Bearer shares (unregistered shares owned by whoever physically holds the share warrant) were abolished with effect from 26 May when amendments to the Companies Act 2006 were implemented. This was done through provisions of the Small Business, Enterprise and Employment Act 2015 (SBEE).
This change has been made as part of the government's aim to promote transparency of company ownership and control to deter criminal misuse of companies in the UK. Because the holders of bearer shares are not necessarily known to the companies that have them in issue they are seen as an easy means of facilitating illicit activity such as tax evasion or money laundering.
From 26 May UK companies are prohibited from issuing bearer shares and companies with bearer shares in issue are required to take action to get rid of them. Companies must give notice to bearer shareholders that they must surrender their bearer shares and have their holdings converted into registered shares, and the consequences of not doing so, within one month of the commencement date (ie by 26 June).
Given that the identities of the bearer share holders will not be known, the SBEE provides that the company's notice must be published in the London Gazette, put in a prominent place on the company's website (if there is one) or communicated to the bearer shareholders by the method usually used by the company to communicate with them. Failure to follow the prescribed procedure by the company is an offence.
Any bearer shares not surrendered and exchanged by 26 December 2015 can no longer be transferred (any purported transfer will be void) and no rights will attach to them (voting etc.) Any distribution to which the bearer shares would have been entitled must be paid into a separate bank account.
Companies which still have bearer shares on 26 February 2016 will be required to apply to court to cancel them and to pay into court an amount equal to the nominal value of the shares within 14 days of cancellation together with any suspended distributions to ensure that all bearer shares are eliminated.
Although companies have been on notice for some time of this change, if records have not already been checked to see if bearer shares are in issue this needs to be done urgently as the time frames are short. For those doing share acquisitions, the share history of the target companies will need to be checked to ensure no bearer shares are still in issue. A further point to note is that a company with outstanding bearer shares cannot be struck off the register.
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