What is a capital reduction?

A private company may reduce its capital through a reduction of capital in accordance with Section 78A and 78B of the Companies Act, chapter 50 provided that the company’s constitution does not prohibit it.

Different methods for capital reduction

A company may reduce its share capital via the following methods: 

  1. Extinguish or reduce the liability on any of its shares in respect of share capital not paid up;
  2. Cancel any paid-up share capital which is lost or unrepresented by available assets;
  3. Return to shareholders any paid-up share capital which is more than it needs.

A company may reduce its share capital by a special resolution if the company meets the solvency requirements and meets such publicity requirements as may be prescribed by the Minister.

Note: The resolution and the reduction of the share capital shall take effect only as provided by section 78E at the end of the period for creditor’s objections.

The company need not meet the solvency requirements if the reduction of share capital does not involve a reduction or distribution of cash or other assets by the company or a release of any liability owed to the company.

The company meets the solvency requirements if all the directors of the company make a solvency statement in relation to the reduction of capital; and the statement is made before the special resolution is passed.

Note: Solvency statement is not required for a reduction of capital under method 2.

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