Company Law Bill [HL]

Clause 561(3) inserts three new subsections—(1), (1A) and (1B)—into Section 135 of the 1985 Act and sets out the circumstances and manner in which a company limited by shares may reduce its share capital under amended Section 135. Subsection (1B) provides that a company may reduce its share capital in any way but that a company may reduce its share capital using the procedure prescribed in amended Section 135 only if that company will continue to have at least one member remaining after the proposed reduction of capital. That member need hold only one share in the company, but that share must not be a redeemable share or a share held in treasury. The principle behind new subsection (1B), which mirrors an equivalent provision in Section 162(3) of the 1985 Act in relation to a purchase of own shares by a company, is that a company should not be capable of reducing its share capital to zero—that is, when the remaining shares are subsequently redeemed in the case of redeemable shares or cancelled in the case of treasury shares. Amendment No. A67A seeks to delete the proviso to new subsection (1B). This would mean that a company limited by shares would potentially be able to reduce its share capital to zero. It is clearly undesirable, if not conceptually impossible, for a company that purports to be limited by shares to be capable of not having a share capital. We accept that there is no equivalent restriction in the current provisions governing reductions of capital, but that is because a company can reduce its capital only pursuant to a court order and we consider it highly unlikely that a court would permit a company to reduce its share capital to zero except in circumstances where the reduction is momentary and immediately followed by a recapitalisation, which is the process companies currently have to follow if they wish to redenominate their shares. As we are now permitting private companies to reduce their share capital without recourse to the courts, we consider such a restriction to be necessary. We will be meeting representatives of the Law Society and we will be happy to discuss this point further. Our intentions are clear, but there may be certain technical issues to do with recapitalisation that we need to consider. It is important, however, that our intent should remain. In the circumstances, I hope that noble Lords will understand why we are unable to agree to the proposed amendment.