Bearer shares were abolished by The Small Business, Enterprise and Employment Act 2015 ('the Act'). Holders of bearer shares have until 26 February 2016 to surrender them to the company for conversion into registered shares or risk their cancellation.
What are bearer shares?
Share warrants to bearer (commonly known as bearer shares) are a form of unregistered share where ownership is evidenced by physical possession of the relevant share warrant. This contrasts with registered shares where ownership is evidenced by entry of the shareholder's name into the register of members.
Although they are not common, bearer shares can arise in many types of company - we have encountered them in a privately owned nursery business in the last two years.
In keeping with the government's drive for greater corporate transparency, bearer shares were abolished by the Act which:
- prohibited the creation of new bearer shares on or after 26 May 2015 and;
- required all existing bearer shares to be surrendered for conversion into registered shares during a 9 month voluntary surrender period starting 26 May 2015 and expiring on 26 February 2016
With the expiry of the voluntary surrender period approaching, both the holders of bearer shares and companies that have issued them should take note and act appropriately.
Voluntary surrender of bearer shares
The holders of bearer shares have until 26 February 2016 to surrender them to the company for conversion into registered shares.
To incentivise the holders, the Act provides that from 26 December 2015:
- all rights attaching to the bearer shares are automatically suspended
- any agreement to transfer the bearer shares is void and
- any dividends paid on the bearer shares must be paid into a separate interest bearing bank account.
These suspensions will cease if the bearer shares are surrendered to the Company before 26 February 2016.
Application to cancel bearer shares
If any bearer shares remain after 26 February 2016, the company must to apply to court for their cancellation as soon as reasonably practicable and in any event within three months.
If the court is satisfied that:
- the company has complied with its obligations to notify the holders of their right to surrender the bearer shares and the consequences of failing to do so or
- the holders had actual notice by other means,it will make a cancellation order. If the court is not satisfied, however, it will make a suspended cancellation order. The holders then have a further two months to surrender their shares before the cancellation order takes effect
When a cancellation order is made:
- the bearer shares are cancelled from the date that the order takes effect
- the company must notify the reduction of share capital to Companies House and
- the company must pay into court within 14 days an amount equal to the nominal value of the bearer shares, any share premium paid on them and any accrued dividends
Former holders of bearer shares may then apply to court to claim any sum paid into court in respect of their bearer shares.
Given the cost implications of a court application a voluntary surrender of bearer shares is in the best interests of both the holders and the company.
If you are a holder of bearer shares that remain outstanding, act now to preserve your shareholding by surrendering them before 26 February 2016.
If you are a company with bearer shares that remain outstanding, you should make further attempts to contact the holders and seek their surrender before 26 February 2016.