Reduction of share capital - an update

We have received numerous enquiries about the new “do-it-yourself” reduction of share capital procedure. The government’s intention here was to make it simpler and cheaper for companies to reduce share capital. From what we have seen so far this certainly does seem to be the case. We have already successfully completed this process for clients. We understand that at the last count Companies House had received approximately 30 applications for reduction. Read more about this process.

The Department for Business, Enterprise and Regulatory Reform (BERR) recently clarified one area which has caused confusion.  Until 1 October 2009 a memorandum of capital must also be filed with the paperwork sent to Companies House to reduce the share capital. This sets out what the new capital of the company will be. When the 1 October 2009 changes come in this will be replaced by the requirement to file a statement of capital. 
It is important to note with the new procedure that the law requires directors to take account of all the company’s liabilities. Directors must ensure that they have full knowledge of their company’s financial and trading status. Directors who make solvency statements without having reasonable grounds for the opinions expressed in the statement face very severe penalties. They could be looking at up to two years in prison or a fine or both. 

With economic conditions worsening some companies may wish to take this step soon as it will make more capital available. We also have a number of clients who have been waiting for the new procedure in order to tidy up the books of group companies that previously traded and are now dormant. The court procedure to reduce share capital under the 1985 Act was time consuming and expensive which deterred many companies from pursuing this route.

Please contact us for more information about arranging a reduction of share capital for your company or clients.

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