#3363 - Reduction Of Capital Crib Sheet - Business Law and Practice

Reduction of Capital

1. Aims

   1. Create distributable reserves

   2. Return surplus capital

   3. Assist in buy-back or redemption of shares

   4. Distribute assets
      

2. 641(6) Are there restrictions or prohibitions in the Company’s articles?

   1. Nothing in the Model Articles

3. 642(1) Does reduction result in leaving members with only redeemable shares

   1. Cannot reduce capital if it leaves only redeemable shares in issue

4. 641(4) A company can

   1. Reduce further liability on partly paid shares

   2. Repay any paid-up share capital in excess of company’s wants

   3. Cancel paid-up share capital that is lost or unrepresented by available assets
      

5. Public or Private company?

   1. 641(1)(b) Approve reduction by SPECIAL RESOLUTION

      1. Confirmed by resolution of the court

         1. 645(1) Apply to the court to confirm resolution after it has passed

   2. 645(2) Does proposed reduction involve a diminution of liability in respect of unpaid share capital or the payment to a shareholder of any paid-up share capital?

      1. 646 Creditor entitled to object to reduction in capital if company will be unable to meet its debts

         1. 645(3) Unless the court directs otherwise

            1. 648 Court may make order confirming the reduction of capital on terms it thinks fit, but must not confirm the reduction unless it is satisfied with respect to every creditor entitled to object that consent has been obtained or the debt has been discharged, determined or secured

   3. 649(2) Directors make a statement of capital

   4. 649(1) On production of the order from the court & the statement of capital, approved by the court, Registrar register order & statement

      1. 650(2) Registrar cannot register the order where the reduction of capital has the effect of bringing the nominal value of the allotted share capital below the authorised minimum FOR PUBLIC COMPANIES unless the court directs, or the company is first re-registered as a private company

         1. 763(1) Authorised minimum is 50,000 or the Euro Equivalent

         2. 651(1) – (3) Court may authorise a company to be re-registered as a private company without the shareholders having passed a special resolution by section 97

            1. Court must specify in order changes to name & articles that need to be made & send notice to the Registrar

               1. 59(1) Name must end with ltd or limited

         3. 651(4) On receipt of an application for re-registration from the court, the Registrar will issue a certificate of incorporation, stating that it was issued on re-registration & the date

            1. 101(4) On issue of the certificate, the company becomes a private company & the changes in name & articles take effect

            2. 101(5) The certificate is conclusive evidence that the requirements for re-registration have been complied with

   5. 29-30 send a copy of special resolution to reduce capital to Companies House within 15 days

   6. 113(2) Alter the register of members to reflect the change & deal with the share certificates

   7. 654(1) The reserve arising from the reduction of a company’s share capital is not distributable

      1. EXCEPT 654(2) if the Secretary of State orders it so

6. Private Company

   1. 641(1)(a) Approve reduction of capital by SPECIAL RESOLUTION

      1. Supported by a solvency statement from directors

         1. 642(1) Directors must make a solvency statement stating that the company is solvent & will remain so for the next 12 months after reduction, not more than 15 days before the date on which the resolution is passed

         2. 642(3) Solvency statement must be made available to shareholders at a GM or 642(2) sent with the proposed written resolution before it is circulated

            1. 642(4) validity of the resolution is not affected by a failure to comply

   2. 644(5) Board resolution required for directors to pay for the shares, sign a statement of compliance that the 15 day time period was met and that the solvency statement was made available to shareholders

   3. 644(1) Send Form SH19 & solvency statement to Registrar within 15 days of shareholder resolution being passed

      1. 649(1) Registrar to register order & statement

         1. 649(3) Reduction comes into effect upon registration

   4. 29-30 Send copy of special resolution to Companies House within 15 days of it being passed

   5. 113(2) Alter the register of members to reflect the change & deal with the share certificates

   6. 654(1) The reserve arising from the reduction of a company’s share capital is not distributable

   7. EXCEPT 654(2) if the Secretary of State orders it so

      1. Disapplied by 3(3)(b) RSC Order 2008

7. Procedure

   1. COURT ORDER

      1. Board resolution to suggest reduction out of capital & create statement of capital

      2. Board resolution calling GM (or if private company written resolution)

      3. Special resolution to approve reduction

         1. Court order &...