Company Law Reform Bill [HL]

The amendments remove subsection (5)(b) of Clause 91. The subsection provides that the registrar must not re-register a company as public if certain conditions, related to a proposed reduction in share capital, are satisfied with the effect that the nominal value of the company’s share capital is below the authorised minimum. We acknowledge that the reason for the inclusion of subsection (5)(b) is not readily apparent, but it does serve two purposes. First, it provides clarity as it specifies the mechanisms by which a private company might legitimately reduce its share capital, and, secondly, and more importantly, it provides that in certain exceptional circumstances the law will function correctly. It is easiest to illustrate those circumstances by way of a slightly contrived example. Let us imagine that a private company resolves on day one to reduce its share capital to a level where the nominal value of its allotted share capital is below the authorised minimum. For the reduction to take effect, various documents—notably the solvency statement—must be filed with the registrar. On day two, the circumstances of the company change, for whatever reason, and the company now decides that it does not want to reduce its share capital but instead wishes to re-register as a public company, and therefore, it does not wish to file the solvency statement with the registrar. Without subsection (5)(b), the company would find itself in a cleft stick. Although it had not reduced, and was not going to reduce, the nominal value of its share capital below the authorised minimum, because it had initially resolved to do so—the resolution would be on the file—the registrar would have no choice but to block the re-registration, notwithstanding that the company may have resolved to reverse that decision. Subsection (5)(b) provides that, unless the resolution to reduce share capital is supported by the documentation necessary to effect the reduction, the resolution can be disregarded by the registrar when deciding whether to permit the re-registration of the company. To put it another way, the subsection ensures that, in the circumstances that I have just described, the registrar will not be required to block a legitimate request to re-register a private company as a public company. For those reasons we resist the adoption of the amendment. I hope that helps to clarify the position.