AIB to reduce its share capital by €6bn

The Commercial Court has approved an application by AIB to reduce its share capital by almost €6bn for several purposes, including to clear current and future losses.

The effectively nationalised bank also wants the reduction to establish a reserve to meet other liabilities. The move allows AIB to eliminate a €2.35bn deficit on the bank’s profit and loss account.

The remaining €3.6bn reserve created by the capital reduction will be available to the bank for various purposes including eliminating any future permanent losses.

Ms Justice Mary Finlay Geoghegan yesterday confirmed a special resolution passed at an extraordinary general meeting of the bank on Jul 26 last year, allowing it to reduce its share capital by €6bn.

The judge said that she was satisfied that no creditors of the bank would be adversely affected by the reduction and agreed with submissions made on behalf of AIB that the reduction had “a clear commercial purpose.”

The shareholders, the judge said, had been treated equitably and had been properly informed of the bank’s move.

Ms Justice Finlay Geoghegan also noted that neither the minister for finance, the Central Bank nor any of AIB’s creditors had not objected to the bank’s application.

The judge further found that it was not necessary to direct an inquiry under Section 73.2 of the Companies Act 1963 to the bank’s application.

Section 73.2 provides that creditors have various entitlements, including objection entitlements, in circumstances where a proposed capital reduction involves either diminution of liability in respect of unpaid share capital or payment to any shareholder of any paid up share capital.

Moving the petition, Denis McDonald, counsel for AIB, said the bank was seeking the €6bn reduction in its share capital in order to free up funds and to correct a deficit in its revenue reserves of more than €2bn. More than 98% of the bank’s shareholders have voted in favour of the move, counsel added.

He added that the bank did not intend to use the funds freed up by the capital reduction to pay a dividend to shareholders.

Mr McDonald said that creditors of the bank would not be adversely effected by the reduction.

He said AIB, following the most rigorous of stress testing, has total assets of about €122,805m and total liabilities of about €110,000m. A large portion of AIB creditors — €47,478m or 43% — have the benefit of the State banking guarantee while the unguaranteed liabilities in Dec 2011 were some €63,009m.

In an affidavit, AIB director Bernard Byrne said he believed the proposed reduction is in the best interests of all the shareholders of the bank. From an analysis of the bank’s current balance sheet, he believed the value of cash and other liquid assets exceeds by a comfortable margin the value of AIB’s unguaranteed liabilities who have not consented to the reduction, he said.

The scale of that excess provides sufficient comfort to creditors, including all possible contingent creditors, as to their position, he said.

In those circumstances, the bank believed it was not necessary for the court to direct any inquiry under Section 73.2 of the Companies Act as to creditors.


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