Companies (Reduction of Share Capital) Order 2008

rose to move, That the Grand Committee do report to the House that it has considered the Companies (Reduction of Share Capital) Order 2008. The noble Baroness said: The order does two things. It sets out how the reserves arising from a reduction of capital—the cash that a company gets from reducing its share capital—may be treated, and it provides the form in which a solvency statement must be made, underpinning the new option introduced by the Companies Act for private companies to reduce their share capital without reference to a court. The treatment of reserves arises when a company, public or private, has reduced its share capital by any of the means permitted to it. The order clarifies whether the reserve is to be treated as distributable to shareholders by way of, for example, dividends. The provisions of the order follow consultation on drafts and detailed discussions with the Institute of Chartered Accountants in England and Wales and the Law Society. The order provides that, subject to some exceptions, reserves resulting from a reduction of capital will be treated as ““realised profits”” for the purposes of Part 23 of the Companies Act 2006. Part 23 sets out the rules for the distribution of a company’s assets. The effect of the order is that, with certain specified exceptions, once a reserve is created, Part 23 controls its distribution. This removes the need for what is currently extensive professional guidance on the matter. The second aspect of the order arises from the need to prescribe the form of the solvency statement that is provided for under Section 643 of the 2006 Act. This part of the Act enables private companies to rely on a solvency statement for the purpose of reducing share capital without the need to have the reduction confirmed by a court. For companies wishing to utilise the solvency statement route under the new Act, the directors must form the opinion and confirm in a statement that, at the date of the statement, there are no grounds on which the company could be found to be unable to pay its debts; that if it is intended to commence a winding-up at any time in the 12 months following the statement, the company will be able to pay its debts within 12 months of the commencement of the winding up; and that, in any other case, the company will be able to pay its debts within the year following the date of the solvency statement. The content required of the solvency statement is therefore set out in the Act. This order relates only to the form of the statement which the Act requires to be prescribed in an order. In this order we have prescribed the most elementary requirements as to the form of a solvency statement: it must be in writing, indicate that it is a solvency statement for the purposes of Section 642 of the Companies Act 2006 and be signed by each of the company directors. I beg to move. Moved, That the Grand Committee do report to the House that it has considered the Companies (Reduction of Share Capital) Order 2008. 22nd report from the Joint Committee on Statutory Instruments.—(Baroness Vadera.)