Reduction of Capital

Partnership Agreement

SOLVENCY STATEMENT PROCEDURE

This page sets out a brief summary of the procedure for reducing a private company’s share capital, where the reduction is supported by a director’s Solvency Statement.

  1. If there is a restriction on reducing share capital in the Articles of the company then that restriction will need to be adhered to, or a special resolution passed to amend the Articles. Any amendment to the Articles will need to be completed before the special resolution is passed to approve the reduction.
  2. The directors of the company consider and make the Solvency Statement.
  3. The Solvency Statement must be made no more than 15 days before the special resolution to reduce the capital is passed.
  4. The shareholders of the company then pass a special resolution approving the reduction. A special resolution requires the approval of at least 75% of the shareholders. The special resolution can be passed by written resolution.
  5. If the members’ approval is to be by way of written resolution, the Solvency Statement must be sent to the members before or at the same time as the written resolution is sent to them.
  6. If the members’ approval is by way of a general meeting, the Solvency Statement must be available for inspection by the members for the duration of the meeting. The general meeting will also need to be called in accordance with company law and the company’s Articles.
  7. There are various Companies House filing requirements and a filing fee (introduced in 2010) is payable.
  8. The reduction of capital only takes effect on the registration of the special resolution and supporting papers by the Registrar of Companies.

 NOTE: Failure to comply with the procedural requirements regarding the distribution or inspection of the Solvency Statement does not affect the validity of any members’ resolution, but it does make the directors subject to a fine.