Member Info for luck-will-change

A company must convene an EGM within 21 days of receiving a valid notice calling for one. It must give 21 days notice of the EGM itself, so we will have plenty of time to consider the appropriate action ahead of the second EGM

Whitehat- I will have a go based on my Chartered Accountancy qualification gained a long, long time ago:

Let’s imagine a fictitious company starting up by issuing 100 shares at £1 par value. Its balance sheet at that point would be £100 cash on one side, and £100 share capital on the other.

Our company then trades successfully to the point where it generates profits of £200. Balance sheet will now be £300 cash (£100 originally raised by issuing shares plus £200 profits) on one side, and £100 Share Capital, as well as £200 Accumulated Profits on the other side, ie balance sheet totals of £300.

Our factious company now wants to raise further capital. Assuming it can raise new capital at book value of shares and without discount, it now issues a further 100 shares at £3 a share. Accounting entries will be plus £300 cash on one side, plus £100 share capital and plus £200 Share premium account on the other, giving balance sheet totals of £600 each side.

Should our fictitious company now want to do so, it may do so up to £200 in total - the total amount of ‘distributable reserves’ it has on its balance sheet (ie the accumulated profits). Company law allows distributions only from distributable reserves.

Moving away from our fictitious company, and focusing on HUR - as is the case with the oil exploration industry generally - HUR has spent a huge amount upfront exploring and drilling ahead of receiving any revenue, so at this point it does not have accumulated profits to date, it has accumulated losses (ie the tax losses we hear so much about on the board). It has financed its operations ahead of revenue generation by issuing new shares at above par value, thus creating a significant Share premium Account balance, so the credit side of the balance sheet consists of positive Share Capital, big positive Share Premium Account, and negative Accumulated losses to date.

HUR now wishes to make a distribution, and has the problem that company law permits distributions from ‘distributable reserves’ only, and HUR’s balance sheet as it stands shows no distributable reserves (remember accumulated p&l account is negative).

So what HUR is now in the process of doing is performing a ‘Capital Reconstruction’ which involves 1) a shareholder vote in favour and 2) an application to Court for the court (independently of the company) to approve the proposal as in accordance with law and not to the detriment of any particular group of stakeholders.
The proposal that both shareholders and Court has to approve is a proposal to re-classify what is now Share Premium Account (which isn’t distributable reserve) into a different type of reserve that is distributable. Unless this is done, HUR will not be able to make any distributions.

I am in

I heartedly endorse all of Euston’s comments, wish Senseman all the best for the future and thank him for all that he has done for HUR shareholders in the past.
Senseman - I have a little First Tier Tribunal experience that may help - is there a mechanism on the LSE board to message me off line?

The three largest shareholders hold just over 50% of HUR between them - thus a potential acquirer need only informally approach three (institutional) shareholders to establish at what level they would be prepared to accept for their respective holding, and by so doing determine the level at which any bid is guaranteed to achieve at least 50% of HUR shares and basic control of the company. However, mere 50% control would not be what most acquirers would be seeking - they would be aiming for 75% (ie the special resolution threshold) at the very least, and preferably 90% (the compulsory acquisition of the minority shareholder threshold)

Just to expand a little on Cat5’s explanation on tax losses - the general rules on company taxation are that in a year where profits are made, these are taxed, and if a loss is made these may be carried forward and set off against future profits. As HUR has operated for a number of years ‘pre revenue’, it made losses then, and these carried forward losses have built up over time. As HUR is now making a profit, it can offset, in its tax calculation, the carried forward losses against current profits. The practical implication of this is that HUR can now make profits to the value of the carried forward losses without paying any tax. There are restrictions on the availability of tax losses carried forward if 1) there is a significant change in scale of the business (ie it is run down significantly and then run up again) and 2) it is only available for offset against profits made by HUR (so these would not be available to transfer around an acquiring group - thus any acquirer needs to keep HUR operating profitably in order to benefit from tax losses).

From today’s RNS, cash 31st Jan was $85m, cash 28th Feb $71m, no offload (ie revenue) in February, so expenditure in the month $14m