Small Business, Enterprise and Employment Act 2015: abolition of bearer shares

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

The Small Business, Enterprise and Employment Act 2015 received Royal Assent at the end of the last Parliament. Although the proposal is to stagger the implementation of most provisions over the next year, the changes to bearer shares come into force in May 2015. Affected companies and shareholders need to take immediate action.

The key provisions

• From 26 May 2015, the issue of new share warrants to bearer (also known as bearer shares) will not be permitted.
• 26 May 2015 is the "commencement date" in a strict nine month timetable during which the holders of bearer shares will have the right to surrender the warrants for conversion into registered shares (see the flow chart below).
• Companies with bearer shares in issue must give various notices to the holders (including putting notices in the Gazette) informing them of their right to convert the bearer shares and the consequences of not doing so. The first notice must be given within the period of one month following the commencement date.
• Companies will be obliged to apply to court to cancel bearer shares if they are not surrendered for conversion within the surrender period and pay into court the amount of share capital (nominal and premium) paid up on the bearer shares to be cancelled, plus any accrued dividends.

Implications

• Although bearer shares are not often used in UK companies now, they have been used historically, for example, for structuring and tax planning.
• Companies should contact holders of bearer shares now so that the shares can be converted, avoiding the need to apply to court for the cancellation of unconverted bearer shares and having to fund the payment into court of the amount of share capital to be cancelled.
• Public companies with bearer shares should pay particular attention to the amount of share capital attributable to the bearer shares because any cancellation of bearer shares which results in the share capital dropping below the minimum required by the Companies Act 2006, may force the company to re-register as a private company.
• There are criminal sanctions for both the company and its officers for default in complying with the provisions.
• Holders of warrants who do not surrender their bearer shares for conversion within the nine month surrender period will lose their shares. Monies paid into court can be claimed for up to three years following cancellation, but only where the failure to exercise the right of surrender was due to "exceptional circumstances". Unclaimed monies will go to the Government.

Any information contained in this article is intended as a general review of the subjects featured and detailed specialist advice should always be taken before taking or refraining from taking any action. If you would like to discuss any of the issues raised in this article, please get in touch with your usual Olswang contact. The original version of this article was included in our Olswang Corporate Quarterly Autumn 2014 publication, but it has been updated following the enactment of the Small Business, Enterprise and Employment Act 2015.