Companies Act 2006 s.642 – Reduction of capital supported by solvency statement

(1)A resolution for reducing share capital of a private company limited by shares is supported by a solvency statement if—

(a) the directors of the company make a statement of the solvency of the company in accordance with section 643 (a “solvency statement”) not more than 15 days before the date on which the resolution is passed, and

(b)the resolution and solvency statement are registered in accordance with section 644.

(2)Where the resolution is proposed as a written resolution, a copy of the solvency statement must be sent or submitted to every eligible member at or before the time at which the proposed resolution is sent or submitted to him.

(3)Where the resolution is proposed at a general meeting, a copy of the solvency statement must be made available for inspection by members of the company throughout that meeting.

(4)The validity of a resolution is not affected by a failure to comply with subsection (2) or (3).

Read section 642 in the full Act → Definitions (5) Cases (3)

Definitions used in section 642

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
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
director: In the Companies Acts “director” includes any person occupying the position of director, by whatever name called.
Defined in s.250 · see it in the full Act
written resolution: (1) In the Companies Acts a “written resolution” means a resolution of a private company proposed and passed in accordance with this Chapter.
Defined in s.288(1) · 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

Cases considering section 642 (3)

BTI 2014 LLC v Sequana S.A. & Ors

[2016] EWHC 1686 (Ch) · 11 July 2016

Applies the requirement that a capital-reduction resolution be supported by a timely solvency statement and registration of the supporting documents. The court held that the resolution was validly supported.

BTI 2014 LLC v Sequana S.A. & Ors

[2019] EWCA Civ 112 · 6 February 2019

The solvency-statement requirement for capital reductions without court approval illustrated Parliament’s use of express protections where shareholders’ and creditors’ interests conflict. It supported caution against introducing a broader common law trigger. (see paras [210]; [212])

Re Liberty International Plc

[2010] EWHC 1060 (Ch) · 16 June 2010

The court contrasted the solvency-statement route available to private companies with the court-sanction route applicable to other companies. (see para [8])

What each judgment says about section 642 is in the case-law panel in the full Act.

Explanatory note

955.This section sets out the conditions that must be satisfied in order for a private company limited by shares to reduce its share capital using the new solvency statement procedure.

956.The procedural requirements that the directors must follow when they propose a capital reduction using the solvency statement route are set out in subsections ( 1) to ( 3) which provides that the solvency statement made in connection with a reduction of capital by a private company cannot be made more than 15 days before the date on which the resolution to reduce capital is passed. It also provides that both the resolution and the solvency statement must be filed with the registrar in accordance with the provisions of section 644.

957.The solvency statement must also be made available to the company’s members when they vote on the resolution to reduce capital and the procedure for providing a copy of the solvency statement to the members varies according to whether the resolution to reduce capital is proposed as a written resolution or at a meeting of the company’s members (see subsections ( 2) and ( 3) ). Whilst a failure to observe these procedural requirements will not affect the validity of the resolution to reduce capital, if a solvency statement which has not been provided to the company’s members in accordance with the provision of this section is subsequently filed with the registrar, every officer of the company who is in default commits an offence (see section 644).

All the explanatory notes for the Act