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How to improve cash flow in a UK company

How to improve cash flow in a UK company

How to improve cash flow in a UK company

Irish Holding companies with UK subsidiaries will often inject new capital to facilitate for example group reorganisations or cash flow. There is a lot more to be done than simply filing a form with Companies House. Here, we take a look at the key points to consider.

1. Directors’ Authority to Allot Shares

The directors need to have the appropriate authority before they can allot shares:

  • Directors of private limited companies with only one class of shares in their share capital can resolve to allot shares without any prior shareholder approval, unless the Articles contain a restriction.
  •  Where a company is not a private limited company, or if it has more than one class of shares, the directors will require prior authority to allot shares - either by an ordinary resolution of the shareholders or by authority contained within the Articles. Subject to having the necessary authority (which can be general or specific), directors can allot shares up to the amount authorised while the authority remains valid (up to 5 years).

2. Pre-emption Rights

Statutory “offer-round” or pre-emption rights of existing shareholders (i.e. the right of existing shareholders to be offered new shares pro-rata to their existing shareholdings to prevent a dilution of their shareholding) are contained in Chapter 3 of Part 1 of the 2006 Act. These provisions may be modified or disapplied in a company’s Articles or by special resolution of the shareholders. There are certain exceptions from the pre-emption rules, for example, allotments of bonus shares or shares allotted for non-cash consideration. 

Proceeding to Allot Shares

Directors can only proceed to allot new shares after being satisfied that they have both the authority to do so and that any pre-emption provisions have been addressed. 

  • A validly convened board meeting should then be held at which the directors would consider the application for shares and then decide to allot them.
  • The allotment must be recorded in the Registe of Members within two months of the allotment. However, before doing so, checks should be done to ensure that the full consideration has been received, bearing in mind that shares cannot be allotted at a discount to their nominal value.
  • Within one month of the allotment, a statutory form SH01, Return of Allotment of Shares, must be filed with Companies House.  This sets out details of the shares allotted, including the amount paid up/unpaid (including share premium) on each share.  The Return also contains a Statement of Capital which is a “snapshot” of the company’s issued share capital on the date of allotment. If a company elects to have its Register of Members held at Companies House, it is particularly important that Companies House receives timely notification of the allotment.
  • A new share certificate should issue to the allottee within two months of the allotment.

Other considerations

  • Shareholders’ Agreements may contain provisions or restrictions in relation to an allotment of shares and, if there is a Shareholders’ Agreement in place, its provisions should be checked carefully before proceeding.
  • An allotment of shares may result in a change to the People of Significant Control (“PSC”) of a company. There are five specified conditions to be satisfied in order to be considered a PSC and, depending on which of those conditions are met, an allotment of shares may result in a new PSC being identified or a person ceasing to be a PSC. It may also be the case that the identity of the PSC may not change as a result of the allotment, but the nature and extent of their interest may change. Any changes in PSC will require the relevant entries to be made in the PSC Register and notified to Companies House on the appropriate statutory forms.
  • Finally, there may be commercial considerations,beyond the scope of the 2006 Act or a company’s Articles. For example, the conditions that may be attached to a bank facility provided by a third party lender which could restrict any additional allotments in the capital of a company, or may permit allotments but only subject to prior approval from the lender.

If you have any queries in relation to share capital changes, or would like to find out how we can help, please contact any member of KPMG Legal Company Secretarial.