Jersey Unreported Judgments

[2011]JRC077

royal court

(Samedi Division)

12^th April 2011

IN THE MATTER OF THE REPRESENTATION OF SYGEN LIMITED

AND IN THE MATTER OF AN APPLICATION PURSUANT TO ARTICLES 62 AND 63 OF THE COMPANIES (JERSEY) LAW 1991

Advocate R. J. MacRae for the Representor.

judgment

the bailiff:

1.        This is an application by a Jersey company called Sygen Limited ("the company") to reduce its share capital pursuant to Articles 62 and 63 of the Companies (Jersey) Law 1991. 

2.        The background is as follows.  The company has an nominal share capital of £1 million, divided into 1 million shares of £1 each.  Currently 879,753 shares have been issued, all of which are held by Sygen International Limited ("the parent").  This is a company incorporated in the United Kingdom.  The company has an issue share capital of £879,753 and a share premium account of £878,870,661, so the total balance of its capital accounts is therefore £879,750,414.  The amount standing to the credit of the share premium account was generated by the parent contributing its 100% investment in another UK company called PIC Fyfield Limited to the company in exchange for the issue of shares in the company.  The value of the investment in PIC Fyfield totalled £879,750,414; accordingly the company issued 879,753 shares to the parent and the balance was credited to the share premium account. 

3.        The company's ultimate parent is Genus Plc.  As part of a group reorganisation the company's sole asset, being its shareholding in PIC Fyfield, has been sold to a sister company called Genus Investments Limited ("GIL") at book value.  This has resulted in the creation of an inter-company account due by GIL to the company in the amount of £879,750,413.89 ("the inter-company account"). 

4.        The reorganisation will involve, in order to complete it, a distribution in specie by the company of the inter-company account to the parent.  This will be achieved by an assignment by the company of the inter-company account to the parent.  Following the distribution the company will have essentially no assets and no liabilities and the intention is that in due course it will be liquidated and wound up.

5.        By special resolution, dated 6^th April, 2011, the parent as sole member of the company resolved to reduceits share premium account to nil, to reduce the issued nominal share capital of the company from £879,753, represented by 879,753 shares of £1 each, to 11p, represented by 11 ordinary shares of 1p each, and to transfer the amount of the reduction, being in aggregate £879,750,413.89 to the company's profit and loss account as a reserve of profit.  The purpose of the reduction is to create a reserve of profit which will be used as the source of the distribution of the inter-company account to the parent.  It is the desire of the directors and the shareholder that the distribution is treated as income for income tax purposes in the hands of the parent, the sole shareholder.  The situation is covered, we are told, by section 1027A of the Corporation Taxes Act 2010 of the United Kingdom. 

6.        The test to be applied on a reduction of share capital is well established and is to be found in the case of Henderson Far East Income Limited [2007] JLR N 16.  The Court must consider both the shareholders and the creditors. 

7.        So far as the shareholders are concerned the Court must be satisfied that the shareholders, particularly if there are different classes, have been treated equitably, that the proposal for reduction has been properly explained to them and that the reduction has a discernable purpose.  Given that in this case there is only one shareholder and that the reduction is part of a group reorganisation as described above, the Court is satisfied that all three requirements are satisfied in this case.

8.        In this particular case the Court does not have to consider the position of creditors as there are none.  Accordingly no issue arises in that regard.  In particular the Court does not have to consider the application of Article 62(3)-(5). 

9.        For these reasons we are satisfied that this is a proper case to order reduction and that there is no need to circulate the creditors because there are none.  We therefore approve the reduction and approve the minute attached to the representation.

Authorities

Companies (Jersey) Law 1991.

Corporation Taxes Act 2010.

Henderson Far East Income Limited [2001] JLR N 16.