The Legal Process for Reducing Share Capital in Companies
Provided that a confirmation by the Court is obtained, a company limited by shares or a company limited by guarantee which also has share capital may, if so authorized by its articles of association, by special resolution notified to the Department of the Registrar of Companies and Intellectual Property (hereinafter referred to as the “Registrar”) and published pursuant to section 365A of the Companies Law (Cap 113) (hereinafter referred to as the “Law”), has the power to proceed with a reduction of its share capital in any way. In particular, without prejudice to the generality of the foregoing power, may:
- Eliminate or reduce the liability on any of its shares in connection with the unpaid share capital; or
- Cancel any paid-up share capital which is lost or not represented by the company’s available assets; or
- Return any paid-up share capital which is in excess of the company’s needs;
- Write off paid-up share capital for the purpose of nullifying company’s losses;
- Write off paid-up share capital by the creation of a reserve account, named “the capital reduction reserve fund” that shall be subjected to the same treatment as the share premium account in accordance with section 55 of the Law.
It shall be noted that in cases of public companies, the issued share capital cannot be reduced to an amount which is lower than the minimum share capital provided for in section 4A of the Law (namely the amount of €25,629), unless the decision regarding the reduction provides for an increase of the share capital to an amount at least equal to the aforesaid minimum share capital at the same time.
A company passing a resolution regarding a share capital reduction may apply to the Court requesting the issue of an order confirming the reduction.
If the reduction of share capital involves a decrease of liability in connection with any unpaid share capital or the return to any shareholder of any paid-up share capital, and in any other case if the Court so directs, the below provisions shall apply, subject to subsection 65(3) of the Law:
- Each company’s creditor who on the date determined by the Court is entitled to any debt or claim that would be admissible as proof against the company, and who can prove that there is a reasonable possibility that the reduction of the share capital will jeopardize the repayment of the debt or the settlement of the claim, shall be entitled to object to the reduction;
- The Court shall arrange for the preparation of a list of creditors that are entitled to object, and may publish notices setting a day within which creditors not included in the list will be able to claim to be included or will be excluded from the right of objecting to the reduction;
- If a debt or claim of a creditor included in the list is not repaid or determined, and they do not consent to the reduction, the Court may direct the amount to be fixed;
Provided that the Court is satisfied with regards to each company’s creditor entitled to object to the reduction, the Court may proceed with the issue of an order approving the reduction on such terms and conditions as it considers appropriate.
Upon submission with the Registrar of a copy of the order issued by the Court, confirming the reduction of the company’s share capital, and the minutes approved by the Court, the competent officers of the Registrar shall proceed with the registration of the order and minute.
Moreover, it is noted the order and minutes approving the reduction of the company’s share capital shall have effect upon submission and registration thereof with the Registrar.
The Registrar shall certify the registration of the order and the minutes. The certificate issued by the Registrar shall constitute conclusive evidence that all the requirements of the Law relating to the reduction of the company’s share capital have been complied with.
The minutes, upon submission and registration thereof with the Registrar, are deemed to substitute the corresponding part of the company’s memorandum and shall be valid and variable as if these had been originally contained therein.
