Cash is King - How to organise your Gibraltar entity to optimise access to it.

As recently reflected on by Moonfare in their below article, as well as by Bain & Company earlier this year The Year Cash Became King Again in Private Equity | Bain & Company, 2024 has seen renewed emphasis in expedited cash returns for investments.  The adage “Cash is King” continues to ring true in private equity as well as the broader M&A space, as a resurging market offers opportunities to those with ‘dry powder’ to spend.  Availability of cash is also of significant importance in times where debt is more expensive, typically as a result of higher interest rates and inflationary costs.

Therefore, as a cross-border corporate and tax structuring lawyer, I continue to be surprised by group entities organising their entities sub-optimally, in terms of facilitating (or preventing) future cash and in specie asset repatriations.  These often avoidable inefficiencies can cause significant additional pressures to the operation of the business and the group as a whole.

A Gibraltar private company limited by shares (the most typical vehicle used in Gibraltar) can be capitalised in a number of ways.  The choices of how that investment is accommodated, however, can have a significant impact on the ease (or difficulty) in repatriation.  For example, stated share capital is not capable of reduction and repayment out of a Gibraltar private limited company other than with a Court process and sanction.  Similarly, share premium (which is how the balance of cash or assets contributed to a Gibco in exchange for shares which exceeds the nominal value of the shares being issued is recorded) is not directly distributable either.  It may be possible in certain circumstances to provide for a repayment of share premium, but this involves the creation, issuance and redemption of redeemable preference shares, which is a more convoluted and costly alternative.  In addition, re-registration of a company as unlimited may afford another ‘unrestricted’ route to repatriation (but again with additional costs and downsides).  

The way that usually affords the maximum flexibility for expedited repatriation (and which is a method that has been tried and tested, including for numerous fully regulated entities), is to separate the issuance of shares from the contribution of substantial value (i.e. issue a small number of shares of a low nominal value and then make a subsequent contribution of cash or other assets by way of a contribution to capital reserves for no additional shares of the Gibco).   

Capital reserves are an in principle distributable form of reserve per Gibraltar law, so can be distributed easily, quickly and cheaply (subject to broader continuing solvency and directors' duties considerations).  

There may be more nuanced factual matrices that require fuller consideration and more particular provision, but with availability of cash being critical to businesses (and their investors), structuring your entity optimally is fundamental.  

Please do feel free to reach out to me Tim Garcia via tim.garcia@hassans.gi for any corporate, commercial or tax structuring assistance - also happy to consider any non-executive directorship opportunities where my skillset and experience may be of use.