The Legal Regulation of Corporate Share Repurchase - A Perspective of Maintaining

Corporate Value and Shareholders' Rights

 
NAME

INSTITUTION
 i

Abstract

The dissertation delves into the legislative framework governing corporate share
repurchases in the UK, where the twin perspectives of maintaining corporate value
and defending shareholders' rights are keenly emphasized. Share repurchases,
grounded in the principles of the Companies Act of 2006, serve as a means for
businesses to shrewdly manage their capital structure and potentially wield influence
over minority shareholders. This study boasts a twofold objective. Firstly, it unravels
the intricate system devised by UK company law to govern the process and execution
of share buybacks, elucidating both on-market and off-market transactions.
Examining the safeguards in place to forestall share repurchases from morphing into
tools for speculative hedging or artificially inflating share prices is crucial in attaining
this goal. Such behavior can erode the company's inherent value and mislead
stakeholders. Secondly, this research scrutinizes the provisions of the Companies Act
of 2006 designed to fortify shareholders' rights within the context of repurchases.
Grasping how the law shields minority shareholders from inadvertent exclusion or
disadvantage is pivotal to this investigation, as it upholds the democratic ideals at the
core of corporate governance. In conclusion, this dissertation offers a comprehensive
legal analysis of the UK legislative framework governing corporate share repurchases,
unmasking the delicate equilibrium that company law strives to strike between
enabling firms to utilize stock purchases as a value-enhancing instrument and
concurrently implementing safeguards to safeguard shareholders' interests and rights
through its lens.

Key words
Twin views, corporate value, shareholders' rights, dissertation, legislative
framework, corporate share repurchases, UK, principles, Companies Act of
2006, capital structure, minority shareholders, dual objective, UK company
law, process, execution, share buybacks, on-market transactions, off-market
transactions, controls, financial hedging, share prices, company's inherent
worth, stakeholders, provisions, strengthen, democratic ideals, corporate
governance, legal examination, balance, value-enhancing instrument,
protections, interests, rights
 ii

Table of Contents
Abstract........................................................................................................................................... i
Introduction.................................................................................................................................... 1
Overview of Corporate Share Repurchases..................................................................................... 3
Legal Framework of Corporate Share Repurchases in the UK........................................................5
Analysis of the Legal Regulation of Share Repurchases.................................................................7
Successful Share Repurchases.................................................................................................. 11
Next public limited company (PLC)..................................................................................... 11
Ashtead Group Plc................................................................................................................ 11
Unsuccessful Share Repurchases.............................................................................................. 12
Royal Dutch Shell................................................................................................................. 12
Tesco PLC............................................................................................................................ 13
Case analysis 1......................................................................................................................... 15
Case analysis 2......................................................................................................................... 16
Case analysis 3......................................................................................................................... 17
Case analysis 4......................................................................................................................... 20
Comparative Analysis................................................................................................................... 22
Comparison of the UK's legal framework with other jurisdictions............................................23
The Kingdom of Great Britain.............................................................................................. 23
The United States of America............................................................................................... 25
The Europe........................................................................................................................... 26
Distinctions........................................................................................................................... 27
Safeguarding Corporate Value and Shareholders' Interests...........................................................28
Importance of Corporate Value Enhancement to the Role of Share Repurchases......................28
Safeguarding the Interests of Shareholders in the Process of Share Repurchases......................29
Conclusion................................................................................................................................... 32
Bibliography................................................................................................................................. 34
 1

Introduction
Corporate share repurchases, often known as buybacks, have steadily become a
significant financial instrument for businesses all over the world. “Repurchases have
traditionally been utilized by businesses to send excess cash to shareholders,
signifying excellent future performance and possibly increasing the share price”. 1
However, as the practice has become more widespread, particularly in sophisticated
financial markets like the UK, regulators, financial analysts, and legal academics have
all become more interested in it. The Companies Act 2006, which “serves as the main
legislative pillar in the UK, provides a complex structure that governs the how, when,
and why of share repurchases”.2 “This fundamental legal principle guarantees that,
even while companies have the freedom to do what is in their best interests,
shareholders; particularly minority
stakeholders are not exposed to dangerous corporate maneuvers that can jeopardize
their rights or the overall worth of the company”3. This is explored in different
perspectives as discussed below:

a. Maintaining Corporate Value

When a firm feels that its shares are cheap, share repurchases can be viewed as a tool
for paying out excess money to shareholders. “A corporation can raise its earnings per
share (EPS) and, consequently, its stock price by reducing the number of outstanding
shares”.4 Shareholders may benefit from this, particularly if the company has
significant cash flows but few investment options. Share repurchases, however, could
reduce the company's long-term worth if they are done at the price of crucial
investments in R&D or other growth strategies.

b. Shareholders' Rights
“Shareholder rights may be impacted by share repurchases in a number of ways.
Repurchases can increase the value of shares that are still outstanding, but they can
also benefit large institutional shareholders and executives who receive stock-based
pay disproportionately”.5 The advantages may not be as great for smaller individual
stockholders. Regulations should therefore make sure that share repurchases don't
result in an unfair wealth concentration or the disenfranchisement of smaller
shareholders.
c. Legal Regulations
The regulatory environment for share repurchases differs depending on the country.
Repurchases are largely governed by Rule 10b-18 of the “Securities and Exchange

1
Nils Bobenhausen, Andreas Knetsch, and Astrid J. Salzmann, "Share Repurchases, Undervaluation,
and Corporate Social Responsibility," SSRN Electronic Journal, 2020, xx, doi:10.2139/ssrn.3754283.
2
Klaus Degenhardt, Companies Act 2006 (Norderstedt: BoD – Books on Demand, 2010), 34.
3
Klaus Degenhardt, Companies Act 2006 (Norderstedt: BoD – Books on Demand, 2010), 46.
4
Jeffrey J. Jewell and Jeffrey A. Mankin, "What Is Your EPS? Issues in Computing and Interpreting
Earnings Per Share," SSRN Electronic Journal, 2016, 14, doi:10.2139/ssrn.2827796.
5
Jewell and Mankin, " Computing and Interpreting Earnings Per Share," 22.
 2

Commission (SEC) in the United States”.6 When repurchasing shares, this regulation
offers businesses a "safe harbor" from accountability for market manipulation. To
avoid abuse and manipulation, there are limitations on the frequency, style, and
amount of repurchases. Other nations with different nuances have similar laws in
place.
d. Fiduciary Duty and Accountability
The concept of fiduciary duty underscores the paramount importance of corporate
management ceaselessly prioritizing the interests of shareholders. This pivotal
responsibility necessitates them to wield well-informed judgments, particularly when
it pertains to matters such as share repurchases. While share repurchases possess the
potential to enhance a company's financial standing and stock value, the enduring
viability of the organization must stand as the guiding creed. Management must
meticulously evaluate the potential ramifications of resource misallocation and a
myopic focus, in addition to the immediate profits stemming from repurchases.
Criticisms stemming from deficient resource management or a narrow-minded
outlook on share repurchases may yield grave consequences. These repercussions
could manifest as legal repercussions for violations of fiduciary responsibility or as
harm inflicted upon the company's standing within the financial markets and the
broader business community. Given the intricate interplay between fiduciary
obligation, strategic decision-making, and accountability, a well-balanced strategy
that encompasses both short-term objectives and the long-term welfare of the
enterprise and its shareholders becomes indispensable.

e. Transparency and Disclosure

In the realm of business, the pillars of shareholder trust are fortified by the enigmatic
dance of transparency and disclosure. The imperative for companies to embrace
transparency is particularly germane when it comes to their share repurchase
initiatives, which demand swift and exhaustive revelation, encompassing pivotal
aspects such as the rationale behind these schemes, the projected timeline for
execution, and the anticipated outcomes. By adhering to these guidelines, enterprises
fashion an environment wherein management is held accountable for their strategic
choices, fostering a heightened sense of responsibility. Shareholders, in turn, are
bestowed with the requisite knowledge to make enlightened decisions and engage in
informed discourse. The intricate tapestry of trust woven between corporations and
shareholders is diligently preserved through such candid and forthright
communication, establishing an atmosphere of mutual confidence and enabling the
equitable navigation of the labyrinthine terrain of corporate affairs.

6
"United States of America - Securities & Stock Exchange," Foreign Law Guide (n.d.), 50,
doi:10.1163/2213-2996_flg_com_322983.
 3

Overview of Corporate Share Repurchases

Corporate share repurchases pertain to the art of enterprises procuring their very own
exceptional shares utilizing an array of tactics, such as the disbursement of cash,
exchanging debt for equity, or transforming preferred shares into common shares.
This strategic maneuver ensues with both defensive and financial consequences, often
employed to metamorphose a company's capital framework. Such repurchases have
been likened to the act of a company devouring its own offspring, a mesmerizing
display of dominance and financial finesse.”.7

i. Anti-Takeover Impact of Share Repurchases

Share repurchases wield two potent anti-takeover maneuvers: "by dwindling the
stockpile of shares, they unleash an intricate obstacle for an entity aspiring to seize a
commanding position, and by propelling share prices to new heights, they escalate the
expense of acquisition." These strategic moves by corporations serve as a formidable
deterrent, safeguarding their autonomy and making hostile takeovers a formidable
endeavor. By strategically manipulating the marketplace, companies can effectively
thwart attempts to undermine their control and maintain their independence.”. 8 These
elements work hand in hand to raise obstacles in the way of potential takeover efforts
and have an impact on stock price dynamics.
ii. Potential Drawbacks and Challenges
Purchasing back shares, albeit deterring takeovers, may also give rise to predicaments
such as diminished potential for fundraising and reduced liquidity of capital. "A
corporation's capacity to generate capital and the adaptability of its financial resources
can both be impeded by an excessive abundance of shares, compelling a meticulous
equilibrium in execution."

Furthermore, this practice can impede the company's agility and fluidity to raise
funds, as well as its ability to swiftly adapt to changing market conditions. The
intricate interplay between share repurchases and the overall financial health of a
corporation calls for astute navigation and strategic decision-making. “Striking the
right balance becomes paramount to striking a harmonious chord between
safeguarding against takeovers and ensuring sustainable growth.”.9

iii. Methods of Share Repurchases

Share repurchases can be executed in a myriad of manners, such as conducting open
market purchases, where shares are procured from the wide open market, engaging in
fixed price tender offers, where shareholders can vend their shares at a predetermined
price, orchestrating Dutch auction tender offers, where shareholders can compete in
offering their selling prices, and initiating direct negotiations with prominent
7
. C. Singleton, The Importance of Share Repurchases for Corporate Executives, Security Analysts, and
Shareholders (2013), 34.
8
Singleton, The Importance of Share Repurchases, 60.
9
Sunghan Ryu, "Key challenges and drawbacks of crowdfunding," Beauty of Crowdfunding, 2019, 56,
doi:10.4324/9780429243714-11.
 4

shareholders, where buybacks are hammered out face-to-face. “These diverse

approaches facilitate companies to regain their own shares, thereby boosting their
financial position and enhancing their control over the market.”.10

iv. Strategic Factors Driving Share Repurchases

The board must ponder the effects of the repurchase on the company's cash position,
its capital requirements, and whether there are superior alternatives for the surplus
cash, like acquisitions or capital expenses. “Share buybacks fulfill various strategic
aims, such as returning funds to shareholders during periods of scarce investment
prospects, amplifying financial indicators like EPS and investor allure, lessening
dilution from employee stock options, improving the capital framework through
borrowing, and acting as a deterrent to hostile takeovers.".11

v. Impact on Company Value and Shareholder Interests

A stock buyback news often triggers a swift surge in stock price due to a dwindling
supply and a whisper of undervaluation. "Metrics such as EPS and ROE experience
enhancement when the count of outstanding shares is reduced, but excessive
borrowing for buybacks can amplify leverage and impinge on liquidity.".12

vi. Shareholders' Interests and Implications

Shareholders who choose to retain their shares after buybacks can reap the rewards of
enhanced financial ratios and an eventual surge in stock prices. With a reduced
number of shares in circulation, the remaining stakeholders experience a magnified
voting influence.13 However, dividends are not paid on repurchased shares held in
treasury, and choosing to fund buybacks rather than growth initiatives can be divisive.

vii. Interpretation and Tax Efficiency

Buybacks, while occasionally signaling undervaluation, require careful consideration
of the balance between immediate profits and future potentials. Investor decisions
might be swayed by tax optimization, as selling stocks back to the company could
prove more advantageous than receiving dividends. Thus, it is crucial to weigh the
trade-off between short-term gains and long-term possibilities when contemplating
buybacks.14 Investor choices may be influenced by tax efficiency because it may
occasionally be more advantageous to sell shares back to the business than to receive
dividends.

10
Alvin Chen and Olga A. Obizhaeva, Stock Buyback Motivations and Consequences: A Literature
Review (CFA Institute Research Foundation, 2022), 70.
11
Philip Bond, Yue Yuan, and Hongda Zhong, "Share Issues versus Share Repurchases," SSRN Electronic
Journal, 2019, 22, doi:10.2139/ssrn.3489555.
12
Min Yan, Beyond Shareholder Wealth Maximisation: Towards a More Suitable Corporate Objective
for Chinese Companies (London: Routledge, 2017), 80.
13
Francis Okanigbuan, "Complementary interests of shareholders and employees," Corporate
Takeover Law and Management Discipline, 2019, 160, doi:10.4324/9780429471124-7.
14
Eric Kemmeren et al., Tax Treaty Case Law around the Globe 2020: Series on International Tax Law,
Volume 126 (Linde Verlag GmbH, 2021), 98.
 5

viii. Managing Hostile Takeovers

Strategically wielded, share buybacks can deter hostile takeovers by diminishing the
perilous threat. A corporation can systematically diminish the accessible shares for
outside acquisition by embarking on share buybacks. This ploy aims to thwart the
predatory endeavors of opportunistic investors and rivals by reducing the pool of
shares up for grabs. However, this defensive maneuver necessitates a delicate
equilibrium between safeguarding the company's autonomy and protecting the
interests of its shareholders. Executing share buybacks entails a trade-off but can
function as a deterrent against hostile takeovers. The corporation may relinquish the
prospect of profiting from future takeover prices, which could have translated into
potential dividends for shareholders. Consequently, opting for share buybacks as a
preventive measure against hostile takeovers demands a deft balancing act between
upholding independence and sacrificing potential takeover benefits.

ix. Considerations for Shareholders

Shareholders must meticulously ponder when scrutinizing repurchase
announcements, taking into consideration a myriad of factors that encompass both
immediate advantages and the company's potential for future growth. The art of
making astute investment decisions relies on striking a delicate equilibrium
between the short-term gains proffered by buybacks and the potential pitfalls and
long-term objectives of the firm. Essentially, a company's choice to buy back
shares is a strategic maneuver that wields a substantial influence on the
configuration of its finances and the interplay of its stocks. Despite the benefits of
enhanced financial indicators and fortified defenses against hostile takeovers, this
operation necessitates meticulous execution due to the plausible emergence of
predicaments such as diminished liquidity and heightened borrowing risks. A
comprehensive evaluation of prospective short-term benefits, long-term business
aspirations, and adverse outcomes becomes imperative as investors scrutinize
these repurchase declarations since it serves as the bedrock for making prudent
investment decisions.

Legal Framework of Corporate Share Repurchases in the

UK

“The Companies Act of 2006 has specific laws dealing to the repurchasing of shares,
also known as "buybacks." The purpose of these rules is to create a structure that will
allow corporations to legally repurchase their own shares while preserving the rights
 6

of owners and creditors”.15

i. Limited companies can only acquire their own shares if they have obtained
the necessary authorization from either their articles or a resolution passed by
the company. This provision deters firms from repurchasing their shares
without a valid motive. They must possess a well-defined mandate, either
stated in the articles of association or approved by the shareholders through a
resolution.16.
ii. Purchases Made with Funds Derived from Capital by Private Companies
(Sections 709–723): “A private business is permitted, under certain
conditions, to make a payment out of its capital towards the redemption or
purchase of its own shares, either of which can be done by the company itself.
Generally, distributable reserves are used as the source of funding for the
share repurchase program. On the other hand, individual businesses can turn
to capital sources if these options are insufficient.17 Affecting the corporation's
capacity to fulfill its liabilities, the clause holds significant weight. Several
precautions call for declarations from directors complemented by reports
issued by auditors. Treasury Shares (Sections 724-732): this includes the
following:
If a business decides to repurchase its own shares, it has the option of either
cancelling those shares or keeping them as treasury shares.
“Treasury shares are a company's own shares that it has bought back but has
not cancelled. These shares are held in the company's treasury. They do not
have any rights to vote, and they do not earn any dividends either”. 18 They are
able to be resold, which provides businesses more flexibility in terms of
managing their cash.

iii. Public Company That Makes Payment for Shares Using Its Own Capital
(Sections 733-737): “The provision outlines the stringent process that a public
business must go through in order to repurchase shares using capital.
Because it creates a greater risk for creditors and the general public, publicly
traded corporations are typically prohibited from utilising their available
resources to buy back shares”.19 However, in the extremely limited instances
in which this is permissible, a stringent procedure that includes statements
from directors, reports from auditors, and approvals is required.
iv. Terms and Conditions of the Contract (Section 698):
Shareholders are entitled to inspect the terms and circumstances of a contract
15
Manoj Kulchania and Rohit Sonika, "Flexibility in Share Repurchases – Evidence from UK," SSRN
Electronic Journal, 2022, 180, doi:10.2139/ssrn.4039883.
16
Pengfei Ma, Chengcheng Li, and Xiaoqiong Wang, "Why Undervalued Firms Repurchase Shares?
Evidence Based on the Market Timing Effect in China," 2023, xx, doi:10.2139/ssrn.4372855.
17
Sarah Worthington, Sealy and Worthington's Text, Cases, and Materials in Company Law (New York:
Oxford University Press, 2016), 78.
18
Worthington, Sealy and Worthington's Text, Cases, and Materials in Company Law, 93.
19
Brenda Hannigan, "21. Share capital—capital raising and payment," Company Law, 2021, 154,
doi:10.1093/he/9780198848493.003.0021.
 7

entered into by a corporation to purchase its own shares, and this information
must be made available to them.
This guarantees that off-market repurchase arrangements are transparent, allowing
shareholders to understand the facts of the transaction and ensuring that the buyback
is in the shareholders' best interests.

Particularly in off-market repurchase arrangements, the UK's regulatory framework

for corporate share repurchases places an emphasis on transparency and shareholder
interests. “The Companies Act of 2006 is the primary piece of legislation governing
the regulatory landscape, which includes numerous other parties”.20 The notification
of changes in capital structure, including buybacks, is required by Companies House,
which is in charge of business registrations. This promotes transparency and keeps
public records current.

While the Financial Conduct Authority (FCA) primarily regulates public corporations,
it also indirectly affects private businesses that want to go public by ensuring that
good governance principles are followed. In order to protect fairness and corporate
control transparency, the Panel on Takeovers and Mergers steps in when share
repurchases constitute a component of takeover strategies or alter ownership
dynamics.
Even though they do not function as direct regulators, professional organizations like
the Institute of Chartered Accountants in England and Wales (ICAEW) and the
Institute of Directors (IoD) develop ethical standards and best practices that have an
impact on company behavior. In intervening to settle disputes resulting from
buybacks, courts act as the last arbiters, guaranteeing compliance with the law and the
fundamental principles of fairness. Overall, while private corporations have more
discretion over their business decisions than their public counterparts, the UK's legal
system and associated organizations support transparency and equity in business
practices, including share repurchases.

Analysis of the Legal Regulation of Share Repurchases

The examination of the legal provisions governing share repurchases in the United
Kingdom reveals a comprehensive structure primarily established by the Companies
Act of 2006, further bolstered by supplementary guidelines provided by authoritative
entities such as the Financial Conduct Authority (FCA) and the London Stock
Exchange (LSE). This intricate framework serves a dual purpose: to grant companies

20
. Adi Sodhi, Share Repurchases, Institutional Framework and Globalisation: A UK-Specific
Investigation (2017), 78.
 8

a degree of operational independence while concurrently upholding their

responsibility to stakeholders. Nonetheless, the efficiency and suitability of this
regulatory framework demand meticulous evaluation, particularly within the context
of an ever-changing financial terrain. As market dynamics and corporate practices
evolve, a thoughtful analysis of the existing legal framework becomes crucial to
ascertain its continued alignment with the objectives of fostering corporate growth,
safeguarding shareholder rights, and maintaining the overall integrity of the financial
system.

a. Promoting Transparency and Accountability:

The legal regulation of share repurchases plays a pivotal role in promoting
transparency and accountability within corporate practices. “By mandating
disclosures to regulatory bodies like Companies House and adhering to ethical
standards set by professional organizations, the framework ensures that buyback
actions are conducted openly and fairly, protecting shareholder interests”.21
Additionally, oversight by entities such as the FCA and the Panel on Takeovers and
Mergers further reinforces responsible corporate behavior in share repurchases.

Effectiveness: The Companies Act 2006, combined with the Listing Rules and the
Disclosure and Transparency Rules of the FCA, lays a heavy emphasis on
transparency. “Public companies are required to disclose details of repurchases
promptly, ensuring market participants are well-informed”.22

Challenges: While transparency is upheld on a procedural front, there is concern about

the strategic reasoning behind buybacks. Some argue companies don’t sufficiently
explain their motivation for buybacks, which can leave investors guessing about long-
term plans and financial health.

b. Protecting Minority Shareholders:

The principle of protecting minority shareholders is a pivotal aspect of the framework,

aimed at ensuring their equitable treatment within the context of share repurchases.
This protective measure operates by mandating that shareholder consent be obtained
for any repurchase endeavors and by establishing well-defined parameters regarding
the permissible range of share prices for such buybacks. The overarching goal is to
shield minority shareholders from the risk of being taken advantage of or
marginalized during repurchase activities undertaken by a company. However,
practical implementation of this principle can present challenges. Instances may arise
where the influence exerted by major stakeholders or cohesive blocs of shareholders
with aligned interests could eclipse the voices of smaller shareholders. Consequently,
the outcome of repurchase decisions might inadvertently favor a particular subset of
shareholders, resulting in an uneven distribution of benefits. This underscores the

21
Eilis Ferran and Look C. Ho, Principles of Corporate Finance Law (OUP Oxford, 2014), 127.
22
Jing Bian, China's Securities Market: Towards Efficient Regulation (Routledge, 2014), 98.
 9

intricate interplay between the intention to safeguard minority shareholders and the
complexities inherent in balancing the influence of differing shareholder groups.

c. Prevention of Market Manipulation:

Effectiveness: With clear rules on timing, volume, and price, the current framework
seeks to prevent companies from using repurchases to artificially inflate stock prices.
This is a vital mechanism to deter short-term manipulations that could deceive
investors.23

Challenges: There have been concerns that companies, despite the rules, might still
time repurchases to bolster executive compensation metrics. This interplay between
executive compensation and repurchases is a grey area, requiring further regulatory
clarity.

d. Maintaining Financial Prudence:

Effectiveness: The provision that repurchases must be funded from distributable

profits or the proceeds of a new share issue ensures that companies do not
compromise their capital structure or financial stability.24

Challenges: However, the definition of 'distributable profits' has its complexities.

Some companies with ample paper profits might lack liquidity or carry hidden
liabilities, making repurchases financially imprudent. The regulations, while well-
intentioned, might not capture these nuances in all scenarios.

e. Treasury Shares Mechanism:

Effectiveness: The introduction of the treasury shares concept was a progressive step,
offering companies flexibility. “By allowing companies to hold repurchased shares as
treasury shares (up to a limit), they have an avenue to re-issue them later or use them
for employee compensation plans”.25

Challenges: The very flexibility of treasury shares also poses risks. These shares can
be re-introduced into the market, potentially diluting existing shareholders.
Furthermore, while they don’t carry voting rights, there's potential for strategic misuse
by companies to control voting dynamics.

23
Jerry Markham, Law Enforcement and the History of Financial Market Manipulation (Routledge,
2015), 106.
24
Meltem Gurunlu, "Maintaining Financial Stability in the Banking Sector," Maintaining Financial
Stability in Times of Risk and Uncertainty, 2019, xx, doi:10.4018/978-1-5225-7208-4.ch002.
25
Winnie Ming, "Factors Affecting the Resale of Treasury Shares in Malaysia," Borneo Journal of Social
Sciences and Humanities 5, no. 1 (2023): 102, accessed September 31, 2023,
doi:10.35370/bjssh.2023.5.1-03.
 10

f. Regulatory Cohesion and Coverage:

Effectiveness: “Multiple regulatory bodies, each with a distinct focus, oversee various
aspects of share repurchases. This multiplicity ensures that the entire process, from
decision-making to market impact, is closely monitored”26

Challenges: The existence of multiple regulatory bodies can sometimes lead to

overlapping jurisdictions or gaps in coverage. “This can create confusion for
companies or allow for regulatory shopping—where companies exploit gaps between
different regulatory frameworks”.27

g. Evolution with Market Dynamics:

Effectiveness: The Companies Act 2006 and associated regulations have, over time,
undergone amendments to keep pace with evolving market practices and global
trends.

Challenges: Despite updates, the speed of financial innovation and globalization

means that regulations might sometimes lag behind market practices. New financial
instruments or strategies can emerge, which aren't immediately addressed by existing
frameworks.

“The UK's legal framework for share repurchases is comprehensive and, in many
ways, effective in safeguarding the interests of investors and ensuring transparent and
ethical corporate behavior. However, as with any regulatory setup, it's not immune to
challenges”.28 Some of these arise from intrinsic complexities in financial decision-
making, while others reflect the constant tug-of-war between corporate autonomy and
regulatory oversight.

For the framework to remain effective, it should be seen as a living entity—subject to

periodic review, responsive to market feedback, and adaptive to both domestic and
global financial trends. Only then can it continue to serve the dual mandate of
fostering corporate growth while safeguarding shareholder interests.

Analyzing the legal regulation and legal system of share repurchase, starting from
some successful and unsuccessful cases of share repurchase can provide inspiration
and relevant experience.

26
Alexander Dill, Bank Regulation, Risk Management, and Compliance: Theory, Practice, and Key
Problem Areas (Routledge: Practical Finance and Banking, 2021), 257.
27
Dill, Bank Regulation, Risk Management, and Compliance, 268.
28
Charith B. Gamage, "How Do Share Repurchases Affect the Information Implications of Dividends?
International Evidence from Share Repurchases Legalization," SSRN Electronic Journal, February 2023,
34, doi:10.2139/ssrn.4363996.
 11

Successful Share Repurchases

Next public limited company (PLC)

Next plc's successful share repurchase strategy exemplifies its astute capital
management practices and commitment to enhancing shareholder value:

Established in 1864, Next, a prominent UK high-street and online retailer, has built a
strong reputation for its strategic capital allocation and cash management. “Beginning
in the early 2000s, the company initiated a share buyback program. Unlike merely
distributing dividends, Next's approach was to repurchase shares to consolidate
ownership and boost per-share metrics, directing surplus funds back to shareholders
when internal growth opportunities didn't necessitate major investments”.29

This consistent and transparent buyback approach bore fruit over the years. By
repurchasing approximately half of its issued share capital between 2000 and 2019,
Next substantially elevated its earnings per share (EPS). This, in turn, contributed to a
remarkable increase in the company's stock price, outpacing several retail
competitors.

Several key factors contributed to the success of Next's share repurchase strategy:

a. Consistency: Next’s share repurchases were not sporadic decisions; they

formed a steady part of the company's broader capital allocation strategy,
reflecting disciplined financial management.
b. Transparency: The company maintained open communication with
shareholders, elucidating the rationale behind its share repurchases and overall
resource allocation strategy.
c. Operational Efficiency: Next's operational excellence allowed the reduction in
the number of outstanding shares to translate into substantial value
appreciation for the remaining shareholders.
Through these practices, Next's share repurchases underscored their dedication to
optimizing shareholder value while effectively managing their capital resources.

Ashtead Group Plc

Background: Since its founding in 1947, Ashtead Group has been active in the market
for renting out various types of equipment. In the 2010s, the company saw significant
expansion thanks to its core operations in the United Kingdom and the United States.

29
Dana Brakman Reiser, "Disruptive Philanthropy: Zuckerberg, the Limited Liability Company, and the
Millionaire next Door," SSRN Electronic Journal, October 2017, accessed September 31, 2023,
doi:10.2139/ssrn.3049021.
 12

Execution: In addition to boosting dividend payments, the corporation started buying

back some of its own shares as part of its efforts to return capital to its investors. This
strategy was especially prominent at times when the company earned a significant
amount of free cash flow but saw fewer chances for internal investment.

Outcome: During the middle to late 2010s, Ashtead's share price saw significant
growth as a result of a combination of factors, including the company's outstanding
operational success as well as its capital return initiatives.

Why Ashtead Group Plc Worked

a. Operational Performance: The main business of the company continued to
operate well, which made it appear as though the share repurchases were a
prudent use of the excess cash that the company had.
b. Balanced Strategy: Instead of relying primarily on share repurchases, Ashtead
adopted a strategy that combined repurchases and dividends in order to
provide shareholders with both short-term income and long-term value
appreciation.

Unsuccessful Share Repurchases

Attempts by businesses to repurchase their own shares that fail to produce the
desired favorable results are referred to as unsuccessful share repurchases.
“These situations frequently result from outside shocks like economic
downturns or unanticipated market shifts, poor capital management,
operational difficulties, or an inability to clearly convey the company's strategic
ambitions to investors. Such unsuccessful repurchase attempts may have
detrimental effects on the company's financial health, decreasing investor trust,
and shareholder value”.30

Royal Dutch Shell

“A multinational energy business, Royal Dutch Shell, also known as Shell, is active in
the exploration, production, refining, and global distribution of petroleum products,
among other activities in the oil and gas sector. One of the biggest publicly traded oil
and gas businesses in the world is this one”.31
Shell launched a significant $25 billion share repurchase program in an effort to
reduce dilution from its acquisition of BG Group. By the beginning of 2020, after
making steady progress, the corporation had succeeded in repurchasing shares worth
$15 billion, displaying a strong commitment to the program and a proactive effort to
raise shareholder value through this deft financial move.

30
Charith B. Gamage, "How Do Share Repurchases Affect the Information Implications of Dividends?
International Evidence from Share Repurchases Legalization," SSRN Electronic Journal, February 2023,
doi:10.2139/ssrn.4363996.
31
"Royal Dutch Shell Oil Company," Encyclopedia of U.S.-Latin American Relations, January 2012, 23,
doi:10.4135/9781608717613.n740.
 13

“The unanticipated COVID-19 epidemic brought about a significant decrease in the

demand for oil all over the world, which resulted in a precipitous drop in the price of
oil. Because of the significant impact on their revenues, Shell was forced to reduce
their dividends and cease their buyback programme”.32

Why Royal Dutch Shell Didn’t Work

A number of outside shocks, most notably the unforeseen COVID-19 pandemic and
the ensuing collapse in oil prices, significantly reduced the effectiveness of Royal
Dutch Shell's share repurchase program. The operations and financial viability of the
corporation were severely impacted by these events, upending the very tenets upon
which the share buyback program was built. “The pandemic's dramatic reduction in
worldwide oil demand resulted in a sharp drop in oil prices, which had a big effect on
Shell's income and profitability”.33 The corporation was forced to review its financial
priorities, including the share repurchase program, as a result. In retrospect, it seems
clear that Shell would have benefited more from taking a more cautious approach to
capital protection amid these unanticipated external shocks. Shell might have been
better able to weather the crisis and adjust to the quickly shifting market dynamics
brought on by the pandemic and the drop in oil prices had it kept a larger share of its
initial capital.

Tesco PLC
Tesco PLC, “the largest grocery operator in the United Kingdom, started a share
repurchase program in 2007 with the strategic goal of increasing shareholder value.
The company's desire to leverage its financial position and optimize its capital
structure served as the motivation behind this decision”.34 Tesco's goal in repurchasing
£1.6 billion worth of shares was to consolidate its share capital and, perhaps, raise its
earnings per share (EPS) as well as, eventually, provide more value to its
shareholders. But for the corporation, the results of this repurchase effort took an
unexpected turn. After the repurchase was finished, Tesco ran into a number of
substantial difficulties that seriously undercut the anticipated advantages of the
buyback initiative. Tesco's market share and profitability were seriously threatened by
the emergence and expanding dominance of cheap competitors in the UK retail
industry. Additionally, the business was tarnished by a significant accounting
controversy in 2014, which not only undermined investor confidence but also
negatively impacted the company's standing financially and publicly.

32
Vladlena Grikhno, Marina Simonova, and Sergey Kolesnikov, "Personnel Current in Service
Companies under COVID-19 Distribution on the Example of Russian Post JSC," Proceedings of the 2nd
International Scientific and Practical Conference "COVID-19: Implementation of the Sustainable
Development Goals", 2021, xx, doi:10.5220/0011110200003439.
33
Grikhno, Simonova, and Kolesnikov, " "Personnel Current in Service Companies under COVID-19
Distribution on the Example of Russian Post JSC,".
34
Tesco PLC, last modified August 31, 2023, https://www.tescoplc.com/.
 14

The beneficial effects that the share repurchase program was meant to have started to
fade as a result of these unfavorable factors coming together. “The accounting
controversy caused Tesco's stock price to drop significantly, and it also damaged
Tesco's reputation in general. The repurchase program's projected benefits were
obscured by more significant strategic concerns due to the interaction of external
market factors and internal operational difficulties”. 35 This story illustrates the fine
line that businesses must walk when executing such financial strategies by showing
how unanticipated external pressures and internal setbacks may greatly affect the
effectiveness of a share repurchase program.

Why Tesco Plc didn’t work:

Tesco's share repurchase program ran into a number of challenges, which eventually
contributed to its failure. The emergence of operational and competitive issues within
the UK grocery retail sector was one of the important drivers. The rise of Aldi and
Lidl upended the market, changing consumer tastes and putting Tesco's entrenched
position in the market under threat. The share repurchase program did not
immediately address the strategic reaction that was required in light of this
unanticipated competition. Additionally, “the Tesco accounting crisis in 2014 severely
damaged the company's brand and investor confidence. The funds set aside for the
share repurchases might have been better used to manage these difficulties or to make
investments back in the core business to increase its resilience”. 36 In hindsight, it
appeared that the share repurchase plan was ill-prepared to handle the rapid changes
in the industry landscape and the pressing need to deal with reputational harm and
competitive pressures. These elements show how the internal and external
environment of a firm can make a well-intended share repurchase program ineffective
in the face of urgent operational and strategic issues.

Royal Dutch Shell and Tesco experienced external and internal obstacles, respectively,
which meant that their repurchases did not deliver the desired benefits. However,
Next and Ashtead were successful in using repurchases to increase value and indicate
confidence in the company. The most important thing to take away from this is that
“while stock repurchases have the potential to be a useful tool, their effectiveness will
mostly be determined by broader market conditions, the particular circumstances of
the firm, and perfect timing”.37

35
Aafreen Khan and Ashu Khanna, "Wealth Effects of Share Repurchase Decision of IPO Firms:
Evidence from India," Global Business Review, 2023, 78, doi:10.1177/09721509231184571.
36
Gagan Kukreja and Sanjay Gupta, "Tesco Accounting Misstatements: Myopic Ideologies
Overshadowing Larger Organisational Interests," SDMIMD Journal of Management 7, no. 1 (2016):,
doi:10.18311/sdmimd/2016/8410.
37
"Royal Dutch/Shell Group," Encyclopedia of Global Warming & Climate Change, 2012, 46,
doi:10.4135/9781452218564.n605.
 15

In addition to a number of successful and unsuccessful corporate share repurchase

cases, a number of court decisions in areas relating to share repurchases can also
provide insights and ideas in the following case studies;

Case analysis 1
The case analysis of Re Coloroll Pension Trustees and Coloroll Group Plc [1990]
presents a significant legal precedent in the realm of UK company law concerning the
equitable treatment of shareholders in the context of share repurchases.
"The case centered around Coloroll Group plc's intention to acquire its own shares
from Coloroll Pension Trustees Ltd., one of its shareholders, at a premium price
higher than their market value at the time. The central issue revolved around the
principle of equal treatment for all shareholders during a share buyback, an essential
tenet of fair business practices”.38

The court's verdict deemed the buyback transaction as improper due to the failure to
ensure equal treatment of shareholders. This decision led to the annulment of the
acquisition and a requirement for the return of the acquired shares, accompanied by a
reimbursement of the purchase price. The case underscores the core principle that
companies must not engage in selective share repurchases that grant preferential
advantages to certain shareholders, especially when done at a premium, as it could
unjustly disadvantage other shareholders. This judgment upholds the notion of
fairness in shareholder treatment, ensuring transparency, impartiality, and the absence
of discriminatory practices.

The legal precedent established by this case emphasizes the importance of equitable
treatment for all shareholders. “When a company opts for share repurchases, it
becomes imperative for the company to ensure that every shareholder, regardless of
the size of their ownership or their relationship with the company, is afforded equal
opportunities and unbiased treatment. This commitment aims to ensure that the
company's actions are held accountable to public scrutiny and are conducted with
integrity, fostering an environment free from discrimination”.39 This landmark ruling
serves as a reminder of the legal and ethical responsibilities that corporations bear
when undertaking share repurchases, emphasizing the need for transparency and
equitable treatment throughout the process.

38
Lloyd Brown, "The Pension Schemes Act 2021: new duties for trustees and managers of pension
fund trusts," Trusts & Trustees 27, no. 9 (2021):, doi:10.1093/tandt/ttab081.
39
Bryan A. Garner et al., The Law of Judicial Precedent (2016), 102.
 16

Case analysis 2
The legal case of Margaret Elizabeth Mills, Alan Robert Bloom, Patrick Joseph
Brazzill, and Thomas Merchant Burton (Joint Administrators of Kaupthing Singer and
Friedlander Ltd) v Sportsdirect.com Retail Ltd (formerly Sports World International
Ltd) presents a complex scenario that centers on the intricacies of beneficial
ownership of shares and the implications of an insolvency situation. The case
involved a financial services company, Kaupthing Singer & Friedlander Ltd (KSF),
which entered into a share buyback agreement with Sportsdirect.com Retail Ltd (SD).
Under this agreement, SD sold shares to KSF, and in return, KSF was to repurchase
the same number of shares from SD at a later date.

The pivotal dispute in the case revolved around whether SD legitimately held
ownership of the shares before KSF's administration, which would have a bearing on
whether these shares were accessible to KSF's creditors upon insolvency. “The
complex legal intricacies arose due to the swift negotiations carried out in the midst of
a global financial crisis. On October 8, 2008, SD's claim of ownership of the shares
was upheld, leading to an arrangement whereby KSF was to move the shares to SD's
client account upon payment”.40

However, complications arose when SD failed to meet its payment obligations

according to the stipulated timeline. The court examined the terms of the master
agreement between the parties and concluded that while a binding agreement was
established between KSF and SD, SD's failure to meet its payment commitments
invalidated the contract by the end of the same day.

Notwithstanding the contract's invalidation, the court determined that beneficial

ownership of the shares had effectively been transferred to SD. This ruling
underscored SD's right to a statement acknowledging its beneficial ownership of the
shares. The intricate legal arguments and analysis in this case highlight the nuances of
ownership transfer, the role of agreements, and the impact of non-compliance within
the context of insolvency and complex financial transactions.

40
Higgins M, Share buy-backs and insolvency (The Company Lawyer, 2010), 214-216.
 17

Case analysis 3
Case Number: CR-2021-001776
High Court of Justice Business and Property Courts of England and Wales Insolvency
& Companies List (ChD)
[2021] EWHC 346 (Ch), 2022 WL 00586202

The case involves an application for the approval of a scheme of arrangement under
Part 26 of the Companies Act of 2006. The scheme aims to achieve the complete
integration of two group companies, one headquartered in Australia and the other in
the UK. The arrangement entails the Australian company acquiring the entire share
capital of the UK company in exchange for new shares in the Australian company.
Despite the UK company incurring certain costs and fees related to the
implementation of the scheme, these expenses are not considered financial assistance
for the acquisition of its own shares, which would contravene sections 677 and 678 of
the Companies Act of 2006.

The company P, representing the natural resources division of a global conglomerate

with UK operations, seeks court approval for its proposed scheme of arrangement.
Collaborating with its Australian counterpart (L), the companies operated as an
integrated economic entity, sharing management and directorship. Their shares' voting
and economic rights were identical, with P's shareholders accounting for 42% and L's
for 58% of the group. In 2021, the board of directors determined that full
consolidation of the two entities would serve shareholders' best interests, offering
greater flexibility for optimizing the group's business portfolio and long-term value.

The scheme outlined the acquisition of P's shares by L, with P shareholders receiving
new shares in L. This move aimed to establish L as the sole parent of the group, with
smaller shareholders having the option to sell their entitlement. Both companies'
shares would continue trading on their respective exchanges, while L would also list
on additional stock exchanges. A meeting was convened and the majority of
shareholders endorsed the proposal.

The court's decision in TDG Plc, Re [2008] EWHC 2334 (Ch), [2009] 1 B.C.L.C.
445, [2008] 9 WLUK 459, Re TDG provides the framework for assessing the
approval of the scheme. It necessitates the arrangement to be an agreement between
the company and its members. The court found that the plan fulfilled this criterion,
given the direct takeover of the company. The scheme was presented to a single class
meeting, as differences in shareholders' rights did not warrant separate classes. The
court determined that all legal prerequisites were met, the shareholders were well-
represented, and the majority acted in good faith.

Furthermore, the court ascertained that the scheme was rational, benefiting members
 18

in their best interest. The directors and external experts validated its merits. The court
also assessed the payments by P, concluding that they did not constitute financial
assistance in violation of relevant sections. The case underscores the meticulous
analysis required for such schemes, ensuring compliance with legal provisions and the
interests of all stakeholders.41

This is a further breakdown and legal analysis of this case;

Background and Purpose.

An application seeking court approval for a scheme of arrangement in accordance

with the guidelines in Part 26 of the Companies Act of 2006 is pending in Case
Number CR-2021-001776 before the High Court of Justice Business and Property
Courts of England and Wales Insolvency & Companies List (ChD). “This plan was
created with the goal of combining and harmonizing two different group entities, one
from Australia and the other from the UK. This agreement's main tenet is that the
Australian business will buy out the UK-based company's whole share capital”. 42 The
shareholders of the UK firm would get new shares in the Australian company, which
would then be issued as part of the acquisition.

Companies and Shareholders.

The company "P" represents the natural resources division of a global conglomerate
with UK operations.
P collaborates with its Australian counterpart "L," and they operate as an integrated
economic entity with shared management and directorship.
Voting and economic rights of shares in both companies are identical.
P's shareholders hold 42% of the group, while L's shareholders hold 58%.

Scheme Details.
The plan put forth in the case outlines a strategic purchase in which Company L seeks
to acquire the shares that Company P already holds. According to this arrangement,
Company P shareholders would receive additional Company L shares as part of the
deal. Establishing Company L as the sole parent entity of the corporate group is the
main goal of this transaction. Smaller shareholders are given the choice within this
framework to sell their shares or keep their entitlements inside the consolidated
structure. It is significant to note that the current share trading for both Company P
and Company L would continue on their respective stock exchanges. Additionally,
Company L plans to expand its market presence by listing its shares on more stock
exchanges.

Shareholders' Approval.

41
Stuart Sime and Stuart, A Practical Approach to Civil Procedure (New York: Oxford University Press,
2022), 66.
42
Sime and Stuart, A Practical Approach to Civil Procedure, 85.
 19

An important development occurred during the proceedings when a meeting was

called and the in question scheme was presented to the shareholders for their
consideration. The outcome of this meeting was crucial since it was clear that the
proposed scheme had the support of the majority of the shareholders. This act of
shareholder support was a crucial development in the approval procedure.

The legal framework and precedent that served as the basis for considering the
scheme's approval were well-established. The court specifically cited the ruling in
TDG Plc, Re [2008] EWHC 2334 (Ch) as the conceptual foundation for its
evaluation. This case demonstrated that a scheme of arrangement must meet specific
requirements in order to be approved. “The plan must be an agreement between the
company requesting the arrangement and each of its members, which is a fundamental
condition”.43 Because Company P was directly acquired by Company L in the current
case, this particular requirement was found to be satisfied. The two parties and their
shareholders effectively came to an agreement through this direct acquisition method.
Furthermore, the court stated that the designation of separate classes for approval
purposes was not required due to the variations in shareholder interests within the
scheme. This emphasized the cohesiveness of the plan and the overall alignment of
stakeholder interests.

Compliance and Good Faith

The court determined after its deliberations that all crucial legal requirements for the
scheme's approval had been adequately met. The scheme benefited greatly from the
effective representation of the interests of the shareholders. The good faith displayed
by the majority of stockholders throughout the proceedings was laudable, adding to
the proposed scheme's legitimacy and plausibility. The court reached a decision
endorsing the scheme as a logically sound and strategically advantageous move after
evaluating the scheme's rationale and possible benefits. “It was unequivocally proven
that the plan was not only logical but also highly valued the interests of the
members”.44 This conclusion was strengthened even further by the directors of the
company and the outside specialists who provided their expert opinions in support of
the scheme's viability. The benefits and prospective results that the scheme could have
for the shareholders and the corporate entities involved were highlighted by this
collective validation.

43
Alexis Mavrikakis, Public Companies and Equity Finance 2019 (College of Law Publishing, 2019), 146.
44
Francois Du Bois, "Developing Good Faith: Equality, Autonomy and Fidelity to the Bargain,"
Constitutional Court Review 12, no. 1 (2022): 221, doi:10.2989/ccr.2022.0009.
 20

Financial Assistance:
“It’s a separate branch of the federal government that oversees regulation in the US.
Congress established it in 1934 with the goals of fostering capital development,
preserving investor protection, and ensuring the fair and orderly operation of the
securities markets”.45 The SEC's main goal is to uphold the law against market
manipulation. To prevent fraud and other violations of federal securities laws, the
SEC regulates securities exchanges, brokers, dealers, investment advisors, and mutual
funds. The SEC is also in charge of interpreting federal securities laws, establishing
new regulations and changes, and coordinating domestic and international agencies in
relation to securities regulation. The Securities and Exchange Commission, an
organization in the Philippines, is in charge of registering and monitoring firms,
securities, capital market institutions, and participants.
The court assessed the payments made by Company P and concluded that they did not
constitute financial assistance in violation of relevant sections of the Companies Act
of 2006.46

Case analysis 4
In the context of the Companies Act of 2006, several legal matters concerning a
shareholder's rights and actions within a company are outlined. In this scenario, a
shareholder utilized various sections of the Companies Act to assert their rights and
grievances against the company (Z) and its directors.

The shareholder initially used section 305 of the Companies Act, which grants the
right to request a statement about their shareholdings. Specifically, the shareholder
claimed that they were informed their shares in company Z were fully paid, and this
formed the basis for their demand under section 305. However, the shareholder's
contention wasn't enough to prove that the new shares issued by the company, which
reduced the shareholder's stake and were registered under the name of another
company (X), were provided "without sufficient cause" as required by section 125.
This led to the conclusion that the shareholder lacked a valid reason to demand a
change in the share register.

Furthermore, under section 994 of the Companies Act, “the shareholder sought a legal
declaration regarding the legality of their notice to convene a general meeting of
company Z under section 305. Simultaneously, the shareholder pursued a claim under
Part 8 to alter the share record, preventing another company (X) from retaining
ownership of shares in Z. The shareholder's claim hinged on owning 100 million
shares of Z, with an additional 16 million held through proxies or trusts. Z, although
established in England, was traded on the Frankfurt Stock Exchange and primarily

45
Vestert Borger, "EU Financial Assistance," The EU Law of Economic and Monetary Union, 2020, 138,
doi:10.1093/oso/9780198793748.003.0039.
46
Victor Joffe QC et al., "Companies ACT 2006, Section 994 Petitions: Procedure," Minority
Shareholders, 2018, doi:10.1093/9780198820383.003.0008.
 21

owned a fiber optic network in Malaysia through a distant subsidiary (V)”.47

Initially, the shareholder invoked section 303 by serving notice to company Z,

requesting a general meeting to remove the existing members. However, the company
argued that the shareholder's shares were not fully paid, thereby negating their rights
under section 303. The shareholder contested this, asserting that the company's public
records, reports, and share listing contradicted Z's claim. Notably, following the
shareholder's section 303 notice, Z entered into a consent order with another company
(X) in Malaysia, resulting in changes to ownership and shares. This significantly
reduced the shareholder's stake.

The shareholder alleged that the directors breached their duty by failing to hold a
meeting in response to the section 303 notice and inaccurately stating that their shares
were not fully paid. Moreover, the shareholder contended that the directors acted
unfairly by issuing new shares without following the company's constitution.

This complex legal scenario underscores the intricate interplay between shareholder
rights, company operations, and regulatory compliance under the Companies Act of
2006. “The shareholder's claims highlight how legal provisions and corporate actions
can intersect, leading to disputes over rights, responsibilities, and the appropriate
interpretation of laws governing shareholder-company relationships”.48

47
Leslie Kosmin and Catherine Roberts, "Commentary on the Companies Act 2006 Model Articles,"
Company Meetings and Resolutions, 2020, doi:10.1093/oso/9780198832744.003.0033.
48
Alessio Bartolacelli, "ARTICLE 3C–3F: FACILITATION OF THE EXERCISE OF SHAREHOLDER RIGHTS,"
The Shareholder Rights Directive II, 2021, 88, doi:10.4337/9781839101236.00013.
 22

Comparative Analysis
The process of doing a comparative analysis involves comparing and contrasting two
or more entities, objects, concepts, or datasets. It entails a methodical evaluation of
each party's unique traits, qualities, advantages, disadvantages, and general
characteristics in order to learn more about how they compare. This kind of study tries
to give the subjects being compared a greater knowledge by highlighting their unique
characteristics and potential connections. In many disciplines, including business,
literature, science, and social sciences, comparative analysis is frequently used to
make informed decisions, spot trends, and come to meaningful conclusions based on
the observed comparisons.49

Comparison of the UK's legal framework with other jurisdictions

The Kingdom of Great Britain

i. Authorization
The explicit agreement of the company, expressed either through the articles of
association or through a special resolution approved by its shareholders, is essential

49
Ioana-Elena Oana, Carsten Q. Schneider, and Eva Thomann, Qualitative Comparative Analysis Using
R: A Beginner's Guide (Cambridge University Press, 2021)
 23

for a company to be authorized to purchase its own shares in the UK. 50 This
obligation, which emphasizes the value of group decision-making and adherence to
set corporate policies, is a result of the regulatory framework governing share
buybacks. The terms allowing the company to repurchase its shares may be included
in the articles of association, which serves as the company's constitution. A more
formal approach, on the other hand, entails getting a special resolution from the
shareholders, which expressly grants the firm the power to start share buybacks.51 This
required authorisation procedure supports accountability, openness, and alignment
with the organization's overarching strategic objective. This regulatory process
emphasizes the considerable study and consensus-building inherent to the substantial
corporate activity of share buybacks in the UK by requiring a formal grant of
approval.

ii. Funding
There are numerous options for enabling the repurchase of shares in terms of financial
mechanisms. One strategy entails funding the buyback process with capital reserves
held by the corporation. As an alternative, the required cash might be raised by issuing
additional shares, which would provide new capital to the business. 52 Additionally, the
effort to fund the repurchase can be financed through distributable earnings, which are
gains that can be shared among shareholders. Another choice entails using the money
received from the sale of additional shares to pay for the buyback's expenses. It's
crucial to remember that carrying out a repurchase requires the adoption of a special
resolution if the company's financial resources are exhausted. This includes getting
the shareholders of the company's formal consent. Additionally, the company's
directors must provide a declaration attesting to the company's solvency and
highlighting its ability to pay its debts on time. A special resolution and a solvency
statement are also necessary, underscoring the strict legislative and financial
requirements that govern the funding options for carrying out a share repurchase.

iii. Treasury Shares

A company's own issued shares that it has repurchased and is currently holding in its
treasury or on its balance sheet are referred to as treasury shares. These shares have
been repurchased through open market transactions, personal business dealings, or
other ways. Shares held by external investors are different from those held by the
government.
“Treasury shares do not have voting privileges or accrue dividends, in contrast to
shares held by investors. They are essentially put on hold and temporarily removed
from circulation within the company. At a later date, the market may reissue treasury
shares, which may have an effect on the company's stock price, earnings per share,

50
Etsuko Kameoka, "LPP in jurisdictions other than the EU," Legal Professional Privilege in EU
Competition Investigations, 2023, xx, doi:10.4337/9781803922782.00019.
51
"Articles of Association," Articles of Association: Guidance and Precedents, 2020, 34
52
Rohit Sonika and Mark B. Shackleton, "Buyback behaviour and the option funding hypothesis,"
Journal of Banking & Finance 114 (2020): xx, doi:10.1016/j.jbankfin.2020.105800.
 24

and other financial measures”.53

The choice to repurchase shares and keep them on hand as treasury shares can be
affected by a number of things, such as the need to boost stock prices, make use of
extra funds, or even use the shares for employee compensation plans. Treasury share
actions are frequently disclosed by companies in their financial statements and
reports.

Following the completion of the repurchase, UK businesses have the choice of either
cancelling the shares or keeping them on hand as treasury shares. While they are held
in the treasury, treasury shares do not have voting rights or dividend rights, but they
can be traded and used to satisfy share option requirements.

iv. Private corporations

A business that is privately owned is referred to as a private corporation. Private
corporations may issue stock and have stockholders, but their shares are not offered
through an initial public offering (IPO) and do not trade on public exchanges”. 54 As a
result, private companies are exempt from the onerous filing requirements set down
by the Securities and Exchange Commission (SEC) for public companies.

The shares of private firms are often less liquid than those of public corporations,
whose shares can be easily exchanged on the open market. Comparing these shares to
their publicly traded counterparts, it may be more difficult to estimate their exact
worth due to their limited marketability. Private firms, however, have more freedom
thanks to this feature when it comes to carrying out share buyback plans. Private firms
are not entirely insulated from rules despite the freedom they enjoy. 55 The Companies
Act of 2006, which outlines the legal foundation for business operations in many
jurisdictions, must nevertheless be followed by these entities. This comprises
specifications for financial reporting, governance, and other facets of business
management.
Private firms differ from public corporations in the way that they conduct their
business. Companies have more control over their shares but also have special legal
obligations because to their ownership structure, limited stock market activity, and
exemption from several SEC laws. The harmony of these elements leads to the
distinctiveness of private firms within the larger business environment.56

53
Derek French, "6. Shares," Law Trove, 2018, doi:10.1093/he/9780198815105.003.0006.
54
A. B. Levy, Private Corporations and Their Control (2013), 44.
55
Sandra Mortal, Vikram Nanda, and Natalia Reisel, "Why do private firms hold less cash than public
firms? International evidence on cash holdings and borrowing costs," Journal of Banking & Finance
113 (2020): 106, doi:10.1016/j.jbankfin.2019.105722.
56
Yingyi Qian, "Public vs. Private Ownership of Firms: Evidence from Rural China," How Reform
Worked in China, 2017, xx, doi:10.7551/mitpress/9780262534246.003.0007.
 25

The United States of America

i. Authority:
In the United States, the authority to approve share buybacks typically resides with
the company's board of directors. This authority allows them to greenlight such
transactions without the explicit consent of the company's shareholders. However,
certain conditions may alter this dynamic. If the company's bylaws or articles of
incorporation establish a provision mandating that shareholder approval is necessary
for share buybacks, then the board's authority in this matter is contingent upon
obtaining the shareholders' consent. This interplay between the board's prerogative
and potential shareholder involvement underscores the legal and governance
framework that guides share buyback decisions within US corporations.57

ii. Funding
When considering the financing aspect of a repurchase, companies often rely on their
existing cash reserves to facilitate the process. The flexibility in sourcing these funds
allows companies to make strategic decisions based on their financial standing.
Although there are no rigid constraints dictating the origin of the funds, companies
must exercise caution to prevent depleting their cash reserves entirely as a
consequence of the buyback initiative. The absence of strict guidelines regarding the
funding source provides companies with leeway to choose the most suitable approach
in line with their financial strategy. Nonetheless, a careful balancing act is required to
ensure that the company remains financially stable and possesses adequate liquidity
subsequent to the completion of the repurchase endeavor.58
iii. Regulations
“In order to avoid manipulating the market, the Securities and Exchange Commision
(SEC) has established certain regulations. It is a separate branch of the federal
government that oversees regulation in the United States”. 59 Congress established it in
1934 with the goals of fostering capital development, preserving investor protection,
and ensuring the fair and orderly operation of the securities markets. The SEC's main
goal is to uphold the law against market manipulation. To prevent fraud and other
violations of federal securities laws, the SEC regulates securities exchanges, brokers,
dealers, investment advisors, and mutual funds.
The SEC is also in charge of interpreting federal securities laws, establishing new
regulations and changes, and coordinating domestic and international agencies in
relation to securities regulation. The Securities and Exchange Commission, an
organization in the Philippines, is in charge of registering and monitoring firms,
securities, capital market institutions, and participants4.
“Rule 10b-18 offers businesses a "safe harbour" in which they can repurchase their

57
Linyan Liu et al., "Neural Substrates of the Interplay between Cognitive Loading and Emotional
Involvement in Bilingual Decision Making," 2020, xx, doi:10.31234/osf.io/jfchd.
58
Robert Hillenbrand, "Hishām’s Balancing Act," Oxford Scholarship Online, 2017, 156.
59
"Securities and Exchange Commission (SEC)," The SAGE Encyclopedia of Business Ethics and Society,
2018, xx, doi:10.4135/9781483381503.n1039.
 26

own shares without fear of being accused of manipulating the market”.60

iv. Private corporations

The process of buying back shares is less heavily regulated for private corporations
than it is for public companies. Nevertheless, they are obligated to make certain that
the buyback does not breach any shareholder agreements or state laws before
proceeding.

The Europe

i. European Union (EU)

The EU contains directives that offer a framework for share buybacks; nevertheless,
the particulars are left up to individual member states to establish. In most cases, the
buyback can't account for more than 10% of the total share capital, and the
repurchased shares have to be completely paid for.

ii. Authority
In a manner analogous to that of the United Kingdom, the authority for the buyback
must be granted by the shareholders, typically in the form of a resolution that is either
extraordinary or routine.

iii. Funding
The repurchase needs to be paid for either with profits that are eligible for distribution
or with the proceeds from a new issue of shares. Additionally, several governments do
permit buybacks using capital, but only under certain conditions.

iv. Treasury Shares

Companies in the EU also have the option to hold repurchased shares as treasury
shares, however there are restrictions on this practise that are comparable to those in
the UK.

v. Private Companies
The rules that apply to private companies change depending on which member state
you're in, but in general, they have greater leeway than public corporations do.

Distinctions.

i. Authority

60
III Edgar Wachenheim, Common Stocks and Common Sense: The Strategies, Analyses, Decisions, and
Emotions of a Particularly Successful Value Investor (John Wiley & Sons, 2016)
 27

The authority given to the board of directors in the context of share buybacks differs
significantly. In contrast to other countries, the US allows boards to approve buybacks
without seeking direct shareholder approval. On the other hand, the European Union
and the United Kingdom frequently demand express shareholder approval for such
deals. With the US trending toward a board-centric strategy and the UK and EU
prioritizing shareholder engagement in important company decisions, this divergence
underscores the balance between board autonomy and shareholder impact.

ii. Funding
Divergence emerges in the funding mechanisms for share buybacks. The United
Kingdom and the European Union impose stricter regulations on the sources of cash
for buybacks, ensuring that companies maintain financial stability. In contrast, the
United States exhibits greater flexibility, enabling companies to potentially fund
buybacks from a wider range of sources. This reflects a nuanced consideration of
financial health and stability when conducting share repurchases, with varying
degrees of regulatory oversight across these regions.

iii. Regulations
To safeguard the integrity of share buybacks, each jurisdiction enacts specific
legislation. In order to prevent market manipulation during buybacks and handle any
issues with price distortion and unfair benefits, the United States uses unique
legislation. The European Union, on the other hand, places more emphasis on a
comprehensive regulatory system that includes both general limitations and
requirements for buybacks. This difference emphasizes the complexity of regulatory
strategies used to ensure market fairness and openness. Private Companies
The rules governing private companies are typically less stringent in all jurisdictions,
although the specifics can vary from place to place.

iv. Private Companies.

In general, “private company share buyback regulations are less restrictive in all
jurisdictions. The specifics, however, may change based on the regulatory
environment in each region”.61 This difference acknowledges the various levels of
monitoring required for privately held versus publicly listed enterprises. Although
buybacks involving private corporations frequently adopt a more flexible approach,
there may still be regulatory measures in place to prevent misuse and safeguard the
interests of pertinent stakeholders.

61
Joerg Osterrieder and Michael Seigne, "Navigating Share Buyback Programs: A Genetic Algorithm
Approach to Outperform the Buyback Benchmark," SSRN Electronic Journal, 2023, xx,
doi:10.2139/ssrn.4539469.
 28

Safeguarding Corporate Value and Shareholders' Interests

Importance of Corporate Value Enhancement to the Role of Share
Repurchases

Share repurchases, are essential tools in a company's financial toolbox since they
serve a number of functions that increase its value and signal its future. Companies
can effectively manage their capital structures, distribute extra cash to shareholders,
and demonstrate their confidence in the direction the company is headed via these
repurchases. First and foremost, buybacks give investors a way to get their extra
capital back, especially when growth possibilities or alternative investment options
are few. “Companies can improve their earnings per share (EPS) and other important
financial ratios by reducing the number of outstanding shares, which could also
increase the stock price and more effectively maximize capital use”.62

The signaling effect that share repurchases have on the market is another important
effect. “A company's decision to buy back its own stock frequently indicates that

62
Philip Bond, Yue Yuan, and Hongda Zhong, "Share Issues versus Share Repurchases," SSRN Electronic
Journal, 2019, xx, doi:10.2139/ssrn.3489555.
 29

those shares are undervalued. This conveys management's conviction in the

company's inherent value and may inspire investor confidence, which could lead to an
increase in stock price”.63 Additionally, buybacks protect the interests of present
owners by preventing a thinning of earnings across an increasing number of shares,
which is caused by instruments like employee stock options and convertible
securities.

Another benefit of share repurchases is the ability to change the capital structure
optimally. Utilizing excess cash or debt acquired through repurchases, businesses can
change their debt-to-equity ratios in an effort to strike a balance that lowers their cost
of capital while potentially increasing total firm value. 64 By strategically manipulating
the capital structure, it is possible to take advantage of chances to reduce financial
costs.

Share repurchases are also appealing to shareholders because of how tax-efficient they
are. Repurchases can give owners a tax-deferred capital gains obligation until the
shares are eventually sold, giving them greater flexibility over the timing of taxes
compared to dividends, which are immediately liable to taxation upon receipt.

Share repurchases provide businesses with a flexible way to manage their finances
and increase their value. These strategic financial actions can enhance a company's
financial metrics, instill investor confidence, counter dilution, optimize the capital
structure, and offer tax benefits in addition to improving financial metrics and
potentially increasing stock price.

Safeguarding the Interests of Shareholders in the Process of Share

Repurchases

It is absolutely necessary, in order to guarantee fair treatment and to keep people's

faith in the system of corporate governance, to protect the interests of shareholders,
particularly those of minority shareholders, while shares are being repurchased.

1.Transparency and Disclosure: - Companies should provide thorough explanation for

the repurchase, including the source of funds, the impact on the company's financial
condition, and the expected benefits. - Companies should also disclose the expected
benefits of the buyback. Disclosures regarding the status of the repurchase should be
made on a regular basis. These disclosures should include the number of shares

63
Yuyuan Chang et al., "The Effect of Compensation Benchmarking - Evidence From Share
Repurchases," SSRN Electronic Journal, 2021, xx, doi:10.2139/ssrn.4199950.
64
Philip Bond, Yue Yuan, and Hongda Zhong, "Share Issues versus Share Repurchases," SSRN Electronic
Journal, 2019, xx, doi:10.2139/ssrn.3489555.
 30

purchased, the average price, and the total amount spent.

2.Equitable Pricing: “The buyback price ought to be established on the basis of a

procedure that is both open and equitable”.65 For instance, in order to prevent
manipulation of prices during a short period of time, it can be based on an average of
the most recent several months. - It is possible to get independent valuations done in
order to guarantee that the buyback price is reasonable.

3.Limitations on Frequency: - In order to stop firms from continuously manipulating

stock prices, there should be limitations placed on the number of times they can
purchase back their own shares. Because of this, it is impossible for businesses to use
stock buybacks as a means of engaging in short-term stock price manipulation.

Minority Shareholders Could have greater Voting Rights Minority shareholders could
have greater voting rights in decisions relating to share buybacks. Because of this, it is
impossible for a shareholder group or majority shareholder to force through a
repurchase that would put minority shareholders at a disadvantage.

5.Regulatory Oversight: - Regulatory bodies should have the capacity to scrutinise

and interfere in repurchase activities that appear to disproportionately harm minority
shareholders or appear to be manipulative. - Regulatory bodies should have the power
to investigate and investigate buyback actions that appear to be manipulative.
Companies' earnings per share and executives' compensation can be unfairly inflated
by the use of buyback programmes, which is why regulations can be put in place to
prevent this practise.

6. Eliminating Potential Conflicts of Interest: In order to prevent executives and board

members from profiting at the expense of long-term shareholders, it is important to
prohibit them from selling their shares for a set amount of time following a repurchase
of the company's stock.

7. Protection Against Undervaluation: - It should be discouraged for companies to

purchase back their own shares when the shares are undervalued, unless the
companies can present a compelling strategic reason for doing so. This prevents
corporations from taking advantage of temporary reductions in share prices to the
benefit of short-term shareholders at the expense of long-term investors.

8.The Utilisation of Independent Committees: - It is possible to establish an

independent committee in order to monitor the buyback process. This committee
would make certain that the buyback is not only in the best interest of a select few
shareholders but also in the best interest of the company as a whole.

65
A.V. Boldina and P.V. Boldina, "Redemption ("buyback")," TRENDS IN THE DEVELOPMENT OF SCIENCE
AND EDUCATION, 2020, 37, doi:10.18411/lj-08-2020-81.
 31

9.consent of the Shareholders: Companies should try to get their shareholders' consent
before doing big buybacks. This assures that the majority of shareholders support the
logic behind the repurchase as well as the conditions of the transaction.

10.Clear Communication: - Companies should communicate clearly with shareholders

about the reasons for the buyback, its expected impact on the company's financials,
and how it will benefit shareholders in the long run. 10.Clear Communication: -
Companies should communicate clearly with shareholders about the reasons for the
buyback.

11.Restrictions on Insider Trading: Insiders should be prevented from trading during

buyback periods to prevent them from profiting from non-public information relating
to the repurchase. This is to prevent them from being able to take advantage of the
buyback.

“Companies are able to ensure that share repurchases are performed properly and in
the best interests of all shareholders when they put these measures into effect and
implement them”.66 When done correctly, share repurchases have the potential to
boost the value of the corporation while also providing benefits to shareholders. They
have the potential to improve important financial KPIs, “streamline the capital
structure of a firm, and express trust in the company. However, because of the
possibility of improper use, there must be careful governmental control as well as
careful practises of corporate governance”.67 In order for stock repurchases to actually
be helpful, not only must they be in line with the more general strategic aims of the
company, but they must also protect and prioritise the interests of all shareholders. To
boil it down, achieving a sustained level of corporate success requires striking a
balance between increasing the value of the company through share repurchases and
protecting the interests of the shareholders.

66
Olha Paplyk, "LEGAL FEATURES OF THE SHAREHOLDERS' RIGHT TO COMPULSORY SHARE
REPURCHASE," Entrepreneurship, Economy and Law 10 (2019): 67, doi:10.32849/2663-
5313/2019.10.06.
67
Heinz-Jürgen Klepzig, "Working Capital-Management: KPIs und Cashflow-Rechnung," Financial
Supply Chain, 2023, 102doi:10.1007/978-3-658-40557-1_8.
 32

Conclusion

The legal framework governing corporate share repurchases is intricately entwined

with corporate governance, financial strategies, and the protection of shareholders'
legal entitlements. This thesis emphasizes that strategic share repurchases have the
potential to significantly increase a company's value when carried out carefully. These
share repurchases constitute a crucial weapon in the company toolbox because they
provide a flexible mechanism for returning excess cash to shareholders, optimizing
capital structures, and conveying confidence in future prospects. But the effectiveness
of this tool also highlights the necessity of strict legislative control to guard against
potential abuses that can result in short-term stock price manipulations, depreciation
of corporate value, and marginalization of minority shareholders. The difficulty, as
our research has shown, comes in finding a regulatory balance that reconciles legal
financial tactics with the duty to protect shareholders' interests, especially those of the
minority. Diverse company cultures, governance structures, and historical settings are
manifested in a range of regulatory systems across the global landscape. A consistent
theme emerges amid this diversity: the crucial importance of openness, equity, and a
relentless focus on the long-term well-being of firms. The fundamentals of protecting
 33

business value and maintaining shareholders' rights must continue to be of utmost

importance as organizations traverse the complex web of market forces, shareholder
expectations, and regulatory constraints. As firms manage an increasingly
complicated operating environment, this becomes extremely important. Consequently,
the legal guidelines governing corporate share repurchases go beyond simple
technical compliance or financial strategy formulation; they embody the core
principles of corporate governance, reflecting the necessity of aligning the interests of
all stakeholders in order to promote sustainable business growth and value creation.
 34

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