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When can a company redeem preference shares?

The company would like to redeem the preference shares of minority shareholder

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The company would like to redeem the preference shares of a minority shareholder, there are 35000 preference shares at £1 each.

The companies accounting year is Jan to Dec.

YTD (up to March 29th) the company has £15000 distributable reserves

In this an accounting year (Jan to Dec) distributable reserves are estimated at £60000, it is not affected by Covid-19. 

Question is, can the company redeem the preference shares now? Knowing that the distributable reserves will cover the preference share redemption by the end of the year, or even by July? 

Thank you for your help in advance. 

 

 

 

Replies (8)

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By Accountant A
29th Mar 2020 18:28

Has anyone considered looking at the documentation for the shares?

Maybe get your accountant involved. Would seem foolhardy to use all distributable reserves at a point in time. What's the rush?

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By Smarties 1
29th Mar 2020 18:26

Thank you for your reply. The shareholder with the preference shares wants to cease all connection with the company asap.

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By Accountant A
29th Mar 2020 18:30

Quote:

Thank you for your reply. The shareholder with the preference shares wants to cease all connection with the company asap.

That's what the shareholder wants.

What does the company want and what does the documentation entitle him to?

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By Smarties 1
29th Mar 2020 19:26

The company and majority shareholder are in agreement that the company needs to redeem her preference shares as soon as it is legally possible. Due to a change in her personal circumstances.

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By paul.benny
29th Mar 2020 19:03

As Accountant A says, the documentation - Articles of Association, any shareholder agreements will determine the rights of the parties (ie company and preference shareholder) regarding redemption of prefs. They may not even be redeemable- although there is always the possibility of a share repurchase subject to the relevant process

Regarding your narrower point about whether the the company could redeem the lot now, I say no. Distributable reserves have to be determined based on statutory accounts and not some mid-year management accounts estimate.

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By Smarties 1
29th Mar 2020 19:28

Thank you. The shares are redeemable.

Is there a way of shares being redeemed if there aren't distributable reserves?

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By paul.benny
30th Mar 2020 08:54

I suppose you could shorten the accounting period to end on a date when you can be confident that the retained earnings will cover the capital redemption - so based on the numbers in the OP, say end August.

Whether it is wise to do so is another matter.

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By Smarties 1
31st Mar 2020 14:09

oh yes, thank you. this is something to consider. Thank you for your help. I will discuss with my accountant, but right now, they are not available due to the current situation.

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