ICAEW welcomes the Companies (Reduction of Share Capital) Order 2008, which has been issued following section 654 of the Companies Act 2006 (CA06). It provides that that surpluses arising on capital reductions are to be treated for the purposes of Part 23 of CA06 as realised profits.
From 1 October 2008, this sets in regulations a provision that the Institute first called for when the Companies Bill was before Parliament.
It will be particularly useful for private companies which, from 1 October 2008, are permitted to reduce their capital by special resolution supported by a solvency statement from the directors (rather than being required to obtain court approval). The law society has provided guidance for directors on the new solvency statement route.
The regulations will be applicable to all capital reduction surpluses arising provided there is nothing to the contrary in (where relevant):
The Order should be read together with the Companies Act 2006 (Commencement No. 7, Transitional Provisions and Savings) Order 2008. This provides that surpluses are to be treated as realised as from 1 October 2008, irrespective of whether the reserve arose from a capital reduction effected before or after that date.
Again, this is something ICAEW had called for. It will be particularly useful in clarifying the position for unlimited company reserves that arise from capital reductions carried out prior to 1 October 2008. As from 1 October 2008 there will be no need to assess whether the capital was originally injected in the form of qualifying consideration.
As from 1 October 2008, these provisions supersede aspects of the Institute's distributable profits guidance.
In particular, they supersede paragraphs 3.9(g) and 3.9(h) of TECH 1/08 - Guidance on the determination of realised profits and losses in context of distributions under the Companies Act 1985 (PDF 540KB/129 pages) .
ICAEW will shortly be issuing an Exposure Draft of guidance on the determination of realised and distributable profits under the 2006 Act, which will reflect the provisions of these regulations.
Both Orders come into force on 1 October 2008.
The Companies (Reduction of Share Capital) Order 2008 (SI 2008/1915) can be found at www.opsi.gov.uk.
The Companies Act 2006 (Commencement No. 7, Transitional Provisions and Savings) Order 2008 (SI 2008/1886) can be found at: www.uk-legislation.hmso.gov.uk