Jersey Company Law Series: Redemption of shares – which shares and how?

KEY TAKEAWAYS

• Eligibility to redeem shares

• Solvency statement implications

• Funding a redemption and outcomes of redemption

The Companies (Jersey) Law 1991, as amended, (the "Law") gives Jersey companies a considerable degree of flexibility to fund the redemption of redeemable shares from any source, including capital.

Issuing redeemable shares

Companies can generally issue redeemable shares (or convert existing non-redeemable shares into redeemable shares) if permitted by their articles of association.

However, a company cannot issue redeemable shares if there are no non-redeemable shares in issue. Likewise, issued non-redeemable shares cannot be converted into redeemable shares if there would be no non-redeemable shares in issue as a result.

Redemption of redeemable shares

A company can redeem its redeemable shares if:

• they are fully paid;

• the directors who authorise the redemption make a Solvency Statement (as set out below); and

• the redemption complies with the relevant provisions of the company's articles of association

The Solvency Statement

The directors who authorise the redemption must make a statement (a "Solvency Statement") that they have formed the opinion that:

• immediately following the date of the redemption, the company will be able to discharge its liabilities as they fall due; and

• having regard to (i) the prospects of the company and to the intentions of the directors with respect to the management of the company's business and (ii) the amount and character of the financial resources that will in their view be available to the company, the company will be able to:

• continue to carry on business; and

• discharge its liabilities as they fall due,

until the first to occur of the expiry of the period of 12 months immediately following the date of the redemption, or the company is wound up on a solvent basis.

A director who makes a Solvency Statement without having reasonable grounds for the opinion expressed in it is guilty of an offence and, upon conviction, is liable to a fine, imprisonment for up to two years or both.

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