What is a CCPS?
A CCPS, a compulsory convertible preference share, is a preference share that the company must convert into equity shares on the date or the event written into its terms. The holder does not have an option to remain a preference shareholder.
What does the holder receive?
A preference share carries a preferential right to a dividend, and a preferential right to repayment of capital if the company is wound up, ahead of the equity shareholders. The dividend is paid only as the terms and the Act allow. It is not interest, and it is not a debt. Equity is the ordinary share capital of the company. A private limited company may issue preference shares when its articles authorise that capital.
When does it convert?
The terms of issue name the date, the milestone, or the other event that forces conversion, and the number of equity shares the holder then receives. After conversion the holder is an equity shareholder. Section 55 does not allow a preference share that is never redeemed. The share is issued so that it converts within 20 years, or within 30 years where the section allows that longer period for an infrastructure project. Conversion is the end of the preference share. The company does not repay a principal sum as if the CCPS were a loan.
How is it issued?
An issue to a selected investor is a preferential issue under section 62(1)(c). The articles must allow the preference capital. The board resolves to issue, and the shareholders pass a special resolution. A general-meeting notice is 21 clear days. The price is supported by a registered valuer’s report. The special resolution is filed in MGT-14 within 30 days.
Where the offer is also a private placement under section 42, the company uses the private-placement offer letter, allots within 60 days of receiving the application money, and files the return of allotment in PAS-3 within 15 days of allotment. A rights issue to existing holders follows section 62(1)(a) and is not a private placement. A prospectus belongs to a public offer. Share certificates, or the demat credit, follow within the time section 56 allows, which is two months from allotment for a physical certificate. Raising the authorised capital, where the articles do not already allow the shares, is on the authorised capital page.
When can the holder vote?
Section 47 gives a preference shareholder a vote on a resolution that directly affects the rights attached to those shares. If the preferential dividend is unpaid for two years or more, the holder votes on every resolution. The terms of issue can set further rights. They cannot take away the vote the section gives.
Frequently asked questions
Four questions cover the conversion, repayment, a prospectus, and the 20-year period.
Can the holder choose to keep a CCPS as a preference share?
No. Conversion is compulsory on the date or event set in the terms of issue. An optionally convertible preference share is a different instrument.
Does the company repay a CCPS when its period ends?
No. It converts into equity. It is not a deposit, and the dividend is not interest.
Does every CCPS issue need a prospectus?
No. A private placement uses the private-placement offer, not a prospectus. A public offer is a different issue.
Can a CCPS stay unconverted for more than 20 years?
Section 55 requires preference shares to be redeemable within 20 years, or 30 years for the infrastructure projects that section names. A CCPS is issued so that it converts inside that period.
Sources
Preference capital is section 43. Redemption is section 55. A preferential issue is section 62, and a private placement is section 42. Voting is section 47.