Andrew Pinel, Partner
We advise on a wide range of matters relating to Jersey companies on a daily basis, but there is an error that we have seen many times, with Jersey administrators and companies administering their own books. It is a small, simple and innocent error that can have very serious consequences.
It relates to the situation where a Jersey company needs to ‘cancel’ some of its shares. We use the term ‘cancel’ carefully, as shares can genuinely only be cancelled in very limited circumstances. The most common scenarios are after the shares have been bought back by the company or where there is a merger of two companies and some shares are cancelled.
However, we often see an issue where there is a restructuring of a company and there are too many shares in issue for the new structure. A shareholder may hold 100 ordinary shares of £1.00 each, but the parties would like to reduce that to 50 shares of £1.00 each. It would seem logical that the shareholder could simply waive their right to have those shares or waive the underlying £50.00 due to them, but they cannot. The shares should be bought back by the company and then cancelled, or they should be transferred to a third party.
This situation is common and often part of a complex restructuring, where new shares or share classes are issued and there appears to be good reason or a legal basis for it.
Please see below and example share register, showing an incorrect cancellation of 50 ordinary shares.
Example share register, showing an improper cancellation of 50 shares
The implications are very severe and, as we have seen, often very costly. The shares have not been ‘cancelled’ and so, therefore, the shareholder remains the holder of the shares, after the purported cancellation. The issues here are numerous: dividends may have been declared, resolutions not validly passed, share authorisations exceeded, financing arrangements breached, for example.
Pinel Advocates can assist and advise on such matters, to look for the best way to correct the position quickly and efficiently.
Trust company administrators are advised to check their registers for such issues. We would be happy to review and advise as to whether the issue is present on any registers, without charging for such review. Please contact Andrew Pinel or David Yetman for assistance.