RE-DENOMINATION OF SHARE CAPITAL DENOMINATED IN LEGACY CURRENCIES
Jersey incorporated companies with existing shares denominated in legacy currencies will need to be aware of the final changeover to the euro which took place on 1 January 2002.
Such capital continued to be denominated in the relevant legacy currency (as a national currency unit of the euro) until 31 December 2001, unless a company had chosen to re-denominate into euro units under Article 38(1)(ea) of the Companies (Jersey) Law 1991, as amended.
On re-denomination, monetary amounts "to be paid or accounted for" (Article 5 of Council Regulation 1103/97) shall be rounded up or down to the nearest cent. If the amount is exactly half way then it shall be rounded up.
Do I need to do anything? Top
Accounting for re-denomination Top
The total amount of issued share capital is an amount to be accounted for. It is less clear whether the par value of individual shares is also an amount to be accounted for. Accounting for the par value of individual shares has been the subject of much discussion, particularly as the conversion and rounding of individual shares and of total share capital is likely to result in the sum of the nominal value of individual shares differing from the value of total authorised and issued share capital.
It is the Registrar of Companies' view that one of the following two approaches will satisfactorily address the uncertainty arising from re-denomination of share capital. Both anticipate some difficulty in application, though Approach A less than B. Approach A is recommended by the Bank of England.
Approach A Top
Use of an un-rounded nominal value per share under Approach A may be inconvenient. On and after 1 January 2002, shares should be issued, redeemed or bought back at the un-rounded nominal amount. This may cause a problem where shares are to be issued or redeemed without a premium, in which case the amount payable will need to be rounded to the nearest cent in respect of each shareholder. Where shares are issued, redeemed, or bought back at a premium then the amount to be rounded should be the total capital and premium issued, redeemed, or bought back.
This approach will not require any adjustment to total share capital.
Approach B Top
Under Approach B, the aggregate of the rounded par value of all individual shares is recorded on the balance sheet, leaving a difference to be accounted for (since assets and liabilities will have been re-denominated "top-down"). Where the aggregate of the rounded par value of all individual shares is less than total authorised/issued share capital calculated under the "top-down" approach, then this difference should be treated as a non-distributable reserve. Where the aggregate of the rounded par value of all individual shares is more than total authorised/issued share capital (calculated "top-down"), then the difference should be treated as a capital loss. As an alternative (and recognising that amounts will not be material), differences may be accounted for through a company's revenue account.
Rounding differences are not expected to be material.
Using the example given above, authorised share capital would be 10,000 at €5.11 per share, i.e. €51,100. This differs to the amount calculated under the "top-down" approach, which produces authorised share capital of €51,124.74.
Can I reduce or increase the par value of each share to a whole par amount? Top
If a company does not have any partly paid shares and can comply with the other requirements of Article 61(2A) then it can reduce its share capital by simply passing a special resolution. Otherwise, the company will be expected to obtain the approval of the court to the passing of such a special resolution before a reduction in share capital can be made.
If a company chooses to increase the par value of its shares, then it may do so through an issue of shares under Article 38(1)(a) and consolidation under 38(1)(b) of the Companies (Jersey) Law 1991, as amended. Such an issue might be funded by the capitalisation of reserves or through issue proceeds.
Where additional capital is raised, a company will also be required to obtain a revised permit under the Control of Borrowing (Jersey) Order 1958.
Reporting un-rounded par value amounts on annual returns Top
Status of paper Top