A public company in the UK that wants to raise cash faces challenges not only as a result of the current state of the credit market but also because of legal and regulatory factors. The market does, however, still offer opportunities for the right offerings and it is useful to look at ways of addressing the issues.
Equity placings for cash are an efficient way of raising small amounts but do have drawbacks when it comes to raising larger amounts. UK-listed companies are restricted by the pre-emption rights regime as to the amount they can raise through a straightforward issue of securities for cash that is not made pro rata to their existing shareholders.
Cash placings may exceed the limits prescribed by law, but only with prior shareholder approval. Obtaining shareholder approval will entail not only the expense and delay of convening a meeting, but also the need to announce the proposed transaction. The proposed use of the cash may be highly confidential, in which case it will not be feasible to make the public announcements required for a shareholders’ meeting. In addition, guidelines have been published by various institutions setting out the principles to be followed in relation to the disapplication of statutory pre-emption rights on the issue of equity securities for cash.
Shares ;issued ;for ;a ;non-cash consideration are not subject to the same restrictions. This is where cashbox structures are useful.
The cashbox solutionIn order to set up a cashbox structure, UK plc (our imaginary company for the purposes of this article) incorporates a new subsidiary that acts as the cashbox. The cashbox is usually incorporated in Jersey but, in order to avoid the need for HM Treasury consent, it must be managed and controlled in the UK for the purposes of UK tax. If merger relief is to be sought, it is usual for a proportion of the equity share capital of the cashbox to be held by the institutions acting as dealers or managers for the issue by UK plc. The cashbox will also have a class of redeemable preference shares for issue to the dealers.
Under the structure, redeemable preference shares in the cashbox are issued to the dealers, fully paid for an amount equal to the net proceeds of the placing. The shares in the cashbox held by the dealers are then transferred to UK plc in return for the issue by UK plc of its own ordinary shares to investors determined by the dealers. In this way, the shares in UK plc are issued for a non-cash consideration. After the transfers of the cashbox shares from the dealers, the cashbox becomes a wholly-owned subsidiary of UK plc, holding funds equivalent to the net proceeds of the equity placing by the dealers. These may be lent by the cashbox or paid to UK plc by way of redemption of the redeemable preference shares or distributed to UK plc in a winding up of the cashbox.
Jersey companies are suited for use in cashbox structures for a number of corporate and tax reasons. They can be incorporated within a short timescale and are incorporated on a bespoke basis – making it easier to demonstrate that the cashbox is a subsidiary of the UK plc with UK management and control from incorporation.
Jersey companies can also be managed and controlled in the UK while retaining their registers and registered offices in Jersey ;- there ;is ;no requirement for board or shareholder meetings to be held in Jersey or for there to be Jersey-resident directors.
Jersey companies are able to issue no par value shares, issued for an agreed price recorded in a stated capital account. The whole of the stated capital account may be used for the purposes of redeeming the shares, which simplifies the redemption process.
Treasury sharesCompanies on the island are also permitted to hold treasury shares and winding up solvent Jersey companies is a simple and quick procedure – it is not necessary to appoint a liquidator, for example.
Jersey companies can be tax-neutral and assist with the UK tax analysis, meaning that a cashbox company will not be liable for income tax in Jersey nor liable to any capital gains or other corporate tax on its income.
There is no stamp duty or equivalent tax payable in Jersey on the issue or transfer of shares or by reference to its authorised or issued share capital, save for the incorporation fees payable on incorporation. Transfers of shares are carried out on the register, which needs to be maintained in Jersey, and all transfers and share certificates can be executed and retained in Jersey, outside the UK.
Importantly, ;the ;island ;has ;an experienced professional infrastructure accustomed to managing the regulatory, technical and practical demands of cashbox structures.
Although public companies in the UK face limitations and restrictions on raising cash by issuing their securities, by using the island’s flexible and robust framework of corporate law and its experienced professional infrastructure, cashbox structures can provide an attractive solution. nJonathan Walker is a partner and Brian Scholfield a senior counsel at Mourant du Feu & Jeune, Jersey