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Rethinking share repurchases
Capital Markets Law Journal Pub Date : 2021-07-05 , DOI: 10.1093/cmlj/kmab009
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Key points
  • Share buybacks have been widely used around the world for some time now. While the financial arguments for and against stock repurchases are still in the balance, there may be legal restrictions with respect to market abuse and capital maintenance, as was once the case in the USA and still is in the UK.
  • A recent Singapore decision suggested that buybacks to counter a short-selling attack may constitute market manipulation and this was reflected in a Singapore Exchange warning to listed companies against both insider trading and market manipulation with share repurchases. It was suggested that companies should look to repurchase their shares at the lowest price possible and also not at the close of the trading day. Empirical evidence supports those concerns.
  • Aside from securities regulation, many Commonwealth jurisdictions including Singapore and the UK, and the EU, continue to have corporate law rules on capital maintenance. The most important of these is the need for a solvency statement when a buyback is out of capital. However, there is the possibility of further relaxation of these rules in favour of the American position, which relies on fraudulent conveyance rules to control the process. But, while strictly unnecessary, the reality is that those rules are in turn usually dependent on a finding of insolvency, which in today’s climate is hard to prove ex post (and conversely costly to show ex ante with solvency statements).
  • It is suggested that the proper purpose rule, which requires directors to use powers that they have been given fairly when it comes to internal changes to the constitutional balance within a corporation, can explain the basis for existing securities regulation and capital maintenance rules. But even where these specific rules do not exist, it can provide guidance in the area of share buybacks generally, and buttress fraudulent conveyance rules.
  • The duty to act properly towards the ‘reasonable shareholder’ with respect to share repurchases is to buyback at the lowest possible price in the market when the company does not require funding given present needs and future exigencies. This seeks to maintain the priority structures that have allowed the company to succeed more than other business vehicles, and is different from present day talk of corporate purposes which may be too indeterminate.


中文翻译:

重新考虑股票回购

关键点
  • 一段时间以来,股票回购已在世界范围内广泛使用。虽然支持和反对股票回购的财务论据仍在平衡中,但在市场滥用和资本维持方面可能存在法律限制,美国曾经如此,英国仍然如此。
  • 新加坡最近的一项决定表明,为应对卖空攻击而进行的回购可能构成市场操纵,这反映在新加坡交易所向上市公司发出的警告,以防止内幕交易和股票回购操纵市场。有人建议公司应考虑以尽可能低的价格回购其股票,而不是在交易日结束时。经验证据支持这些担忧。
  • 除了证券监管之外,包括新加坡和英国以及欧盟在内的许多英联邦司法管辖区继续制定关于资本维持的公司法规则。其中最重要的是在回购资金不足时需要一份偿付能力声明。但是,有可能进一步放宽这些规则,以支持美国的立场,后者依靠欺诈性运输规则来控制流程。但是,尽管完全没有必要,但现实情况是,这些规则通常取决于破产的发现,在当今的气候下,这很难事后证明(相反,事先显示偿付能力声明的成本很高)。
  • 有人建议,正当目的规则要求董事在涉及公司内部章程平衡的内部变化时公平使用他们被授予的权力,可以解释现有证券监管和资本维持规则的基础。但即使在这些具体规则不存在的情况下,它也可以在一般的股票回购领域提供指导,并支持欺诈性转让规则。
  • 在股票回购方面对“合理股东”采取适当行动的责任是在公司根据当前需求和未来紧急情况不需要资金时以市场上可能的最低价格回购。这旨在维持使公司比其他商业工具更成功的优先结构,并且与当今可能过于不确定的公司目的谈论不同。
更新日期:2021-07-22
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