Sections 652 and 653: Effect of reduction of capital
973. These sections restate section 140 of the 1985 Act (with the exception of references to the “minute” being replaced with references to the statement of capital) which is concerned with the liability of a company’s members in respect of any amounts unpaid on its shares following a reduction of capital. As now, there are special rules where a creditor was omitted from the list of creditors settled by the court.
CHAPTER 11: MISCELLANEOUS AND SUPPLEMENTARY PROVISIONS
Section 654: Treatment of reserve arising from reduction of capital
974. This is a new provision which enables the Secretary of State, by order, to specify the circumstances in which a reserve arising from a reduction of capital will be distributable.
975. Whilst there is no requirement in the Act (or indeed the 1985 Act) to create a statutory reserve following such a reduction, we understand that it is usual for companies to create an accounting reserve in these circumstances to “balance the books” (that is, the section relates to reserves that arise as a result of generally accepted accounting treatments). Currently, the question whether a reserve arising from a reduction of capital (which, for a limited company, may currently only be made pursuant to a court order) may be treated as a realised profit for the purposes of computing whether a company has sufficient distributable profits to make a distribution, is the subject of technical guidance issued by the Institutes of Chartered Accountants. The Act introduces a new procedure which enables private companies to reduce their share capital without going to court (see section 641) which is not on all fours with the court approved route (in particular there is no requirement to settle a list of creditors or to provide security for the company’s debts) and in the circumstances it is desirable to deal with the question of when amounts credited to such a reserve should be treated as a realised profit in statute. Owing to the technical nature of the rules that will need to be made this issue will be dealt with in secondary legislation. An order made under section 654 will however be subject to the affirmative resolution procedure – that is, the regulations will need to be approved by both Houses of Parliament.
Section 656: Public companies: duty of directors to call meeting on serious loss of capital
976. Section 656 restates section 142(1) and (3) of the 1985 Act. It sets out the procedure that must be followed where the net assets of a public company fall below half (or less) of the company’s called up share capital. Subsection (4) imposes liability on any director who knowingly authorised or permitted a failure to call a meeting as required by this section.
Section 657: General power to make further provision by regulations
977. This is a new provision which enables the Secretary of State, in regulations made under the Act, to modify various provisions in Part 17 of the Act (see subsection (1)).
978. Regulations made under this section may amend or repeal any of the specified provisions or make such other provision as appears to the Secretary of State appropriate in place of those provisions. This will enable the Secretary of State to future-proof the specified provisions in this Part of the Act.
979. Regulations made pursuant to the power in this section are subject to the affirmative resolution procedure.
PART 18: ACQUISITION BY LIMITED COMPANY OF ITS OWN SHARES
980. This Part replaces various provisions in Chapters 6 and 7 of Part 5 of the 1985 Act and makes substantive changes to some of those provisions. Sections 658 to 659, 662, 666 to 677, 680 to 683, 687, 691, 693, 695 to 701, 704 to 706, 710 to 713, 716 to 719, 721 to 726, 728 to 729, 731 and 733 to 736 restate various provisions in the 1985 Act but do not make any changes to those provisions.
CHAPTER 1: GENERAL PROVISIONS
Sections 660 and 661: Shares held by company’s nominee
981. These sections restate sections 144 and 145(1) and (2) of the 1985 Act, but with the clarification that they apply to shares taken by a subscriber to the memorandum as nominee of the company.
Section 663: Notice of cancellation of shares
982. This section restates section 122(1)(f) and (2) of the 1985 Act and Schedule 24 to that Act. Subsections (2) and (3) update the current notice requirements to require a company that has cancelled shares in order to comply with section 662 to provide the registrar with a statement of capital (see note on section 619) at the time of giving notice of the cancellation.
Section 664: Re-registration as private company in consequence of cancellation
983. This section replaces section 147(2) and (3) of the 1985 Act. These provisions have been updated to reflect the fact that in future it will not be possible to alter the memorandum and that key information of a type which was previously in the memorandum will now be in the articles (see note on section 8). The resolution to re-register as a private company in consequence of a duty to cancel shares will however still need to be filed with the registrar under Chapter 3 of Part 3 of the Act.
984. There is also a new requirement, in subsection (3), for the application for reregistration to be accompanied by a statement of the company’s proposed name on reregistration, Subsections (5) and (6) are also new. Consistent with the approach taken where a company is formed as a private company under the Act (see section 9), where a public company applies to re-register as private under this section the application for re-registration must be accompanied by a statement of compliance (see note on section 13).
Section 665: Issue of certificate of incorporation on re-registration
985. This section replaces section 147(4)(a) of the 1985 Act and restates section 147(4) and (4)(b) of that Act. As with the previous section, the provision has been updated to reflect the fact that in future companies will not be capable of, and will not need to, alter their memoranda. Subsection (3) is new. Consistent with the approach taken in Part 7 of the Act, a certificate of incorporation issued on the re-registration of a company under section 664 will need to specify that it is being issued on the re-registration of the company and the date on which it is issued.