Share Capital Reduction - Guidance Notes

The Companies Act 2006 has introduced a new way for private limited companies only to reduce the amount of their share capital.

From 1 October 2008 private limited companies, as an alternative to passing a special resolution and obtaining court approval, have the option of reducing the amount of their share capital by special resolution supported by a solvency statement made by the directors.

The solvency statement route provides a simpler and cheaper means for a company to reduce its share capital.

These Guidance Notes should be read in advance of the preparation of the documents as the Guidance Notes detail which documents are required and the order in which they should be prepared.

The solvency statement must be made not more than 15 days before the date of the special resolution and must be available to the shareholders when they vote on the resolution to reduce the company’s share capital.

In forming the opinions contained in the solvency statement, the directors must take into account all of the company’s liabilities (including contingent or prospective liabilities). The directors commit an offence if they make a solvency statement without having reasonable grounds for the opinions expressed in it and the statement is delivered to the Registrar of Companies.

Please note that the solvency statement route is only available to private companies, however, both private and public companies will continue to be able to reduce their share capital by special resolution confirmed by court order.

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