[2004]JRC070
royal court
(Samedi Division)
27th April 2004
Before: |
M.C. St. J. Birt, Esq., Deputy Bailiff, and Jurats de Veulle and Le Brocq. |
In the matter of Randgold Resources Limited
And in the matter of the Companies (Jersey) Law, 1991
Ex parte Representation by Randgold Resources Limited under Articles 61 and 64 of the Companies (Jersey) Law, 1991, for confirmation that it may reduce its share capital.
Advocate M.S.D. Yates for the Representor.
judgment
the deputy bailiff:
1. This is a representation by Randgold Resources Limited to reduce its share capital. The application is brought under Article 61 (2)(b) of the Companies (Jersey) Law, 1991 which provides that a company may, with or without extinguishing or reducing liability on its shares, cancel any paid up share capital by an amount which is lost or is unrepresented by available assets.
2. We have been provided with some authority as to what has to be considered when deciding whether an amount has been lost. It is clear, for example, from the case of In re Jupiter House Investments (Cambridge) Limited (1985) 1 WLR 975 that the key requirement is that the loss of capital must be a permanent loss and not a temporary fall in the value of some capital asset.
3. We have had an affidavit in this case which has set out the background. This company is a successful company carrying on gold mining activities but in relation to one transaction it has incurred substantial losses. It invested approximately US$148 million in the Syama Company which indirectly holds the Syama Mine in Mali.
4. That mine has turned out not to be economically viable and in 2001 the company suspended mining operations at the mine. It wrote off an aggregate of US$139.6 million in connection with that investment.
5. In April, 2003, it entered an option agreement for the sale of the mine, and we are told that that option has now been exercised. Accordingly the company hopes to make some recovery but the maximum amount that it could recover would be US$33 million. There will therefore be a permanent loss in respect of the investment of some US$106.6 million.
6. The current position of the company is that its balance sheet at 31st December, 2003, showed a share premium account of over US$200 million, but there were accumulated losses of just over US$75 million which reflect the losses we have just described as reduced by various profits which the company has made.
7. The difficulty at present is that the company cannot declare any dividends until the accumulated losses have been removed. Accordingly, the company now seeks to reduce its share premium account by US$100 million in order to cancel the accumulated losses of US$75 million and to transfer the balance of US$25 million to a special reserve which is to be treated as realised profits of the company and to be available for distribution to members of the company by way of dividend and so forth.
8. We are quite satisfied, having looked at the balance sheet of the company and having been referred to the background, that this is a proper case for a reduction of share capital. We are quite satisfied that the reduction represents share capital which has been permanently lost and we think that the reasons put forward by the company for permission to do so are perfectly proper and reasonable.
9. We have had to consider, obviously, the position of creditors; in particular Article 62 (2) of the 1991 law provides as follows:
"(2) If the proposed reduction of share capital involves either -
(a) a diminution of liability in respect of unpaid share capital; or
(b) the payment to a shareholder of any paid up capital,
and in any other case, if the court so directs, the next three paragraphs have effect, but subject throughout to paragraph (6).
10. Those next three paragraphs essentially provide that a list of creditors should be drawn up and that they should be given the opportunity of objecting to the proposed reduction. This is not a case which falls within sub-paragraphs (a) or (b) of paragraph (2) of Article 62 in that no capital is being returned to shareholders and there is no diminution of liability. On the contrary the total shareholders' equity will remain unaltered by this proposal. It will simply be changing the amount standing to the share premium account and removing the accumulated losses.
11. In the circumstances, having had the position as to creditors described to us and having considered the balance sheet which shows substantial cash and equivalent assets of over US$100 million as at 31st December, 2003, and total shareholders' equity of US$127 million we are quite satisfied that no prejudice to creditors will occur as a result of this reduction. Furthermore the largest single creditor has consented to the proposal.
12. We are satisfied therefore that this is a proper case for reduction and we confirm the reduction as requested and approve the attached minute which has been handed up to us and which shall be annexed to the Order of the Court for the purposes of Article 64 of the law.
Authorities
Companies (Jersey) Law 1991: Articles 61 -63.
In re Jupiter House Investments (Cambridge) Limited (1985) 1 WLR 975.