Insolvency Processes for a PLC

In the current economic climate, it is not just SMEs which can be impacted by financial difficulties. Large listed PLCs are also at a risk of insolvency as seen in the recent Carillion insolvency. Due to the differences in structure, and generally the scale of the business, the insolvency of a PLC is often a much more complex process. In this article, we will explore the insolvency processes for PLCs and the major differences compared to smaller private limited companies.


How does a PLC go through the insolvency process?

PLC is the legal abbreviation for public limited company. In comparison with private companies, where shares may require some agreement from other shareholders to be transferred, shares in a PLC may be sold and traded freely by the general public. A PLC must have a minimum share capital of £50,000, with at least 25% paid up and can be listed on the stock exchange, though it is possible to hold an unlisted PLC. These requirements can often lead to a large portion of unpaid share capital, and we will come to the ramifications of this in relation to insolvency later on.

plc and the insolvency process

There must be a minimum of two directors plus a company secretary running the PLC. Whilst the criteria for being a director is the same as that of a private limited company, there is an additional criteria that upon reaching the age of 70, directors must be re-appointed to the board by special resolution.

How does PLC status effect the insolvency process?

The differences in the insolvency processes for a PLC are fairly subtle, but also important to note they are crucial to the proceedings leading up to the insolvency. Where the PLC is listed on the London Stock Exchange, notice must be given to the London Stock Exchange immediately upon:

  • Presentation of a winding up petition against the company.
  • The appointment of an administrator or receiver.
  • The board passing a resolution to seek a winding up resolution from its members.

Upon receiving this notification, trading will be suspended, thereby crystallising the membership. Likewise, the same provision will apply to unlisted PLCs, without the involvement of the London Stock Exchange.

A PLC is much more likely to have additional restrictions with regard to winding up or administration resolutions being passed by the board. They may for example require that specific shareholders, or classes of shareholders be consulted and involved in the decision making before the board passes these resolutions.

The next stage is where the shareholders are required to pass the necessary resolutions to place the company into voluntary liquidation. As with private companies, 75% of shareholders are required to pass a winding up resolution, being that it is a special resolution, therefore it is possible for a minority of shareholders to vote down the resolution. With the number of shareholders in a PLC often being much higher, and a large portion by the company’s nature not as involved in the day to day business, there is a much higher risk of dissenting shareholders. Consequently, it will often be the case that administration becomes a more appropriate procedure for the company, being that it is the directors commencing the procedure as opposed to the members.

The effect of insolvency on unpaid share capital

As stated earlier in the article, only 25% of the called up share capital needs to be paid up. Consequently, when buying into a share issue, members are only required to pay 25% of the value of the shares they have purchased, along with the balance of any share premium. This can leave large amounts of unpaid share capital within the company. Shareholders are not entitled to receive dividends until their share capital is fully paid up, so in established companies they are more likely to pay the full amount, whereas in younger businesses they may wait before investing the full amount in the company.

In the event of voluntary liquidation or administration, however, the unpaid share capital becomes an asset of the business. Upon appointment, the administrator or liquidator will review the members register and write out to all members with unpaid share capital seeking payment of the balance. In such circumstances, members become a debtor of the company and the balance is duly payable. Consequently, if you hold unpaid share capital, the insolvency practitioner can enforce the debt through the courts if you fail to make payment on request.

If you have a public limited company suffering from financial difficulties, our business rescue experts can provide a free initial consultation on how to move forward.

 

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