Reorganisations of share capital: alteration of rights: legal requirements
The mechanics of a conversion of shares will have to meet the requirements of company law. This may involve the old shares being redeemed at par with the proceeds being immediately and automatically applied in subscribing for the new shares. Alternatively a third party such as a merchant bank may sub-scribe for the new shares but renounce its allotment in favour of the old shareholders. The proceeds of the new share issue are used to redeem the old shares but the holders of the old shares allow the redemption proceeds to go to the third party as consideration for the transfer of the new shares. This arrangement is adopted only in order to meet legal requirements. You may accept that either of these methods is a reorganisation of share capital.