Hello,
We are dealing with a Scottish estate where the deceased held shares in a UK private company. In the absence of any share certificate, the registrar requires a letter of indemnity to be counter-signed by a bank or other financial company. We have had great difficulty finding someone to do this. We had a company lined up who confirmed they could assist but unfortunately the insurer they previously used left the market and the new insurer advised that they were unable to support counter-indemnities where the stock is not listed on a public exchange.
To date, the main companies we have tried are Trust & Probate and Portsoken (both recommended by the registrar but both unable to assist), De Pinna and Hampden & Co. We have been told that the issue is that the insurance market for counter-signing these indemnities is shrinking and most banks stopped doing this some years back as it was deemed too risky.
We are at a bit of a loss as to what to do and so would be grateful to hear of any recommendations of who might be able to assist.
Thank you.
Hi Megan
Sorry, I have only just picked this enquiry up and I hope you have already resolved the issue. I was not involved in your approach but work for Portsoken and think I should explain in a little more detail.
Any claim on such an indemnity will be based on the value of the shares at the time of the claim. Therefore, the insurer wants independent “confirmation” of the value at the time they countersign the indemnity. This is fine when shares are quoted on an exchange and insurers can check the market value. It is extremely difficult to know the true value of a share in an unquoted company. Additionally, in the event of a claim the normal remedy of buying replacement shares in the market is not available. If the insurer is in a position where they must replace the shares the directors/owners of the Ltd company can decide what they want to charge to issue new shares. The insurer is potentially over a barrel.
In practice, the shareholders of most ltd companies are connected to that company and will very likely be known to the directors. The articles will set out how shares can be transferred and often require share transfers to be agreed by directors / owners who may have to be offered the first chance to buy the shares. Therefore, for most limited companies it is difficult to see how shares could be disposed of by a person who does not have title. The main risk of a claim arising is fraud and in particular identity fraud. If the shareholder is known to the company, there is little risk. In these cases, the registrar acts as the agent of the company. The company should be able to instruct the registrar to waive the need for the counterindemnity.
There are a couple of situations where insurers will counter-sign an indemnity for a ltd company:
- Where the lost share certificate is in a management company that owns the freehold of a property with multiple leases. If the lessees each own a share in the company some legal indemnity insurers will counter-sign or issue a policy. The shares in this case have no particular value, separate from the property but the insurer will charge at a rate on the value of the property.
- There are one or two companies where there is a specific valuation published regularly and verified by audit. I am thinking of companies like Puma Heritage Ltd. If the holding you are dealing with is in these shares, then Portsoken may now have a solution for you and I would ask that you get back in touch, please.
On the negative side there are some companies that were PLCs and may have de-listed from a stock exchange. They may still be PLCs or have converted to Ltd status. The lack of listing and the loss of the market price makes it difficult to impossible to arrange a counterindemnity. In some of these cases more than half of the shares are in the hands of directors and the company ceases to trade in any meaningful way but continues to have employees and costs which will eventually use up all the capital. I would always seek professional advice if a company you have shares in delists from a market. It may be more difficult to sell your shares even with the certificate.
To summaraise it is not the Limited Company status that prevents an insurer counter-signing, it is the lack of both a independent valuation (market price) and an active market in the shares.
I hope my belated comments help.
Simon
Simon Carman
Portsoken