Morgan Russell Solicitors

The Companies Act 2006 - Reduction of Capital

The Companies Act 1985 permits a limited company with a share capital to reduce its share capital in circumstances where creditors would not be adversely affected and provided that the company complies with the procedural requirements of the Act.

The method of reduction will depend on the reasons for the reduction.

Provisions of the Companies Act 2006 came into force on 1st October 2008, to provide a new, simpler procedure for private companies.  The new provisions enable private companies to have the option, rather than going to court to approve the reduction, to instead use a solvency statement procedure.  This is similar to the “whitewash” procedure under the financial assistance provisions of the Companies Act 1985.

A solvency statement would be required detailing that each of the directors:

  1. has formed the opinion, as regards the company’s situation at the date of the statement, that there is no ground on which the company could then be found to be unable to pay or otherwise discharge its debts; and
  1. has also formed the opinion;

2.1          if it is intended to commence the winding-up of the company within 12 months of that date, that the company will be able to pay, or otherwise discharge, its debts in full within 12 months of the commencement of the winding-up; or

2.2          in any other case, the company will be able to pay, or otherwise discharge its debts as they fall due in the year immediately following that date.

If the directors make a solvency statement without having reasonable grounds for the opinions expressed in it and the statement is delivered to the Registrar, an offence is committed by every director who is in default.

A person guilty of such an offence is liable to imprisonment and/or a fine.

Further information

If you require any further information or assistance, please contact Debbie Turner or Paul Morgan of Morgan Russell on 01372 461411.

The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.
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