PLC legally stands for Public Limited Company as an abbreviation. In comparison to private companies, where shares may require some agreement from other shareholders for their transfer, the general public may freely sell and trade shares in a PLC. A PLC is required to have a minimum share capital of £50,000, with at least 25% paid up. It can be listed on the stock exchange, though it is possible to hold an unlisted PLC. These requirements can often result in a large portion of unpaid share capital.

It’s a requirement for there to be a minimum of two directors plus a company secretary running the PLC. While the criteria for being a director is identical to that of a private limited company, there is an additional criterion stipulating that upon reaching the age of 70, directors would have to be re-appointed to the board by special resolution.

How does PLC status affect the insolvency process?

The differences in the processes involved with the insolvency of a PLC are fairly subtle, but it’s also important to note that they are crucial to the proceedings leading up to the insolvency. Where the PLC has a London Stock Exchange listing, notice has to 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.

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

See also  Do You Actually Need a Financial Planner?

A PLC is likelier to have additional restrictions with regard to winding up or administration resolutions being passed by the board. For example, they may require that specific shareholders or classes of shareholders be consulted in the decision-making process before the board passes these resolutions.

The next stage involves the shareholders having to pass the necessary resolutions to place the company into voluntary liquidation. Just like with private companies, 75% of shareholders are required to pass a winding up resolution. Being that it is a special resolution, it is therefore 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 operations, 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 and not the members.

The effects of insolvency on unpaid share capital

When buying into a share issue, members are only required to pay 25% of the value of the shares they have purchased, since only 25% of the called up share capital needs to be paid up, along with the balance of any share premium. This can leave large amounts of unpaid share capital within the company’s structures. Shareholders are not entitled to 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 ones they may wait before investing the full amount in the company.

See also  A Few of the Coolest Apps for People Who Want to Invest

In the event of voluntary liquidation or administration, however, the unpaid share capital becomes an asset of the business. Once appointed, the administrator or liquidator will review the members register and write out to all members with unpaid share capital requesting payment of the balance. In such circumstances, members become debtors 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, leading business rescue experts can provide a free initial consultation on how to move forward.

Share Button
Share Button