Corporations Act 2001

CHAPTER 2J - TRANSACTIONS AFFECTING SHARE CAPITAL  

Note: This Chapter is modified for CCIVs: see Division 2 of Part 8B.4 .

PART 2J.2 - SELF-ACQUISITION AND CONTROL OF SHARES  

Note: This Part applies to a CCIV with modifications: see sections 1231J and 1231K .

SECTION 259A  

259A   DIRECTLY ACQUIRING OWN SHARES  
A company must not acquire shares (or units of shares) in itself except:

(a) in buying back shares under section 257A ; or

(b) in acquiring an interest (other than a legal interest) in fully-paid shares in the company if no consideration is given for the acquisition by the company or an entity it controls; or

(c) under a court order; or

(d) in circumstances covered by subsection 259B(2) or (3) .

Note: For the criminal liability of a person dishonestly involved in a contravention of this section, see subsection 259F(3) . Section 79 defines involved .

SECTION 259B   TAKING SECURITY OVER OWN SHARES OR SHARES IN HOLDING COMPANY 

259B(1)    
A company must not take security over shares (or units of shares) in itself or in a company that controls it, except as permitted by subsection (2) or (3) .

Note 1: For the criminal liability of a person dishonestly involved in a contravention of this subsection, see subsection 259F(3) . Section 79 defines involved .

Note 2: Subsection (3) does not apply to a CCIV: see section 1231K .

259B(2)    
A company may take security over shares in itself under an employee share scheme that has been approved by:

(a)    a resolution passed at a general meeting of the company; and

(b)    if the company is a subsidiary of a listed domestic corporation - a resolution passed at a general meeting of the listed domestic corporation; and

(c)    if paragraph (b) does not apply but the company has a holding company that is a domestic corporation and that is not itself a subsidiary of a domestic corporation - a resolution passed at a general meeting of that holding company.

259B(3)   Special exemptions for financial institutions.  

A company ' s taking security over shares (or units of shares) in itself or in a company that controls it is exempted from subsection (1) if:

(a)    the company ' s ordinary business includes providing finance; and

(b)    the security is taken in the ordinary course of that business and on ordinary commercial terms.

259B(4)    
If a company acquires shares (or units of shares) in itself because it exercises rights under a security permitted by subsection (2) or (3) , then, within the following 12 months, the company must cease to hold those shares (or units of shares). ASIC may extend this period of 12 months if the company applies for the extension before the end of the period.

259B(5)    
Any voting rights attached to the shares (or units of shares) cannot be exercised while the company continues to hold them.

259B(6)    
If, at the end of the 12 months (or extended period), the company still holds any of the shares (or units of shares), the company commits an offence for each day while that situation continues.

259B(7)    

An offence based on subsection (6) is an offence of strict liability.

Note: For strict liability , see section 6.1 of the Criminal Code .

SECTION 259C   ISSUING OR TRANSFERRING SHARES TO CONTROLLED ENTITY  

259C(1)   [ Issue to controlled entity void]  

The issue or transfer of shares (or units of shares) of a company to an entity it controls is void unless:

(a) the issue or transfer is to the entity as a personal representative; or

(b) the issue or transfer is to the entity as trustee and neither the company nor any entity it controls has a beneficial interest in the trust, other than a beneficial interest that satisfies these conditions:

(i) the interest arises from a security given for the purposes of a transaction entered into in the ordinary course of business in connection with providing finance; and

(ii) that transaction was not entered into with an associate of the company or an entity it controls; or

(c) the issue to the entity is made as a result of an offer to all the members of the company who hold shares of the class being issued and is made on a basis that does not discriminate unfairly, either directly or indirectly, in favour of the entity; or

(d) the transfer to the entity is by a wholly-owned subsidiary of a body corporate and the entity is also a wholly-owned subsidiary of that body corporate.

259C(2)   [ ASIC may exempt]  

ASIC may exempt a company from the operation of this section. The exemption:

(a) must be in writing; and

(b) may be granted subject to conditions.

259C(3)   [ Cease to hold or control]  

If paragraph (1)(c) or (d) applies to an issue or transfer of shares (or units of shares), section 259D applies.

SECTION 259D   COMPANY CONTROLLING ENTITY THAT HOLDS SHARES IN IT  

259D(1)   [ 12 month limit]  

If any of the following occur:

(a) a company obtains control of an entity that holds shares (or units of shares) in the company;

(b) a company's control over an entity that holds shares (or units of shares) in the company increases;

(c) a company issues shares (or units of shares) to an entity it controls in the situation covered by paragraph 259C(1)(c);

(d) shares (or units of shares) in the company are transferred to an entity it controls in the situation covered by paragraph 259C(1)(d);

then, within 12 months after it occurs either:

(e) the entity must cease to hold the shares (or units); or

(f) the company must cease to control the entity.

ASIC may extend this period of 12 months if the company applies for the extension before the end of the period.

259D(2)   [ Bonus shares]  

If this section applies to shares (or units of shares), it also applies to bonus shares issued in respect of those shares (or units of shares). Within the same period that applies to the shares themselves under subsection (1), either:

(a) the entity must cease to hold the bonus shares; or

(b) the company must cease to control the entity.

259D(3)   [ Voting shares controlled]  

Any voting rights attached to the shares (or units of shares) cannot be exercised while the company continues to control the entity.

259D(4)   [ Offence]  

If, at the end of the 12 months (or extended period), the company still controls the entity and the entity still holds the shares (or units of shares), the company commits an offence for each day while that situation continues.

259D(4A)   [ Strict liability offence]  

An offence based on subsection (4) is an offence of strict liability.

Note: For strict liability , see section 6.1 of the Criminal Code .

259D(5)   [ Exceptions]  

This section does not apply to shares (or units of shares) if:

(a) they are held by the entity as a personal representative; or

(b) they are held by the entity as trustee and neither the company nor any entity it controls has a beneficial interest in the trust, other than a beneficial interest that satisfies these conditions:

(i) the interest arises from a security given for the purposes of a transaction entered into in the ordinary course of business in connection with providing finance; and

(ii) that transaction was not entered into with an associate of the company or an entity it controls.

259D(6)   [ Effect of contravention]  

A contravention of this section does not affect the validity of any transaction.

SECTION 259E   WHEN A COMPANY CONTROLS AN ENTITY  

259E(1)   [ Control of entity]  

For the purposes of this Part, a company controls an entity if the company has the capacity to determine the outcome of decisions about the entity's financial and operating policies.

259E(2)   [ Influence and behaviour]  

In determining whether a company has this capacity:

(a) the practical influence the company can exert (rather than the rights it can enforce) is the issue to be addressed; and

(b) any practice or pattern of behaviour affecting the entity's financial or operating policies is to be taken into account (even if it involves a breach of an agreement or a breach of trust).

259E(3)   [ Joint capacity]  

Merely because the company and an unrelated entity jointly have the capacity to determine the outcome of decisions about another entity's financial and operating policies, the company does not control the other entity.

259E(4)   [ Exercise of legal obligation]  

A company is not taken to control an entity merely because of a capacity that it is under a legal obligation to exercise for the benefit of someone other than its shareholders.

Note: This situation could arise, for example, if the company holds shares as a trustee or is performing duties as a liquidator.

SECTION 259F   CONSEQUENCES OF FAILING TO COMPLY WITH SECTION 259A OR 259B  

259F(1)   [ Effect of contravention] 

If a company contravenes section 259A or subsection 259B(1):

(a) the contravention does not affect the validity of the acquisition or security or of any contract or transaction connected with it; and

(b) the company is not guilty of an offence.

259F(2)   [ Person involved in contravention]  

Any person who is involved in a company's contravention of section 259A or subsection 259B(1) contravenes this subsection.

Note 1: Subsection (2) is a civil penalty provision (see section 1317E).

Note 2: Section 79 defines involved .

259F(3)   [ Offence]  

A person commits an offence if they are involved in a company's contravention of section 259A or subsection 259B(1) and the involvement is dishonest.