after it receives the decision the company must give notice of it to the named shareholders;

(c) half the costs of the independent person must be borne by the affected shareholder or, if he is dead, the person entitled to his shares by reason of his death;

(d) half the costs of the independent person must be borne by the shareholders who are required to buy;

(e) the shareholders who are required to buy must bear that half in proportion to the number of shares they are required to buy.

(11) Subject to any provision in the resolution and to any agreement by all the parties concerned

(a) the shareholders who are required to buy must buy the shares in proportion to the number of shares registered in their names in the company's register of members at the beginning of the day on which the resolution was passed (treating joint holders as a single holder);

(b) all parties must do their best to secure that the purchase is completed before the expiry of the relevant period (defined in paragraph (12));

(c) at completion a buyer must pay a proper proportion of the price (in cash and in full) against delivery to him of a duly executed form of transfer.

(12) The relevant period is a period of three months starting with

(a) the day when the company gives notice to the shareholders of the decision of the independent person (if paragraph (10) applies), or

(b) the day when the notice exercising the exit right was given (in any other case).

(13) References in this regulation to an independent person are to an independent person who appears to have the requisite knowledge and experience and who is appointed in such manner as is specified.

(14) A resolution is invalid unless every named shareholder gives a notice to the company (before the resolution is passed) stating that he consents to it.

(15) A resolution ceases to be effective if a named shareholder dies or an event occurs after which he holds none of the following shares

(a) shares held by him when the resolution was passed;

(b) shares allotted directly or indirectly in right of such shares.

(16) Paragraph (15) has effect subject to the following rules

(a) if a notice exercising the exit right has already been given paragraph (15) does not apply as regards that notice;

(b) if the death of the named shareholder is a specified event paragraph (15) does not apply as regards that event;

(c) paragraph (15) does not apply if the resolution disapplies it.

(17) A resolution ceases to be effective if there is agreement to that effect by all relevant persons; and a relevant person is any person who is

(a) a named shareholder, or

(b) a person entitled to a named shareholder's shares by reason of his death.

(18) Regulations 111, 112 and 114 to 116 apply to a notice exercising the exit right as if it were a notice given by the company.

(19) If a notice exercising the exit right is given it cannot be withdrawn without the consent of all relevant persons (within the meaning given by paragraph (17)).

(20) If while a resolution is effective a named shareholder transfers shares, and after the registration of the transfer he would hold none of the shares mentioned in paragraph (15)(a) and (b), the directors of the company must refuse to register the transfer unless all relevant persons (within the meaning given by paragraph (17)) notify the company in writing that they consent to the transfer; and consent unreasonably withheld must be taken to be so notified.

(21) If a resolution is passed under this regulation

(a) a variation of this regulation or of the resolution is to be treated as a variation of the rights attached to the shares held by the named shareholders, and

(b) those rights may be varied only with the consent of all relevant persons (within the meaning given by paragraph (17)).