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As a UK Company can only pay a dividend if it has sufficient distributable reserves then it would be debited to retained profits however AMC is a BVI Company so I think it is going to be debited to accumulated losses as it cannot be debited to share capital as we will still own our share capital once the dividend is paid but the market value of that share capital will reduce by the value of the special dividend of 1.80 pence per share.
Going back to the Corpus principle i.e. "The main body or mass of a structure" which is used to determine if a payment is a return of capital or income in the hands of shareholders then even though the special dividend is very large the Corpus must stay intact as we still own the same number and class of shares.
I certainly do not envy the person who is going to give advice to the Board as to whether the special dividend is a return of capital or income in the hands of shareholders as it is an extremely difficult task.
AGE
People have made comments as to why we the Board have not issued an RNS re the dates for the record date, XD date and payment date.
Having looked at a great deal of information over the week end I have found it very difficult to come to a conclusion as to whether the special dividend is income in the hands of shareholders or whether it is a return of capital.
The Law Commission issued a document called Capital and Income in trusts: Classification and Apportionment and it is dated 6 May 2009 and it included the following statement:
The Hill approach was itself restated with
approval by Lord Reid in Rae (HM Inspector of Taxes) v Lazard Investment Co
Ltd:
There is no doubt that every distribution of money or money’s worth by an English company must be treated as income in the hands of the shareholders unless it is either a distribution in a liquidation, a repayment in respect of reduction of capital (or a payment out of a special premium account) or an issue of bonus shares (or it may be bonus debentures.
The problem is that AMC is a BVI Company and not an English Company.
It goes on to say the following:
The potential for the current law to give rise to inappropriate results can be
demonstrated by the example of the declaration of an abnormally large special
dividend, representing a significant proportion of the market value of the
company.
2.39 Normally, of course, the tendency of particular shares to yield a healthy dividend will enhance their market value. But if a company makes an unexpected and abnormal distribution of its profits in this way, the payment of such a dividend will result in a sharp fall in the market value of the company and so in the value of the trust’s shareholding. Yet the payment will be received by shareholders as income and, if a shareholder is a trustee, will be paid to the life tenant.
If you look at AMC's last set of interim accounts you will see it includes Non current assets classified as held for sale in the sum of USD 33.08m so now that the sale has completed and the proceeds this is going to be removed and replaced the bank account in Cash and other equivalents is going to increase by USD35m less legal fees etc.
When the special dividend is paid to shareholders the cash and other equivalents is going to reduce by circa USD 31.8m but the question is which account in the share capital and reserves section of the balance sheet will the dividend be debited to.
RNS dated 24 August 2022
We shall also assess various alternatives and considerations with regard to the impact on shareholder taxation of the dividend on completion of the Disposal upon payment of the funds.
Now that both completion and receipt of funds has take place then we should hear further from the Board!
AGE
AGE
Yet more useful information in the notice of General Meeting:
Key words are:
Cash balances of approximately US$39m
However the document is dated 8 August 2022 so 9 months ago so presumably cash must be less than the US$39m stated.
Future Strategy and Special Dividend
If the Disposal is approved by shareholders and completes in accordance with its terms, the Company will move forward as a cash shell in accordance with Rule 15 of the AIM Rules and retain cash balances of approximately US$39m after paying certain expenses and any taxes relating to the Disposal
AGE
Some more interesting information in the notice of General Meeting:
Key words are:
Should an acceptable reverse takeover opportunity not be identified and approved by the Shareholders, the remaining funds from the transaction less costs shall be distributed as a second special dividend.
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The Disposal addresses Shareholder concerns about the initial transaction, including a more substantial initial consideration which is all delivered at Completion, and a commitment to the payment of a special dividend of 1.8 pence per share to be paid to Shareholders within 90 days of Completion. After Completion of the Disposal, the Company will become a cash shell and will seek to complete a reverse takeover which will require Shareholder approval within 12 months.
Should an acceptable reverse takeover opportunity not be identified and approved by the Shareholders, the remaining funds from the transaction less costs shall be distributed as a second special dividend.
The notice for the General Meeting included the following statement and various people have discussed the contents below months ago.
There are two separate things happening with one being the sale of the Irosta shares and the tax advice relates to this transaction and the other thing that is happening is the payment of the special dividend.
When you ask solicitors for advice they send you an engagement letter and it provides a detailed description of the work that they are going to carry out your behalf and you then sign two copies and you post them back to the solicitors and they then sign both copies and they retain one copy and then they post one signed copy back to you for your own records.
If the AMC Board would have asked for advice about the UK tax consequences of the payment of the special dividend then surely it would have been mentioned in the notice for the General Meeting?
I will wait to hear what the Board have to say but it is likely that they did not ask their solicitors for advice about the UK tax consequences of the payment of a special dividend.
If they did then why is that information not included in the General Meeting notice as it is very information that shareholders needed to be made aware of.
AGE
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Following receipt of the consideration of US$ 35 million, the Company intends to pay a special dividend of
1.8 pence per share to be paid to Shareholders within 90 days of Completion. The Company has
received tax advice that the Disposal is unlikely to attract capital gains or withholding tax. The Board
proposes that the record date and payment date for the distribution of the post-Completion dividend shall
be no later than 90 days following receipt of the consideration payment.
There are some interesting questions and answers on the AMC website but unfortunately nothing about whether the dividend is subject to UK dividends tax
“How big are the bonuses for the Directors for selling Kun-Manie”
Answer Team: There are no bonuses being paid to any of the Directors or staff. Dividends equal to that paid to the shareholders will be paid to the Directors and staff.
“Can’t Bering buy shares in the market to control the approval of the sale?”
Answer Team: No, as part of our agreements, the buyer is not allowed to buy shares in the market.
AGE
If you hold your shares via your brokers nominee account then the dividend will be paid into your share account.
If you have a share certificate then they will send you a cheque.
AGE
How will the dividend be paid?
It has been called a special dividend rather than a return capital but based upon the information contained in the postings I did today I think it is a return of capital so not taxed as income in the hands of shareholders and so not subject to U.K. dividends tax.
I think the dividend dates means the record date, XD date and payment date rather then 1.80 pence paid via a number of dividends all within 90 days.
AGE
When a listing makes a dividend payment it’s very common for the SP fall by a similar amount. But is this a dividend or a return of capital ? Return of capital will be deducted from the Market Cap & again the SP should reduce to reflect this. I note from the RNS, ‘dividend dates’ which may imply that the amount involved will be divided into multiple payments. I’m surprised that the Market Cap did not increase more upon receipt of the payment. It will be interesting to see how this transpires.
You seem to think you are teaching us all something ………You aren’t.It will be what it will be.Sit and wait.You’ll just wear yourself and your keyboard out for nowt.
I’m done
MD
MD we need shareholders who own just 5% of AMC’s share capital can requisition a General Meeting.
This failure of the Board to communicate with shareholders is the reason I would vote against any RTO.
Members of the Board have not provided any emails addresses to allow shareholders to contact them if they have concerns and they fail to respond to messages sent to them via the AMC website!
When you ring the PR Company using the telephone line on the AMC website no one answers and there is no answer phone system!
AGE
The biggest single thing that I have learned after 13 plus years of being an AMCshareholder is that we are always kept in the dark as much as the bod possibly can.Also NOTHING is ever clear and concise and EVERYTHING IS ALWAYS late.The notion that we will be party to any detail of legal advise given would be a completely new concept if it were to happen.They will do whatever is best for themselves and use any means to create a cloak over the proceedings.
We’ll get whatever we get when it suits them.That is who they are and what they do.
MD
MD the dividend is definitely going to be paid as shareholders have approved the payment.
It is absolutely crucial that the Board provide us with the information that they have received from their lawyers and tax advisors re the U.K. treatment of the special dividend as I am sure shareholders whose total dividend received from AMC and other Companies which exceeds 2,000 pounds during 2023/2024 and who pay basic rate tax will not want to have to pay dividends tax at 8.75% and those on 40% pay dividends tax at 33.75% and at 45% pay dividends tax at 39.35%.
If you hold your shares in an ISA then there would be no tax to pay on dividends received.
This matter is urgent!
AGE
The corpus of my structure says there is no need to worry about money you haven’t got yet.This is AMC any damn thing could happen yet
MD
The problem we have in trying to come to a decision as to whether the special dividend is considered to be income in the hands of AMC's shareholders or whether it is a return of capital is that AMC are paying a special dividend that would be prohibited if it was a UK domiciled Company however it is a BVI domiciled Company hence there is no prohibition in paying a dividend out of share premium or share capital.
In HMRC v First Nationwide [2012] which concerned a Cayman Island Company the dividend was paid out of it's share premium account which is prohibited in the UK but the Judges decided the dividend was income in the hands of it's shareholders.
AMC's share premium account is 4.278m USD but accumulated losses are 39.467m USD so it is clear to see the special dividend is not being paid out of it's share premium account but it is coming out of it's share capital.
I think the key words in HMRC's guidance manual is:
The question is whether or not the ‘corpus of the asset’ is left intact after the distribution. If not, the receipt will be a capital receipt; if it is, the payment will be chargeable as income.
The Oxford dictionary definition of Corpus is "The main body or mass of a structure"
The special dividend is going to be in the region of £26m and the net assets shown in the last interim accounts are 36.993m USD and converting this into Sterling at an fx rate of 1.2335 gives a Sterling amount of 29.99m Pounds.
To my mind a special dividend payment of 26m Pounds out of net assets of 29.99m Pounds is not going to leave the Corpus in tact!
Based upon the fact the Corpus is not left intact then the payment of a special dividend has to be a return of capital.
QED
For those who are not conversant with Latin see the following:
Q.E.D. or QED is an initialism of the Latin phrase quod erat demonstrandum, meaning "which was to be demonstrated". Literally it states "what was to be shown"
Anyway let's see what the Board have to say about this issue!
AGE
The question is whether or not the ‘corpus of the asset’ is left intact after the distribution. If not, the receipt will be a capital receipt; if it is, the payment will be chargeable as income. The corpus is not disturbed by payment of a large dividend simply because it is large - see HMRC v First Nationwide [2012] EWCA Civ 278: Moses LJ said ‘ the reality was the distribution of share premium as dividends’ (this type of distribution is possible under Cayman Islands company law though it is not under UK law). But it will be disturbed by some form of capital reduction, as with the partial liquidation under Maryland law in Rae v Lazard. Another example of a dividend of capital nature is found in the trust-law case Sinclair v Lee [1993] Ch 497, where Nicholls VC held that shares distributed by way of dividend in specie as part of an indirect or ‘3-cornered’ demerger should be regarded as giving rise to a distribution of capital. The importance lies not in what is distributed (shares, in this case) but rather in the effect of that distribution on the distributing company, its ‘corpus’.
There is the following useful information on HMRC's website:
SAIM5210 - Dividends and other company distributions: foreign dividends
Dividends from non-UK resident companies
Dividends from non-UK resident companies are taxable under ITTOIA05/PART4/CHAPTER4. Before Tax Law Rewrite, the charge on foreign dividends was under Case IV or Case V of Schedule D.
The rewritten legislation largely integrates the charge on foreign dividends with the taxation of the equivalent income from a UK source. But there are some differences. The UK charge includes other distributions, as well as dividends. These may include amounts of a capital nature and can treat interest as a distribution in certain circumstances.
ITTOIA05/S402 thus charges dividends and does not include the wider definition of a distribution. However, if a non-UK resident company makes a distribution that is not a dividend it may be chargeable as interest, or as ‘income not otherwise charged’ taxed under the ‘sweep up’ (formerly Case VI) miscellaneous income provisions in ITTOIA05/PART5/CHAPTER8 S687 to S689. ITA07/S19 defines dividend income for the purposes of the tax rates applicable to savings and investment income as including a ‘relevant foreign distribution’. This is a distribution of a non-UK resident company which is not taxable as a non-UK resident company dividend under ITTOIA05/PART4/CHAPTER4, but would be taxable as a distribution from a UK resident company if the company were UK resident.
The tax charge
The charge to tax on foreign dividends is on the full amount of the dividends arising in the tax year - ITTOIA05/403. This is different from the paid basis that applies to dividends and other distributions from other UK companies. See SAIM5020.
The person liable is the person receiving or entitled to receive the dividends. See SAIM2400 for an explanation of ‘entitlement’.
Dividends of a capital nature
ITTOIA05/S402 (4) excludes ‘dividends of a capital nature’. This phrase was inserted on Tax Law Rewrite to reflect the decisions in CIR v Trustees of Joseph Reid (dec’d) (1949) 30TC431 and Rae v Lazard Investment Co Ltd (1963) 41TC1. Whether a dividend is income or capital in nature is determined by reference to the mechanism of distribution under the constitutive law of the territory where the company is incorporated or registered and its implications for the company making the distribution.
AGE
I agree with Ilovesushi's comments re the Board should have provided information as to whether the special dividend is subject to UK dividends tax or not when they asked for shareholders to approve the payment of a 1.8 pence dividend as this is crucial information that is needed for shareholders to have made an informed decision as to whether the payment of a special dividend is the most tax effective manner in which to return shareholder's money.
AGE
It takes time to decide the dates for the record date, XD date and payment date for the special dividend.
The Board have to ensure that they have a sufficient amount of Sterling to be able to pay for the special dividend as the consideration was paid in USD.
The time delay works in shareholders favour as if the Board do not include ant information in the next RNS as to whether the dividend is considered to be income in the hand of shareholders so subject to UK dividends tax for UK residents or whether it is a return of capital then we as a group have time to ask the Board to provide this information and if we find the special dividend is subject to UK dividends tax then we can requisition a General Meeting to cancel the payment of the dividend and for the payment to be structured so that it is a return of capital.
AGE
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Anyone else think no divi date announced is weird? Especially if the company has the cash.
All the right news coming out but apart from the usual BoD junk we've got nothing else apart from the 12th June to work to at the latest and close off a bad long term investment
Anyone else think no divi date announced is weird? Especially if the company has the cash.
All the right news coming out but apart from the usual BoD junk we've got nothing else apart from the 12th June to work to at the latest and close off a bad long term investment
Potatohead if you have held that long surely you sold some when the SP was 40plus?
http://www.citysolicitors.org.uk/storage/2013/06/20100122-Dividends-paid-following-reductions-of-capital-final.pdf
http://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15440
Where payments are made following a reduction in share capital or share premium without passing through a reserve, the reduction will not form part of the realised profit of the company in company law terms and will not be treated as a CT distribution. Instead the payment will be treated as a repayment of share capital and may be a capital distribution within TCGA92/S122 - see CG57800 onwards for further guidance on capital distributions.
AGE
From a shareholders perspective it is extremely important to know as a definite if the special dividend is a return of capital or income in the hand of shareholder and subject to UK dividends tax.
The board should have provided information about this when they asked shareholders to vote for the special dividend. They should not have left this to shareholders to speculate on how the dividend is structured.