COMPLIANCE

What Is RCCPS (Redeemable Convertible Cumulative Preference Shares)? How Is It Different from Preference Shares?

What Is RCCPS?

• RCCPS stands for Redeemable Convertible Cumulative Preference Shares
• It is a type of preference share
• But its structure differs significantly from ordinary preference shares

Ordinary Preference Shares

• They are fundamentally an equity instrument
• Dividend payments depend on the company's performance and dividend policy
• The investor's exit usually depends on the company's future plans

Key Features of RCCPS

• Investors generally have a clear expectation of recovering their investment
• RCCPS usually includes a predetermined redemption schedule
• The company is required to redeem the shares at an agreed price upon maturity
• It may also be converted into ordinary shares
• Subject to the agreed conversion terms

Why Is RCCPS More Like Debt?

• It has a fixed redemption timeline
• Provides a defined capital recovery mechanism
• Investors expect their investment to be repaid
• Therefore Although legally classified as shares
• Its economic substance is closer to a debt instrument

How Can a Company Redeem RCCPS?

• Under Section 72 of the Companies Act 2016, preference shares may only be redeemed using:

1. Profits
2. Proceeds from a fresh issue of shares
3. Capital permitted under the statutory redemption procedures

What a Company Cannot Do

• It cannot redeem RCCPS simply because it chooses to do so without sufficient funds
• It cannot borrow money from shareholders solely to redeem the shares
• The redemption must comply with the Companies Act 2016

RCCPS vs Ordinary Preference Shares

Summary

• RCCPS combines redemption rights, conversion rights, and cumulative dividend features
• Its key distinction from ordinary preference shares is its predetermined redemption schedule and capital recovery mechanism
• Although legally classified as shares, it is economically closer to a debt instrument
• Companies must comply with the Companies Act 2016 when redeeming RCCPS.