Companies Act 2006, section 641

Circumstances in which a company may reduce its share capital

Part 17 A company's share capital

(1)A limited company having a share capital may reduce its share capital—

(a)in the case of a private company limited by shares, by special resolution supported by a solvency statement (see sections 642 to 644);

(b)in any case, by special resolution confirmed by the court (see sections 645 to 651).

(2)A company may not reduce its capital under subsection (1)(a) if as a result of the reduction there would no longer be any member of the company holding shares other than redeemable shares.

[F931 (2A)A company may not reduce its share capital under subsection (1)(a) or (b) as part of a scheme by virtue of which a person, or a person together with its associates, is to acquire all the shares in the company or (where there is more than one class of shares in a company) all the shares of one or more classes, in each case other than shares that are already held by that person or its associates.

(2B)Subsection (2A) does not apply to a scheme under which—

(a)the company is to have a new parent undertaking,

(b)all or substantially all of the members of the company become members of the parent undertaking, and

(c)the members of the company are to hold proportions of the equity share capital of the parent undertaking in the same or substantially the same proportions as they hold the equity share capital of the company.

(2C)In this section—

  • “associate” has the meaning given by section 988 (meaning of “associate”), reading references in that section to an offeror as references to the person acquiring the shares in the company;

  • “scheme” means a compromise or arrangement sanctioned by the court under Part 26 [F932 or 26A F932] (arrangements and reconstructions). F931]

(3)[F933 Subject to subsections (2) to (2B)F933] , a company may reduce its share capital under this section in any way.

(4)In particular, a company may—

(a)extinguish or reduce the liability on any of its shares in respect of share capital not paid up, or

(b)either with or without extinguishing or reducing liability on any of its shares—

(i)cancel any paid-up share capital that is lost or unrepresented by available assets, or

(ii)repay any paid-up share capital in excess of the company's wants.

(5)A special resolution under this section may not provide for a reduction of share capital to take effect later than the date on which the resolution has effect in accordance with this Chapter.

(6)This Chapter (apart from subsection (5) above) has effect subject to any provision of the company's articles restricting or prohibiting the reduction of the company's share capital.

(7) [F934 In subsection (1)(b), section 91(5)(b)(iii), sections 645 to 651 (except in [F935 the phrases “sanctioned by the court under Part 26” and “sanctioned by the court under Part 26A” F935] ) and 653(1) “the court” means, in England and Wales, the High Court. F934]

Read section 641 in the full Act → Definitions (7) Cases (16)

Definitions used in section 641

company

“company” means a company formed and registered under this Act, that is—

(a)

a company so formed and registered after the commencement of this Part, or

(b)

a company that immediately before the commencement of this Part—

(i)

was formed and registered under the Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)), or

(ii)

was an existing company for the purposes of that Act or that Order,

(which is to be treated on commencement as if formed and registered under this Act).

Defined in s.1(1) · see it in the full Act

(4) In this section and that Schedule “company” includes any body corporate.

Defined in s.1159(4) · see it in the full Act
share

(1) In the Companies Acts “share”, in relation to a company, means share in the company's share capital.

Defined in s.540(1) · see it in the full Act
the court

(1) Except as otherwise provided, in the Companies Acts “the court” means—

(a)in England and Wales, the High Court or the county court;

(b)in Scotland, the Court of Session or the sheriff court;

(c)in Northern Ireland, the High Court.

Defined in s.1156(1) · see it in the full Act

(2) The provisions of the Companies Acts conferring jurisdiction on “the court” as defined above have effect subject to any enactment or rule of law relating to the allocation of jurisdiction or distribution of business between courts in any part of the United Kingdom.

Defined in s.1156(2) · see it in the full Act
member

(2) In sub-paragraph (1) “member” has the same meaning as it has by virtue of section 7(1) of that Act .

Defined in Sch.2 Pt.1 · see it in the full Act
parent undertaking

(1) This section (together with Schedule 7) defines “parent undertaking” and “subsidiary undertaking” for the purposes of the Companies Acts.

Defined in s.1162(1) · see it in the full Act
equity share capital

In the Companies Acts“equity share capital”, in relation to a company, means its issued share capital excluding any part of that capital that, neither as respects dividends nor as respects capital, carries any right to participate beyond a specified amount in a distribution.

Defined in s.548 · see it in the full Act
articles

(4) References in the Companies Acts to a company's “articles” are to its articles of association.

Defined in s.18(4) · see it in the full Act

Cases considering section 641 (16)

Diversified Energy Company Plc, Re

[2025] EWHC 3081 (Ch) · 21 November 2025Limits

The court applied section 641 as the statutory basis for confirming the reductions and for assessing the validity of the special resolution. (see paras [28], [32], [36]) The court confirmed that the special resolution required by section 641(1)(b) had been properly passed. (see para [36]) The court applied the prohibition in section 641(2A), subject to the statutory exceptions, and concluded that the relevant exception applied to the new-parent scheme. (see paras [29]-[30]) The court held that the exception applied because the Company acquired a new parent undertaking, substantially all members became members of it, and their equity proportions remained substantially the same. (see paras [29]-[30]) The court held, alternatively, that the saving in section 641(2C) would apply to the reductions involving the B shares and share premium account. (see para [31])

Lightsource BP Renewable Energy Investments Holdings Ltd (Re The Companies Act 2006)

[2024] EWHC 2648 (Ch) · 21 October 2024Limits

Confirms that the court’s jurisdiction to approve the reduction of capital derives from sections 641 onwards. The court used the provision as the statutory foundation for assessing the reduction (see paras [28]-[30]). Requires the special resolution supporting the reduction of capital. The court found that the required resolution had been validly passed (see para [30]). The court accepted the earlier finding that the prohibition on reducing capital as part of a scheme involving acquisition of all shares was not engaged by this reduction (see para [6]).

IN THE MATTER OF WATERSIDE NURSERY LIMITED AND IN THE MATTER OF SCHEDULE 4 TO THE SMALL BUSINESS, ENTERPRISE AND EMPLOYMENT ACT 2015

[2022] EWHC 327 (Ch) · 16 February 2022Limits

Provides an alternative reduction-of-capital route. The court held that it was not a complete remedy where voting rights were suspended or no shares would remain. (see paras [39]-[43]) Prevents a reduction of capital that would leave no shares in issue. This was one reason reduction of capital was not a universal alternative. (see para [40])

What each judgment says about section 641 is in the case-law panel in the full Act.

Explanatory note

950.This section replaces section 135(1) and (2) of the 1985 Act. It sets out the circumstances and manner in which a company limited by shares may reduce its share capital. As recommended by the CLR (Final Report, paragraph 10.6), in future a private company limited by shares will be able to reduce its share capital using a new solvency statement procedure for capital reductions (see section 642).

951.A company may only reduce its share capital under section 135 of the 1985 Act if it is authorised to do so by its articles. In line with the recommendations of the CLR (Completing the Structure, paragraph 2.15), the requirement for prior authorisation in the articles has not been retained but, if it wishes, a company may restrict or prohibit a reduction of capital by making provision to this effect in its articles (see subsection ( 6) ).

952.Subsection ( 1)(a) contains a signpost to a new provision, which will enable a private company limited by shares to reduce its share capital using the new solvency statement procedure (see above). In addition, private companies and public companies alike will continue to be able to use the current court approved procedure for capital reductions – which is retained in subsection ( 1)(b) .

953.In the case of a private company limited by shares which is proposing to use the new solvency statement procedure to effect a reduction of capital, the company may only reduce its share capital under subsection ( 1)(a) if it will have at least one member remaining after the proposed reduction (see subsection ( 2) ). That member need only hold one share in the company but that share must not be a redeemable share. The principle behind this requirement is that a private company limited by shares should not be capable of reducing its share capital to zero unless the reduction of capital is sanctioned by the court. This mirrors the existing equivalent provision in section 162(3) of the 1985 Act – which applies to a purchase of own shares.

954.Both the solvency statement procedure for capital reductions and the court-approved procedure require a special resolution of the company’s members. Under subsection ( 5) a special resolution to reduce a company’s share capital may not provide for the proposed reduction to take effect on a date later than the date on which the resolution to reduce capital takes effect. Under the solvency statement procedure a resolution to reduce capital will take effect when the documents referred to in section 644 have been registered by the registrar (see section 644(4)). This would operate to prevent a company passing a resolution on, say, 1st January stating that the reduction is to take effect on 1st October. Under the court approved procedure, the resolution will take effect on the registration of the court order and statement of capital or, in the context of a reduction forming part of a compromise or arrangement under Part 26, on delivery of those documents to the registrar (unless the court orders otherwise) (see section 649).

All the explanatory notes for the Act

Amendments and notes

7 notes from legislation.gov.uk

Amendments

  1. F931S. 641(2A)-(2C) inserted (4.3.2015) by The Companies Act 2006 (Amendment of Part 17) Regulations 2015 (S.I. 2015/472), regs. 2(1), 3(2) (with reg. 2(2))
  2. F932Words in s. 641(2C) inserted (26.6.2020) by Corporate Insolvency and Governance Act 2020 (c. 12), s. 49(1), Sch. 9 para. 33(8)(a) (with ss. 2(2), 5(2))
  3. F933Words in s. 641(3) substituted (4.3.2015) by The Companies Act 2006 (Amendment of Part 17) Regulations 2015 (S.I. 2015/472), regs. 2(1), 3(3) (with reg. 2(2))
  4. F934S. 641(7) inserted (22.4.2014) by S.I. 1991/724, Sch. Pt. 1 (as amended by The High Court and County Court Jurisdiction (Amendment) Order 2014 (S.I. 2014/821), arts. 1, 2(10)(a)(ii) (with art. 3))
  5. F935Words in s. 641(7) substituted (26.6.2020) by Corporate Insolvency and Governance Act 2020 (c. 12), s. 49(1), Sch. 9 para. 33(8)(b) (with ss. 2(2), 5(2))

Modifications

  1. C1104S. 641 modified (1.10.2008) by The Companies Act 2006 (Commencement No. 7, Transitional Provisions and Savings) Order 2008 (S.I. 2008/1886), art. 3 (which article was revoked (1.10.2009) by S.I. 2008/2860, art. 6 (subject to Sch. 2) (with arts. 5, 7, 8))

Commencement

  1. I228S. 641 wholly in force at 1.10.2009; s. 641 not in force at Royal Assent see s. 1300; s. 641(1)(a)(2)-(6) in force at 1.10.2008 by S.I. 2008/1886, art. 2 (with arts. 6, 7); s. 641(1)(b) in force at 1.10.2009 by S.I. 2008/2860, art. 3(k) (with arts. 5, 7, 8, Sch. 2) (as amended by S.I. 2009/1802, art. 18)