ARTICLE
7 October 2024

Jersey Company Law Series: Redemption Of Shares – Which Shares And How?

W
Walkers

Contributor

Walkers is a leading international law firm which advises on the laws of Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Ireland and Jersey. From our 10 offices, we provide legal, corporate and fiduciary services to global corporations, financial institutions, capital markets participants and investment fund managers.
Eligibility to redeem shares Solvency statement implications Funding a redemption and outcomes of redemption
Jersey Corporate/Commercial Law

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.

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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