Rethinking Share Repurchases
EW Barker Centre for Law & Business Working Paper 20/07
36 Pages Posted: 10 Jun 2020 Last revised: 9 Feb 2021
Date Written: June 8, 2020
Share buybacks have been widely used around the world for a long time now. This was once seen as a form of market abuse in the US. A recent Singapore decision suggested that buybacks to counter a short-selling attack may constitute market manipulation although the Court of Appeal affirmed the decision on the basis that the statutory requirements for a buyback were not met. But those requirements have been liberalized over the past 20 to 30 years although a line should be drawn in the sand with the need for a solvency statement. Not being fully proprietary, repurchased shares should not be kept on the balance sheet. The proper purpose rule, which applies to changes of capital should also apply to share repurchases to only allow buybacks when the company has no need for financing taking into account all possible exigencies. The repurchase price should also be the lowest possible as is the case for normal buyers.
Keywords: Share Buybacks, Market Manipulation, Capital Maintenance, Proper Purpose Rule, Company Law, Securities Regulation
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