The introduction of the redeemable ordinary share in Malta : a step forward?

Abstract

The redeemable share is a peculiar case in the realm of equity finance. Its ability to return capital to shareholders renders it in violation of the original Capital Maintenance doctrine as expounded by the British courts. Nevertheless, the rigidity of this doctrine has been very much loosened in the UK. Starting with the allowance of the redeemable preference share, over the years, UK Company Law embarked on a journey to relax the original restrictions on companies acquiring their own shares, leading to the current regime where, within legal safeguards, and in line with European Union Directives, companies are permitted to issue any class of shares as redeemable and repurchase their own shares. A similar approach was undertaken in Malta, but a crucial caveat remains, namely, ordinary shares are, to the present day, precluded from being issued as redeemable. This paper involves a rigorous study on this notion. An assessment to determine whether there is a deliberate reason underlying this prohibition is undertaken in light of the current capital structures in Malta. Furthermore, arguments for and against the redeemable ordinary share as an additional way for companies to raise equity finance are scrutinised and examined by way of comparison with current alternative devices available to businesses. The crux of this research is to evaluate the viability of introducing this mechanism at law, ascertaining whether it would be an enhancement to our present-day provisions. The current one-size-fits-all rule applicable to companies when redeeming shares is too rigid, and leaves much to be desired insofar as clarity and utility are concerned. In line with this, a number of possible enhancements are put forward in an attempt to stimulate a tool which, albeit available, does not cater for the needs of small and medium-sized enterprises, the bulk of businesses in Malta.