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HMRC internal manual

Corporate Finance Manual

Old rules: convertibles pre 2005: types of share

Ordinary shares

This guidance applies to periods of account beginning before 1 January 2005

To qualify for S92/S92A treatment, the shares offered in exchange or for conversion had to be

  • qualifying ordinary shares, or
  • preference shares that were mandatorily convertible into ordinary shares.

So, for example, preference shares are not ordinary shares, and a security offering these would not have fallen within S92 unless they were mandatorily convertible preference shares.

See CFM82230 for the conditions which applied for ordinary shares to be qualifying ordinary shares.

Mandatorily convertible preference shares

Preference shares were acceptable if they were ‘mandatorily convertible’ - that is, if they had been issued on terms that stipulated that they must be converted into or exchanged for qualifying ordinary shares within 24 hours.

Mandatorily convertible shares can feature in arrangements where a subsidiary issues securities that offer the holder the right to convert the security into preference shares of the subsidiary. These preference shares are virtually instantaneously converted into ordinary shares of the parent. The old 24-hours rule was designed to cater for these arrangements without allowing any greater flexibility in the use of preference share convertibles.