Directors’ Statement And Auditor’s Report

SHARE BUYBACK GUIDE

DIRECTORS' STATEMENT AND AUDITOR'S REPORT
This page summarises the form and contents of the Directors’ Statement and Auditors’ Report which are required when a private limited company purchases its own shares using share capital to fund all or part of the purchase price.

  • A Directors Statement must be in the prescribed form and must:
    • State the amount of the ‘Permissible Capital Payment’ for the shares to be purchased (this is the amount of capital required to meet the purchase price after applying any available profits and the proceeds of any fresh issue of shares);
    • state that after due enquiry the Directors are of the opinion that the company:

      • can pay its debts at the date of the statement;
      • will be able to pay its debts for at least one year afterwards; and
      • will be able to continue in business as a going concern for at least one year afterwards.
    • Be signed by all the directors.
  • If the directors have no reasonable grounds for making the above statements, they may be subject to unlimited fines and imprisonment for up to 2 years.
  • If the company is wound up within one year of a share buyback funded out of capital, the directors and the shareholder(s) whose shares were purchased are liable to repay any sum paid out of capital to the liquidator (to the extent required to meet the company’s liabilities and the costs of winding-up). It is a defence for the directors to show that they had reasonable grounds for the opinions set out in the Directors’ Statement.
  • The company’s auditor must also issue an Auditor’s Report to the directors (which must be attached to the Directors’ Statement) stating that the ‘Permissible Capital Payment’ has been properly determined and that the opinions expressed by the directors in the Directors’ Statement are not unreasonable.