Reduction Of Capital – Companies Act (Cap 50) Singapore

After the extensive amendment to the Companies Act, it is easier to go for reduction of capital, without making an application to go to the court to get Court’s order for the reduction of the Company’s share capital.

The Singapore Companies Act (Cap 50) contains provisions on reduction of capital (Sec 78A to 78K). Under these provisions, the company may do all or any of the following:

1. extinguish or reduce the liability on any of its shares in respect of share capital not paid up
2. cancel any paid-up share capital which is lost or unrepresented by available assets
3. return to shareholders any paid-up share capital which is more than it needs.

Further, a company’s constitution may exclude or restrict any power to reduce share capital conferred on the company, which has to be looked into before the reduction of capital exercise.

The above provisions shall not apply to:

1. An Unlimited Company
2. Redemption of preference shares issued by a company (Sec 70(1))
3. Purchase or acquisition of its own shares (Sec 76B to 76G)

If the Company would like to proceed with the Reduction of Capital without Court approval, the procedure is as under:

• The Company has to pass a Special resolution in accordance with section 186 and copy of the resolution has to be lodged with ACRA on the same day.
• Solvency requirements to be met i.e. all the directors of the company have to make a solvency statement in relation to the reduction of capital upto 20 days (private company) or 30 days (public company) before the date of passing the resolution.

In case of Public Company, additionally, a copy of the solvency statement is to be lodged with the Registrar within 15 days beginning with the resolution date.

• Publication for Proposed reduction of share capital is carried out by ACRA on their website to facilitate the creditors of the company, including banks, to make any objection to the reduction of capital.
• The Company, shall throughout the 6 weeks beginning with the resolution date, make the solvency statement or a copy of the same available at the Company’s registered office for inspection free of charge by any creditors of the Company.
• Any creditors or banks of the company may, at any time during the 6 weeks beginning with the resolution date, apply to the Court for the resolution to be cancelled and should not carry out the reduction of capital exercise.

• If there have been no objections raised by creditors at the end of 6 weeks, the following documents are required to be lodged with the Registrar before the end of 8 weeks, beginning with resolution date:
  • solvency statement (if applicable) [For Private Companies]
  • a statement made by the directors confirming the following:

1. Section 78(1)(c ) of the Companies Act, Chapter 50 i.e. publication requirement
2. Section 78B(3) of the Companies Act, Chapter 50 i.e. making solvency statement available for shareholder and creditors; and
3. No application has been made for cancellation of the Special resolution.
   • a notice containing the reduction information.

If the Company is not solvent or for any other reason would like to go for reduction of capital, the Company may reduce its share capital by a special resolution by making an application to Court and get the approval by an order of the Court (Sec 78G).