Court procedure—reduction of capital—process and timetable
Published by a LexisNexis Corporate expert
Practice notesCourt procedure—reduction of capital—process and timetable
Published by a LexisNexis Corporate expert
Practice notes
It is a fundamental rule of English company law that a limited company having a share capital must maintain that capital. Therefore, a company must not reduce its share capital, except as prescribed by law. This capital maintenance rule is intended to protect a company’s creditors by ensuring that the assets representing the capital of a company remain available to them for future recourse.
There are provisions in the Companies Act 2006 (CA 2006) governing how a limited company may reduce its capital. The restrictions in the CA 2006 relating to reductions of capital do not apply to unlimited companies. For further information on this type of company, see Practice Note: Unlimited companies.
The focus of this Practice Note is on reductions of capital in accordance with CA 2006, Pt 17, Ch 10, in particular, those carried out by a special resolution confirmed by court order (the court procedure) rather than those carried out by a special resolution supported by a solvency statement (the solvency statement procedure).
In accordance with CA 2006, any limited company having
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Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
Reduction of capital definition
What does Reduction of capital mean?
Company law requires the maintenance of a company's capital for the benefit of its members. For this reason, there are usually restrictions on the reduction of capital by a company. The most common reasons why a company may want to reduce its capital are to increase or create distributable reserves to enable future dividends to be paid to shareholders, to return surplus capital to shareholders, to facilitate a share buyback or redemption of shares, or as part of a scheme of arrangement. For further information, see Reduction of capital—overview.
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