Share Capital Reduction Through the Solvency Statement Route – Sections 641(1)(a) & (2)-(6), 642 to 644
As an alternative to passing a special resolution and obtaining court approval, private companies will have the option of reducing the amount of their share capital by special resolution supported by a solvency statement made by the directors. The resolution and solvency statement, a memorandum of capital, showing the alteration in the company’s share capital and an additional directors’ statement will have to be submitted to Companies House.
Please note, for solvency statements made between 1st October 2008 and 30th September 2009, a memorandum of capital (as defined in The Companies Act 2006 (Commencement No. 7, Transitional Provisions and Savings) Order 2008 http://www.opsi.gov.uk/si/si2008/uksi_20081886_en_1), must be sent to Companies House. For solvency statements made on or after 1st October 2009, this memorandum must be replaced by a statement of capital as defined in section 644(2) of the Companies Act 2006.
What is the purpose of introducing the solvency statement route?
The solvency statement route provides a simpler and cheaper means for a company to reduce its share capital
How is the form and content of the solvency statement to be determined?
Companies House cannot give advice on the content of the solvency statement required by section 643 of the CA 2006. The statement must be produced by the company for its members and the content is governed by s643. http://www.opsi.gov.uk/acts/acts2006/ukpga_20060046_en.pdf
The form of the solvency statement is governed by regulations – The Companies (Reduction of Share Capital) Order 2008 http://www.opsi.gov.uk/si/si2008/uksi_20081915_en_1
Copies of the Companies Act and the regulations are available on the on the BERR website.
For registration purposes, the company name and number should be included on each of the documents sent to Companies House.
Why did this requirement not come into force with the rest of Part 17 of the Companies Act 2006 on 1st October 2009?
Business supports the solvency statement introduction at the earliest opportunity, as it’s a procedure that will provide benefits in terms of ease and cost. Therefore these provisions came into force on 1 October 2008, while the bulk of Part 17 will come into force on 1 October 2009.
In the absence of the court overview what safeguards exist against abuse of the solvency statement route?
If company 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. The offence is punishable by a fine or by a maximum period of imprisonment of two years or both.
Is this new process also available to public companies?
No the solvency statement is only available to private companies, both private and public companies will continue to be able to reduce their share capital by special resolution confirmed by court order.
Please note that the ‘memorandum of capital’ that is required for filing at Companies House as part of this process (under the new 644(1)b) is a separate and distinct document from the memorandum of association of the company.
The seventh commencement order states what this memorandum of capital should contain:
“The memorandum must show with respect to the company’s share capital as reduced by the resolution:
(a) the amount of the share capital,
(b) the number of shares into which it is to be divided, and the amount of each share, and
(c) the amount (if any) at the date of the registration deemed to be paid up on each share.”.
