Solvency Statement - Share Capital Reduction

Solvency Statement - Share Capital Reduction

CO.RS.02

The Share Capital Reduction - Guidance Notes should be read in advance of this document.

This document has been created in light of the new Companies Act 2006 provisions which came into force on 1st October 2008.

Private 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- Share Capital Reduction made by the directors.

In order to reduce the amount of share capital through the solvency statement route, private companies must submit to Companies House the following:
- the special resolution;
- the solvency statement;
- a statement of capital showing the alteration in the company's share capital in Form SH19 (Section 644 & 649);
- a further statement of the directors under Section 644(5) of the Companies Act 2006 confirming that the special resolution authorising the reduction of share capital was passed within 15 days of the date on which the solvency statement was made;
- (since 6th April 2010) Fee of £10 for a standard service or £50 for a same day service.

The solvency statement route provides a simpler and cheaper means for a company to reduce its share capital. The solvency statement must be made not more than 15 days before the date of the resolution and must be available to the members when they vote on the resolution to reduce the company's share capital.

This solvency statement is a statement that each of the directors is of the opinion that the company will be able to meet its obligations and discharge its debts over the next 12 month period, or in the event of its winding up.

In forming those opinions, the directors must take into account all of the company's liabilities (including any contingent or prospective liabilities). If any director is unable or unwilling to make a solvency statement the company will not be able to use the solvency statement route to effect a reduction of share capital unless the directors who are unable or unwilling to make the solvency statement resign. It would still be possible to proceed with court approval.

This solvency statement is governed by section 643 Companies Act 2006: it must be in writing, it must indicate that it is a solvency statement for the reduction of capital, it must be signed by each of the directors and must state the date on which it is made and the name of each director of the company.

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.

This document is in open format. The document contains fields which must be completed. It also contains wording options in square brackets which must be adjusted to suit your purposes.

If it is intended to start the winding up of the company within 12 months of the date of the solvency statement, then the words in the second pair of square brackets in section (b) of the Solvency Statement should be deleted.

If it is not intended to start the winding up of the company within 12 months of the date of the solvency statement, then the words in the first pair of square brackets in section (b) of the Solvency Statement- Share Capital Reduction should be deleted.

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