Since the Small Business, Enterprise and Employment Act 2015 (SBEEA 2015) received Royal Assent on 26 May 2015:

• New bearer shares/warrants (bearer shares) may no longer be issued as from 26 May 2015
• Those which are already issued must be surrendered and converted into registered shares, or cancelled, by 26 February 2015

Bearer shares are unregistered shares that are created by the issuance of share warrants, effectively operating as shadow shares. Shareholders who wished to remain anonymous could benefit from such bearer shares as, although benefiting from the rights attached to such shares (e.g. voting rights, dividends and other distributions, depending on the articles of association of the issuing company), their names were not entered in the register of members of the issuing company.

The abolition of bearer shares under SBEEA 2015 is in line with the government’s aim for greater transparency. Companies that have issued existing bearer shares need to be prepared for the changes and mandatory process implemented under SBEEA 2015.

In light of the above, we have set out below a brief summary of the corporate formalities that will need to be undertaken over the next 12 months by companies that have existing bearer shares.

Before 26 June 2015 SBEEA 2015 provides that companies must inform the holders of bearer shares issued before 26 June 2015 of their rights to surrender their bearer shares and the consequences of failing to do so. Please see the section below for specific information to be included in these notices and the procedure for providing such notices to the holders of bearer shares.

Failure to notify the holders of bearer shares before 26 June 2015 amounts to an offence by the officers of the issuing company.

On or before 26 December 2015 Holders of bearer shares must voluntary surrender their bearer shares. Further detail on how to surrender bearer shares is set out below.

Failure to do so on or before 26 December 2015 will have the following consequences:

• All rights attached to the bearer shares in issue (e.g. voting rights, dividends and other distributions, depending on the articles of association of the issuing company) shall be automatically suspended. The issuing company must take into account this suspension with regard to any shareholder’s resolutions to be passed after 26 December 2015.
• Any transfer or agreement to transfer bearer shares made after 26 December 2015 shall be void. This requirement is particularly relevant for those who intend to purchase or sell all or part of the share capital of companies in which bearer shares have been issued.
• If any distributions are to be made by the issuing company after 26 December 2015, the portion that would have been received by a holder of bearer shares is to be paid into a separate interest-bearing bank account.

The above consequences cease to have effect if the bearer shares are subsequently surrendered on or before 26 February 2016, and the distributions held in the separate interest-bearing bank account are to be paid to the holder of the surrendered bearer shares with any accrued interest.

Before 26 January 2016 As per the first mandatory notice, the issuing company must provide a second notice to the holders of bearer shares who have not voluntarily surrendered them. Please see the section below for the specific information to be included in these notices and the procedure for providing such notices to the holders of the bearer shares.

If bearer shares are still in existence, failure to notify the holders of the bearer shares before 26 January 2016 shall amount to an offence by the officers of the issuing company.

On or before 26 February 2016 Holders must voluntarily surrender their bearer shares by 26 February 2016. If they fail to do so, the issuing company must apply to court to cancel the remaining bearer shares by 27 May 2016.

If the issuing company has applied for a cancel order, it must notify such application to:

• The holders of bearer shares within 14 days of the application (using the same method of communication as per the mandatory notices – please see below)
• The Register of Companies immediately

Failure to apply for the cancellation orders and to provide the above notices amounts to an offence by the officers of the issuing company.

If the court is satisfied that the issuing company has complied with the process implemented under SBEEA 2015, it is required to grant the cancellation order. If, however, the court is not satisfied, it may grant the holder of the bearer shares a two-month grace period to surrender their bearer shares.

Other Issues to Consider

How to surrender bearer shares? The procedure for surrendering bearer shares is usually included in the share warrants. To surrender their bearer shares, the holder most notify the company and request registration as a member in the company register for the number of shares specified in the share warrant.

The company will then amend the register of members and issue the required number of share certificates within two months of the date of surrender.

What information needs to be included in the mandatory notices to the holders of bearer shares? The mandatory notices to be provided to the holders of the bearer shares must mention the following:

• The holder's right of surrender
• The consequences of failing, or having failed, to exercise the right of surrender before 26 December 2015
• The fact that the right of surrender will cease to be exercisable on 26 February 2016
• The consequences of the holder's failure to surrender their warrants before 26 February 2015

What is the correct procedure for notifying the holders of the bearer shares? The mandatory notices must be provided to the holders of the bearer shares either by:

• Placing a notice in the Gazette
• The usual method of communication used by the company to inform the holders on matters regarding their deferred shares and their share warrants
• Placing a notice on the company’s website

Client Alert 2015-176