Capital reorganisation

A capital reorganisation is a significant change to a company's capital structure. It needs to be more than a simple change to the amount of capital of a particular class.

The term capital reorganisation is not used for changes that merely increase the amount of one form of capital, such as simple new issues of shares.

Capital reorganisations include:

  • Reducing share capital to increase distributable reserves. This may be done by consolidating shares, or by reducing the par value of shares.
  • Changing the structure of a group of companies, e.g., by introducing a new holding company.
  • Cancelling certain securities, or the securities of certain shareholders. For example, many British companies have cancelled the shareholdings of small US shareholders (paying compensation based on market prices) in order to put an end to US regulatory obligations.
  • Changing the rights of particular classes of securities.

Many reorganisations of capital require the permission of a court (see scheme of arrangement). Others may only require approval within the company, for example at an EGM.