Company Law Bill [HL]

The amendment would require the directors to take account of all the company’s assets and debts which would be admissible to proof in a winding-up of the company commencing on the date immediately following the proposed reduction of capital. Amendment No. A70A, in paragraphs (c) and (d), repeats the second limb of the solvency test, which is currently provided in new Section 135B(1)(b), but with one difference. It alters the reference date for the purposes of these tests from the date of the statement to the date on which the proposed reduction of capital takes effect. The Government are not convinced that the additional requirement inserted by this amendment provides any additional protection to creditors over and above that which is provided in the existing drafting. The intended effect of the provisions relating to reductions of capital made under the new procedure is that a reduction of capital should not take effect more than 30 days after the date on which the solvency statement is made. Therefore, we think it likely that the position sought to be covered by the amendment—namely, the company’s situation immediately following the reduction—would be covered in the existing test in new Section 135B(1). That leads me to the second part of Amendment No. A70A, which proposes changing the solvency statement such that the directors should also have regard to the 12 months from the date,"““upon which the proposed reduction of capital takes effect””," when giving their opinion on the company’s ability to pay its debts as they fall due. The current requirement, by contrast, requires that the period of 12 months is computed by reference to the date on which the solvency statement is made. Under the procedure prescribed for reducing share capital pursuant to a solvency statement, it is intended that a reduction should take effect not more than 30 days after the date on which the statement is made. This is achieved through the provisions that require the resolution to reduce capital to be passed not more than 15 days after the date on which the solvency statement is made and the requirement to file the resolution and solvency statement not more than 15 days after the passing of the resolution, whereupon the resolution to reduce capital takes effect. Thus, the difference between the approach adopted in the amendment and that in the current drafting amounts to a requirement for the statement to ““cover”” an additional period of, at most, 30 days. We think that making such an amendment would cause confusion and potential problems as regards the solvency statement, since it would effectively require the directors to provide an opinion linked to a future event over which they did not exercise sole control. The actual date on which the reduction takes effect is dependent on various documents, including the solvency statement, being received by the Registrar of Companies and these documents being registered by the registrar. We therefore consider that it makes sense, and is also simpler, for the various opinions that the directors must reach as regards the company’s solvency to be linked to the date of the solvency statement rather than to the date on which the proposed reduction of capital takes effect. I hope that this satisfies the noble Lord that the wording of Clause 562 should not be amended.