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Frequently asked questions
- When is the solvency statement route for capital reduction in private companies coming into force?
- Why is it not coming into force with the rest of Part 17 Companies Act 2006 on 1 October 2009
- Why can the remainder of Part 17 of the Companies Act 2009 not be brought into force, together with the solvency statement provisions, in October 2008? Why wait until October 2009
- Why is the court route procedure, which public companies will have to use, not being introduced alongside the solvency statement procedure?
- What is the purpose of introducing the solvency statement route?
- How will company directors form the opinions required for the making of the solvency statement?
- In the absence of the court overview what safeguards exist against abuse of the solvency statement route?
- How is the form and content of the solvency statement to be determined?
- A private company will have to pass a special resolution before reducing its share capital by the solvency statement route. How is filing with Companies House to be dealt with?
- When is section 644 Companies Act 2006 (registration of resolution & supporting documents) to take effect?
- S644 Companies Act 2006 was to commence in October 2009. Why have you changed the commencement date to 1 October 2008?
When is the solvency statement route for capital reduction in private companies coming into force?
The solvency statement route will come into force on 1 October 2008.
Why is it not coming into force with the rest of Part 17 Companies Act 2006 on 1 October 2009
Business is of the view that the solvency statement procedure will be beneficial and supports its introduction at the earliest opportunity. We agree that this is an important change to company law and Companies House is able to deliver the necessary changes to its systems and processes in order to allow these provisions to come into force in October 2008 rather than October 2009.
Consequently the solvency statement provisions will come into force on 1 October 08 and the bulk of Part 17 will come into force on 1 October 09.
Why can the remainder of Part 17 of the Companies Act 2009 not be brought into force, together with the solvency statement provisions, in October 2008? Why wait until October 2009
Part 17 Companies Act 2006, in which the solvency statement provisions are found, relies heavily upon the processes and procedures of Companies House. The Registrar of Companies has said he cannot be absolutely certain that the processes and procedures necessary for implementation will be in place for October 2008, the intended date of final implementation; although he has indicated that the limited processes and procedures required by the solvency statement route could be readied for October 08. This is why we are not commencing the remainder of Part 17 until October 2009.Why is the court route procedure, which public companies will have to use, not being introduced alongside the solvency statement procedure?
The court route procedure contained in the Companies Act 2006 largely restates the same procedure in the Companies Act 1985. Consequently public companies will continue to utilise the Companies Act 1985 provisions for court approved capital reduction until they are replaced on 1 October 2009 by the 2006 Act provisions as will private companies which do not wish to rely on the solvency statement route.
What is the purpose of introducing the solvency statement route?
The solvency statement route provides a simpler and cheaper means for a private company to reduce its share capital.
How will company directors form the opinions required for the making of the solvency statement?
In making the solvency statement company directors have to form the opinion that at the date of the statement there are no grounds on which the company could then be found to be unable to pay or otherwise discharge its debts; that in the event of any winding-up in the following twelve months the company will be able to pay its debts in full within twelve months of the commencement of the winding up, and that in any other case the company will be able to pay (or otherwise discharge) its debts as they fall due during the twelve months following the date of the statement.
The law will require the directors to take account of all the company’s liabilities. As directors are the stewards of their companies it is anticipated that they will have full knowledge of their company’s financial and trading status. If uncertainties exist the directors would seek professional advice.
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.
How is the form and content of the solvency statement to be determined?
The content of the solvency statement will be dictated by section 643 of the 2006 Act and its form by BERR Regulations. The Registrar of Companies will also have powers to impose, via Companies House rules, requirements relating to the form, manner of delivery and authentication of the copy of the solvency statement which will need to be registered at Companies House.
A private company will have to pass a special resolution before reducing its share capital by the solvency statement route. How is filing with Companies House to be dealt with?
The special resolution required before a private company could reduce its share capital by the solvency statement route would also need to be registered, and this would take place under sections 29 and 30 of the 2006 Act.
When is section 644 Companies Act 2006 (registration of resolution & supporting documents) to take effect?
1 October 2008.
S644 Companies Act 2006 was to commence in October 2009. Why have you changed the commencement date to 1 October 2008?
Until 2 May 2008 the publicly stated position as regards the commencement of section 644 was that it would commence in October 2009, and that between October 2008 and October 2009 matters relating to the registration of documents at Companies House would be dealt with by amendments to section 138 of the Companies Act 1985, amendments that would have simply enabled suitable changes to be made to existing forms. This approach was agreed to provide sufficient time for Companies House to implement all necessary processes and procedures to ensure the proper operation of the solvency statement route for reducing share capital.
Companies House, however, is confident that it can now have in place all necessary processes and procedures to ensure the proper operation of the solvency statement route by October 2008. That being the case there is now no barrier to commencing section 644 of the 2006 Act in October 2008, and that is what we now propose to do.