For typical companies limited by shares, reducing the share capital of the company will involve one of two methods:
- Reducing share capital with the approval of the court (The court order method)
- Reducing share capital without the approval of the court (The non-court order method)
For this article, we will be touching on the non-court order method.
Firstly, a general meeting must be called and held and a special resolution by the shareholders must be passed to reduce the share capital of the company.
The directors of the company will need to make a solvency statement that verifies that the company is able to repay its liabilities in the next 12 months, even if it winds up. The directors must also declare that the value of the company’s assets is not less than the value of its liabilities. This statement must be justified and if it is false, the directors may be subject to criminal liability. This statement can be made at the earliest, 20 days before the passing of the special resolution by the shareholders.
Both the special resolution and the solvency statement need to be publicly available for inspection. In this case, lodging the special resolution and the solvency statement with the registrar does satisfy this requirement. This lodgement must be done within 8 days of the special resolution by shareholders.
Alternatively, the company may also choose to publish a notice on the reduction in a Singapore daily newspaper.
From here on, creditors may apply to the court to object to the capital reduction of the company within 6 weeks of the resolution date.
The court may cancel the application to reduce share capital if any creditors debt is outstanding and payment on that debt is not secured.
If there are no objections, the company may complete the share capital reduction after 6 to 8 weeks from the initial publication for inspection.
It is up to individual companies to decide which method to use. The court order method or non-court order method. The court order method is preferred as there is no room for doubt whereas the non-court order method is simpler and there are no fees payable to the court.
If you need assistance with share capital reduction or other matters relating to company shares, do contact us at [email protected].
When in doubt, seek legal advice or consult an experienced ACRA Filing Agent.
The editorial team at Singapore Secretary Services
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