A New Simplified Method Available For Companies To Reduce Share Capital

Author:Mr David O'Donnell
Profession:Mason Hayes & Curran
 
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The Companies Act 2014 (the "Act") has introduced a more time efficient and cost effective option for certain Irish incorporated companies seeking to reduce share capital. A company may wish to reduce its share capital to, for example, create distributable reserves from which dividends can be declared.

Under the old legislation, the only available option for achieving this otherwise prohibited activity was by way of an application to the High Court for an order sanctioning the reduction. That process could prove lengthy and expensive. The process involved a review of the effect that the proposed reduction in share capital would have on the creditors of the company. If the High Court was satisfied that the interests of creditors would not be prejudiced then it could approve the reduction.

That court process is still available under the Act. However, there is now an additional option available to companies whereby a reduction in share capital can be effected without High Court approval. The Act introduces the Summary Approval Procedure ("SAP"). This is a significant change for Irish incorporated LTD, DAC and CLG companies, with many practical benefits including a speedier, more simplified and less costly process.

The SAP to reduce share capital involves the following steps:

Declaration of the Directors - a majority of the directors must make a declaration, which amongst other information, must include that the directors have made a full inquiry into the affairs of the company. In doing so, they have formed an opinion that the company will be able to discharge its debts and other liabilities as they fall due for a period of 12 months after the capital reduction. The directors must also state in the declaration that they do not have actual or constructive notice that the company will incur any material, extraordinary, future liability within the 12 months following the making of the declaration. Under the old legislation, this declaration was a statutory declaration. The Act has dispensed with the need for the declaration to be sworn before a notary public, commissioner for oaths, independent solicitor or other suitable person. It can now be signed by the directors in counterpart; Auditors Report - the auditors of the company must provide a report...

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