The use of cash box structures is becoming increasingly popular
as a means of facilitating equity or bond issues. This note
summarises the ways in which a UK public company listed on the
London Stock Exchange or AIM may raise money using a Jersey company
'cash box' company, either by a placing of its shares or
through the use of a convertible bond.
WHY USE A CASH BOX COMPANY?
The main advantage of a cash box structure is that it allows a
UK Plc to issue shares for a non-cash consideration. This means
that the statutory pre-emption provisions set out in the UK
Companies Act 2006 do not apply and the issue can proceed without
the need to disapply the applicable pre-emption rights or undergo a
UK Plc may also be able to create distributable reserves using
the merger relief provisions of the Companies Act 2006.
The use of a Jersey company avoids the need for Plc to prepare
listing particulars (provided that, where Plc is listed on the
London Stock Exchange, the placing shares do not exceed 10% of
Plc's issued share capital).
HOW DOES A CASH BOX TRANSACTION WORK?
There are two main ways in which Jersey cash box companies can
be used, the first involving a placing of shares by a UK Plc and
the second involving the issue by a Jersey company of bonds which
are convertible into shares in a UK Plc.
ISSUE OF SHARES OR BONDS BY UK PLC
A UK public company ("Plc") incorporates a Jersey
company ("JerseyCo") as a wholly-owned subsidiary.
JerseyCo issues redeemable preference shares to a manager, usually
an investment or commercial bank (the "Manager") in
return for the payment of a subscription amount (the
"Subscription Monies"). Where UK merger relief is being
utilised, the Manager will also subscribe for a small number of
ordinary shares in JerseyCo, with the remainder being retained by
The Manager transfers its redeemable preference shares in
JerseyCo to Plc in consideration for the issue by Plc of either
placing shares or convertible bonds to investors identified by the
Manager. There is no cash consideration for the issue of these
shares or convertible bonds by Plc.
Plc can then either redeem its preference shares for an amount
equal to the Subscription Monies (less certain commissions and
expenses), or JerseyCo can be wound up. Alternatively, JerseyCo may
lend an amount equivalent to the net Subscription Monies to Plc on
terms whereby the rate of interest payable by Plc to JerseyCo
allows it to meet its dividend obligations in respect of the
redeemable preference shares.
ISSUE OF CONVERTIBLE BONDS BY JERSEYCO
Plc incorporates JerseyCo as a public company. JerseyCo issues
bonds which are convertible into exchangeable redeemable preference
shares in JerseyCo and which, upon conversion, are then
automatically exchanged for ordinary shares in Plc.
The proceeds of the bond issue are lent by JerseyCo to Plc on
terms whereby the rate of interest payable by Plc allows JerseyCo
to service its interest payments under the bonds.
Once all of the bonds have been converted, or at maturity, Plc
can redeems its preference shares or JerseyCo can be wound up.
WHY USE A JERSEY CASH BOX COMPANY?
Jersey is a well-established jurisdiction within the same time
zone as the UK. Jersey company law is based on English company law
and provides a quick and easy mechanism for extraction of funds
from JerseyCo, either by redemption, dividend or on a winding
JerseyCo can be incorporated on a same day basis if required and
there is no requirement for Jersey directors to be appointed. No
material regulatory consents are required where Plc issues shares
or bonds, and the consents required where JerseyCo issues
convertible bonds are standard and can generally be obtained
quickly and without difficulty.
JerseyCo will usually be managed and controlled in the UK and
therefore resident for tax purposes in the UK, and not Jersey - a
Jersey cash box structure is therefore tax neutral from a Jersey
perspective. There is no corporation tax, capital gains tax, stamp
duty, VAT or withholding tax payable in Jersey in respect of the
issue, transfer or redemption of shares in JerseyCo.
The register of members of JerseyCo will be situated in Jersey
and, where the Plc issuer structure is used, the relevant stock
transfer forms are executed in Jersey. There should therefore be no
UK stamp duty payable in respect of the transfer of the JerseyCo
shares from the Manager to Plc.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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