Cash box structures

Thursday, 01 October 2009
The structure that enables UK-listed entities to raise equity finance quickly and economically using an offshore subsidiary.

Cash box structures are designed to take advantage of an exemption under UK law which allows shares in a listed company to be issued to third parties on a non-pre-emptive basis, provided that they are issued for a non-cash consideration, such as the shares of another company.

A listed company incorporates a new subsidiary to act as the cash box. The cash box is usually incorporated in Jersey, but to avoid the need for UK Treasury consent, it is necessary for it to be managed and controlled in the UK for the purposes of UK tax. Jersey companies are tax neutral for these purposes, as they generally pay income tax at 0 per cent, there is no stamp duty or equivalent tax payable in Jersey on the issue or transfer of shares and, as the transfer is a transfer of shares on the register of a Jersey company and all share certificates and transfers can be retained in Jersey, no stamp duty should be payable in the UK.

It is usual for the cash box to be incorporated with ordinary and redeemable preference shares in its capital. The ordinary shares in the cash box will be held by the listed company and by those institutions, which are acting as dealers for the issue. The dealer also subscribes for redeemable preference shares in an amount equal to the net placing proceeds. The listed company agrees with the dealer to allot and issue placing shares to placees, who are required to pay the subscription price to the dealer. In consideration of this, the dealer agrees to transfer all the shares it holds in the cash box to the listed company – with the result that the listed company issues the placing shares for non-cash consideration.

The dealer invites institutional investors to bid for placing shares. When bids are in, the listed company and the dealer set the issue price and the dealer then notifies placees of their allocation of shares and the price payable. The placees are required to pay the subscription price for the placing shares to the dealer within a specified period after the placing shares are admitted to listing. The placing shares are issued to placees and the dealer uses the subscription moneys to pay up the preference shares it holds in the cash box and then transfers all its shares in the cash box to the listed company. At this point the listed company owns all the shares in the cash box and the cash box will now hold funds equivalent to the net proceeds of the placing by the dealer. These funds may be lent by the cash box or paid to the listed company by way of redemption of the redeemable preference shares, which have been transferred to it by the dealer. Alternatively the shares can be distributed to the listed company on a winding up of the cash box.

Why use a cash box structure?

As the placing shares in the listed company are not issued for cash, but instead issued in consideration for the transfer of preference shares in the cash box it will allow the listed company to allot new shares without having to do this on a pre-emptive basis as required by section 561 of the Companies Act 2006, or to deal with the practical complications of securing shareholder approval for the disapplication of the pre-emption provisions contained in the articles of association.

There should be no need for UK PLC to issue listing particulars or a prospectus for the issue of new shares representing less than 10 per cent of its current issued share capital, thus saving on the time and expense involved in preparing listing particulars. Merger relief may also be available under section 612 of the Companies Act 2006 if the redeemable preference shares do not constitute equity share capital.

Jersey companies are able to redeem shares from any source of funds. In order to redeem the redeemable preference shares the directors of the cash box will be required by the Companies (Jersey) Law 1991 to make a solvency statement to the effect that they believe, once the redemption has taken place, the cash box can pay its liabilities as they fall due and carry on business for the next 12 months or until it is wound up, whichever is the earlier.

With it being harder to find debt finance in the current market, good prices are to be had for those that can raise the necessary finance. As a result, many corporates are looking at ways of raising funds through the equity market, and there has been a considerable amount of interest in cash box structures. These placings enable listed companies to issue up to 10 per cent of their issued share capital quickly and, as there is no necessity to obtain additional shareholder consent or prepare listing particulars, this can be achieved at relatively low cost.

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Jeremy Berchem

Jeremy Berchem is a member of the Commercial team at Voisin’s.

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