Corporate

The Government’s drive to encourage greater employee share ownership, the so-called John Lewis Economy, has taken a positive step forward following publication of their response to the Nuttall Report.  The Nuttall Report was commissioned to examine the relationship between businesses and employees and explore ways to make it easier for employees to have an equity stake in their employer, the aim being to replicate the benefits demonstrated by the poster child of employee ownership, engagement and productivity – the retailer John Lewis.

One obstacle identified by the Nuttall Report to greater employee share ownership is that the current company law framework, under which companies can buy back their shares, is cumbersome and acts as a blocker for employees who may wish to sell their shares back to their employer.  This problem is particularly acute for small employers.

Following consultation the Government has proposed amending the law to make share buybacks easier.

After positive feedback the options being considered are:

  • Instead of a special resolution (requiring 75% approval of the shareholders) to permit off-market buybacks of shares, an ordinary resolution (over 50% approval) may be used instead.
  • Allowing companies to approve in advance, multiple off-market buybacks via a single ordinary resolution.

The Government also proposes to make it easier for private companies to finance these purchases by:

  • Allowing private companies (for the purposes of employee share schemes) to finance buybacks in instalments with no time limits.
  • Using a simplified system of solvency statement and special resolution allowing private companies to buy back out of capital.
  • Allowing the use of small amounts of cash (no more than £15,000 or 5% of capital in any financial year) that do not have to be indentified as distributable reserves to finance buybacks.  This could be permissible either where a provision exists in the company’s articles or otherwise by special resolution.
  • Allowing private and unlisted public companies to hold shares in treasury.

These would be positive changes in terms of company law and should reduce the complexity of the administration of share schemes, to the benefit of both the business and the employee.  Whether this alone is enough to encourage employees to invest in their employers is of course a different question.

Will Dunsmure

Trainee Solicitor

Paul Breen

Associate at Brodies LLP
Paul is an associate in Brodies' corporate team. He advises on a wide range of company law issues, including investments, mergers and acquisitions, bespoke commercial contracts and arrangements and ongoing company regulation. He also has experience in dealing with corporate governance arrangements for charities in various sectors.
Paul Breen

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