Companies Act 2006 – Sections 652

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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.


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

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.


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.


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.

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