(1)Except as mentioned in this section, a body corporate cannot be a member of a company which is its holding company and any allotment or transfer of shares in a company to its subsidiary is void.
(2)The prohibition does not apply where the subsidiary is concerned only as personal representative or trustee unless, in the latter case, the holding company or a subsidiary of it is beneficially interested under the trust.
For the purpose of ascertaining whether the holding company or a subsidiary is so interested, there shall be disregarded—
(a)any interest held only by way of security for the purposes of a transaction entered into by the holding company or subsidiary in the ordinary course of a business which includes the lending of money;
(b)any such interest as is mentioned in Part I of Schedule 2.
[F2(3)The prohibition does not apply where shares in the holding company are held by the subsidiary in the ordinary course of its business as an intermediary.
For this purpose a person is an intermediary if that person—
carries on a bona fide business of dealing in securities;
is a member of an EEA exchange (and satisfies any requirements for recognition as a dealer in securities laid down by that exchange) or is otherwise approved or supervised as a dealer in securities under the laws of an EEA State; and
does not carry on an excluded business.
(3A)The excluded businesses are the following—
(a)any business which consists wholly or mainly in the making or managing of investments;
(b)any business which consists wholly or mainly in, or is carried on wholly or mainly for the purpose of, providing services to persons who are connected with the person carrying on the business;
(c)any business which consists in insurance business;
(d)any business which consists in managing or acting as trustee in relation to a pension scheme or which is carried on by the manager or trustee of such a scheme in connection with or for the purposes of the scheme;
(e)any business which consists in operating or acting as trustee in relation to a collective investment scheme or is carried on by the operator or trustee of such a scheme in connection with or for the purposes of the scheme.
(3B)For the purposes of subsections (3) and (3A)—
(a)the question whether a person is connected with another shall be determined in accordance with the provisions of section 839 of the Income and Corporation Taxes Act 1988 M1;
(b)'collective investment scheme’ has the meaning given in [F3section236 of the Financial Services and Markets Act 2000];
(c)'EEA exchange’ means a market which appears on the list drawn up by an EEA State pursuant to Article 16 of Council Directive 93/22/EEC on investment services in the securities field M2;
[F4(d)“insurance business” means business which consists of the effecting or carrying out of contracts of insurance;
F4(e)“securities” includes—
(i)options,
(ii)futures, and
(iii)contracts for differences,
and rights or interests in those investments;]
(f)'trustee’ and 'the operator’ shall, in relation to a collective investment scheme, be construed in accordance with [F5section 237(2) of the Financial Services and Markets Act 2000].
[F6(3BA)Subsection (3B) must be read with—
(a)section 22 of the Financial Services and Markets Act 2000;
(b)any relevant order under that section; and
(c)Schedule 2 to that Act.]
(3C)Where—
(a)a subsidiary which is a dealer in securities has purportedly acquired shares in its holding company in contravention of the prohibition in subsection (1); and
(b)a person acting in good faith has agreed, for value and without notice of that contravention, to acquire shares in the holding company from the subsidiary or from someone who has purportedly acquired the shares after their disposal by the subsidiary,
any transfer to that person of the shares mentioned in paragraph (a) shall have the same effect as it would have had if their original acquisition by the subsidiary had not been in contravention of the prohibition.]
(4)Where a body corporate became a holder of shares in a company—
(a)before 1st July 1948, or
(b)on or after that date and before [F720th October 1997], in circumstances in which this section as it then had effect did not apply,
but at any time [F8on or after [F720th October 1997]]falls within the prohibition in subsection (1) above in respect of those shares, it may continue to be a member of that company; but for so long as that prohibition would apply, apart from this subsection, it has no right to vote in respect of those shares at meetings of the company or of any class of its members.
(5)Where a body corporate becomes a holder of shares in a company [F8on or after [F7 20th October 1997]]in circumstances in which the prohibition in subsection (1) does not apply, but subsequently falls within that prohibition in respect of those shares, it may continue to be a member of that company; but for so long as that prohibition would apply, apart from this subsection, it has no right to vote in respect of those shares at meetings of the company or of any class of its members.
(6)Where a body corporate is permitted to continue as a member of a company by virtue of subsection (4) or (5), an allotment to it of fully paid shares in the company may be validly made by way of capitalisation of reserves of the company; but for so long as the prohibition in subsection (1) would apply, apart from subsection (4) or (5), it has no right to vote in respect of those shares at meetings of the company or of any class of its members.
(7)The provisions of this section apply to a nominee acting on behalf of a subsidiary as to the subsidiary itself.
(8)In relation to a company other than a company limited by shares, the references in this section to shares shall be construed as references to the interest of its members as such, whatever the form of that interest.]
Textual Amendments
F1S. 23 substituted by Companies Act 1989 (c. 40, SIF 27), ss. 129(1), 213(2)
F2S. 23(3)-(3C) substituted (20.10.1997) for s. 23(3) by S.I. 1997/2306, reg. 2
F3Words in s. 23(3B)(b) substituted (1.12.2001) by S.I. 2001/3649, arts. 1, 4(1)(2)
F4S. 23(3B)(d)(e) substituted (1.12.2001) by S.I. 2001/3649, arts. 1, 4(3)
F5Words in s. 23(3B)(f) substituted (1.12.2001) by S.I. 2001/3649, arts. 1, 4(4)
F6S. 23(3BA) inserted (1.12.2001) by S.I. 2001/3649, arts. 1, 4(5)
F7Words in s. 23(4)(5) substituted (20.10.1997) by S.I. 1997/2306, reg. 3
F8Substituted by S.I. 1990/1392, art. 8(b) as amended by S.I. 1990/1707, art. 8(2)
Modifications etc. (not altering text)
C1S. 23 modified (subject to the transitional and savings provisions as mentioned in S.I. 1990/1392, art. 6) by Companies Act 1989 (c.40, SIF 27), ss. 144(4), 213(2), Sch. 18 para. 32(2)
C2S. 23 restricted (subject to the transitional and savings provisions as mentioned in S.I. 1990/1392, art. 6) by Companies Act 1989 (c.40, SIF 27), ss. 144(4), 213(2), Sch. 18 para. 32(3)
C3S. 23 excluded (E.W.) (27.9.2004) by Commonhold and Leasehold Reform Act 2002 (c. 15), ss. 34, 181(1), Sch. 3 para. 15(2) (with s. 63); S.I. 2004/1832, art. 2
Marginal Citations
M11988 c. 1; section 839 was amended by section 74 of, and paragraph 20 of Part II of Schedule 17 to, the Finance Act 1995 (c. 4), and modified by S.I. 1988/745.
M2O.J. L141, 11.6.93, p. 27.