Share Buy Back Procedure?
A share buy back can be implemented subject to the restrictions detailed in section 257A of the Corporations Act 2001 (Cth). Section 257A states that a company may only buy back its shares if to do so would not materially prejudice the company’s ability to pay its creditors and the procedure detailed in Chapter 2J Division 2 of the Corporations Act 2001 (Cth) is followed.
In some instances, the 10/12 limit rule applies, which stipulates that a company cannot buy back more than 10% of its voting shares within the span of any twelve (12) month period (note this restriction does not apply to shares that do not carry with them voting rights).
Companies do, however, retain a general capability to make a share capital reduction if the reduction is fair and reasonable to shareholders overall, does not materially prejudice the company’s ability to pay creditors and is approved by the shareholders pursuant to section 256C. Exactly what can be considered to not materially prejudice the ability to pay creditors is largely a commercial judgment that falls to the directors to contemplate.