Section 622: Redenomination of share capital
905. Where a public company applies for a trading certificate under section 117 of the 1985 Act it must satisfy a minimum share capital requirement (known as the “authorised minimum”). There is a similar requirement where a private company re-registers as a public company under section 43 of that Act. The authorised minimum is currently set at £50,000 and must be expressed in sterling. This implements Article 6 of the Second Company Law Directive (77/91/EEC) which requires that, in order that a company may be incorporated or obtain authorisation to commence business, a minimum capital shall be subscribed the amount of which shall be not less than 25000 ECU (expressed in the domestic currency of the Member State). Under section 763, in future the authorised minimum will be capable of being satisfied in sterling (£50,000) or the euro equivalent to the sterling amount. Subject to this change, the Act retains the effect of the 1985 Act provisions on the authorised minimum (see, for example, section 91, section 650 and section 761).
906. Subject to the above qualification (and any restriction in a company’s articles) a company is free to allot shares in any currency that it wishes (see section 542(3)). It may also have its share capital made up of shares of a mixture of denominations, for example, one class of a company’s shares may be denominated in sterling, whereas another class may be denominated in dollars, euros or some other currency of the company’s choosing. What a company cannot currently do is easily redenominate its share capital (or any class of it) from one currency to another, for example, from dollars to sterling or vice versa. The current procedure involves cancelling existing shares under the court approved procedure for capital reductions set out in section 135 of the 1985 Act or, in the case of private companies only, buying back or redeeming shares out of capital under section 171 of that Act, and then issuing new shares in the desired currency.
907. Section 622 introduces a new procedure that will allow a company limited by shares to redenominate its share capital easily. This requires a resolution of the company’s members. (Unlimited companies having a share capital are already free to redenominate their share capital as they see fit and no change to the legislation is required in respect of such companies).
908. Subsection (2) of this section provides that the spot rate used when converting a company’s share capital from one currency to another must be specified in the resolution to redenominate the company’s share capital. There is a choice of spot rates and this is set out in subsection (3).
909. A company is free to pass a conditional resolution under this section (see subsection (4)). A resolution will, however, lapse if the redenomination of share capital has not taken effect within 28 days of the date on which the resolution is passed (see subsection (6)). Where a resolution lapses, the company will not be able to redenominate its capital unless it passes a new resolution and the redenomination is effected in accordance with the new resolution.
910. Subsection (7) makes it clear that, if it wishes, a company may restrict or prohibit a redenomination of its share capital by incorporating a provision to this effect in the company’s articles.
911. It should be noted that this section does not make provision for the authorised minimum to continue to be denominated in sterling (or the euro equivalent). This means that once a public company has obtained a trading certificate under section 761 (or previously under section 117 of the 1985 Act) or where a private company has re-registered as a public company, such a company is free, if it wishes, to redenominate all of its share capital, including the authorised minimum into any currency of its choosing.
Section 623: Calculation of new nominal values
912. This section explains how the new nominal value of a share which has been redenominated from one currency to another should be calculated.
Section 624: Effect of redenomination
913. This section makes it clear that a redenomination of a company’s share capital (or any class of it) does not affect any rights or obligations that the members may have under the company’s constitution or any restrictions affecting members under the company’s constitution. In particular, it does not affect entitlement to dividends, voting rights or any liability in respect of amounts unpaid on shares. If, for example, a dividend of 20p was declared on a £1 share prior to a redenomination of that share, and that £1 share is subsequently converted into a $1.5 share, the member who now owns a $1.5 share in the company will still be entitled to a 20p dividend (albeit that the company and the member in question may agree that the 20p dividend can be paid in cents – or indeed in some other currency). Similarly, where a company has issued partly paid shares, the member’s liability to the company will remain in the currency in which the share was originally denominated.
Section 625: Notice to registrar of redenomination
914. This section sets out the requirements as to notice where a company redenominates its share capital (or any class of it). Notice must be given to the registrar in accordance with subsections (1) and (2) of this section and there is a requirement for a statement of capital (see note on section 619).
915. A copy of the resolution to redenominate the company’s share capital must be forwarded to the registrar within 15 days after it is passed notwithstanding that it may be an ordinary resolution (see section 622(8) which provides that Chapter 3 of Part 3 applies to the resolution and in particular section 30)
916. If a company fails to comply with the procedural requirements as to notice the company and every officer of the company commits an offence. The penalty for this offence is set out in subsection (5).