78B. Reduction of share capital by private company

Question 1

78B. Reduction of share capital by private company

Answer 1

General overview
[78B.01] A reduction of share capital in a private company may be carried out by way of a special resolution of the company together with a solvency statement made by the board of directors of the company.

Question 2

Solvency statement

Answer 2

[78B.02] Unless the reduction is solely by way of a cancellation of any lost paid-up capital or capital unrepresented by assets, all directors must sign a declaration in writing which conforms to s 7A. The new subsection (2) of ss 78B and 78C provides that a solvency statement is required where the reduction involves a reduction or distribution of cash or other assets by the company; or a release of any liability owed to the company: ss 54 and 55 of Act No 36 of 2014. The UK position is similar for private companies in that a solvency statement is required for capital reduction without court sanction. In New Zealand, where the reduction amounts to a distribution, a solvency statement is required. Australia’s regime for capital reduction is not governed by a solvency test so long as it is fair and reasonable, does not prejudice creditors and is approved by shareholders: see the Report of the Steering Committee for the Review of the Companies Act, Chapter 3, paras 100 to 107, April 2011.

[78B.03] The solvency statement has to be lodged within 20 days prior to the resolution date in private companies: s 78B(3)(b)(ii) vide Act No 36 of 2014.