Legally, PLC is an abbreviation which stands for Public Limited Company. In comparison to a private company (shares may require agreement from other shareholders for their transfer), the general public may freely sell and trade the shares of a PLC. £50,000 as a share capital minimum is required of a PLC, with at least 25% paid up. It may be listed on the stock exchange, although it is indeed possible to hold an unlisted PLC. A large portion of unpaid share capital can often be the result of these requirements.
It is required for there to be a minimum of two directors as well as a company secretary running the PLC. The criteria for being a director is identical to that of a private limited company, but there is an additional criteria stipulating that when directors reach the age of 70, they would have to be re-appointed to the board by special resolution.
How does PLC status affect the insolvency process?
When it comes to the insolvency of a PLC, the differences in the processes involved 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 been listed on the London Stock Exchange, 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 this notification has been received, trading will be suspended, crystallising the membership. The same provision will also be applicable to unlisted PLCs, but without the involvement of the London Stock Exchange.
A PLC is much likelier to have additional restrictions imposed on it 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 before the board passes these resolutions.
The next stage would involve the shareholders having to pass the necessary resolutions to have the company placed into voluntary liquidation. As is the case with private companies, 75% of shareholders would be needed as a requirement to pass a winding up resolution. It’s a special resolution therefore it’s 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, a much higher risk of dissenting shareholders is carried. Consequently, it will often be the case that administration becomes a more appropriate procedure for the company, since it is the directors commencing the procedure instead of the members.
The effects of insolvency on unpaid share capital
When a share issue is bought into, 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 result in 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.
If there is 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. As a result, if you hold unpaid share capital, the insolvency practitioner can enforce the debt through the courts as a result of your failure to make payment on request.
If the public limited company you’re running is suffering from financial difficulties, leading business rescue experts can provide a free initial consultation on how to move forward.