Company Law Reform Bill [HL]

moved Amendment No. 423:"Page 270, line 36, leave out from beginning to end of line 7 on page 271 and insert—" ““(1) A limited company having a share capital may reduce its share capital— (a)   in the case of a private company limited by shares, by special resolution supported by a solvency statement in accordance with section 135A; (b)   in any case, by special resolution confirmed by the court in accordance with sections 136 to 139. (1A) A company may not reduce its capital under subsection (1)(a) if as a result of the reduction there would no longer be any member of the company holding shares other than redeemable shares. (1B) Subject to that, a company may reduce its share capital under this section in any way.””.”” The noble Lord said: My Lords, in Grand Committee the noble Lord, Lord Hodgson, tabled an amendment to Clause 566 which if accepted would have completely removed the proviso presently in subsection (1B) of this clause that a company can reduce its share capital in any way under Clause 566 providing that,"““as a result of the reduction at least one member of the company would hold shares other than redeemable shares or shares held as treasury shares””." We were unable to accept that amendment in Grand Committee as it would have enabled private companies who wished to use the new solvency statement procedure to use that procedure to reduce their share capital to zero. That is undesirable. In Committee the noble Lord, Lord Hodgson, explained that there may be circumstances where a company would want to reduce its share capital to zero; for example where the company is the target of a takeover bid and wants to cancel all of its own shares and issue new shares in the acquiring company. The noble Lord also explained that it is relatively common practice for a reduction of capital which is approved by the court to involve a reduction of the shares’ capital to zero. We understand, however, that this is only on terms that the court can see that very shortly after the reduction taking effect, either a reserve will be capitalised in favour of someone who becomes the member or one or more shares are subscribed conditional upon the reduction taking effect. Thus the concern which prompted us to incorporate the provision—namely, a company being left without any issued shares—is not one that arises in the context of reductions confirmed by the court. Having discussed this matter with the Law Society, we agree that subsection (1B) of Clause 566 does not achieve the desired effect. In particular, we do not intend either to fetter the powers of court or to reduce the flexibility that is currently afforded to companies limited by shares which apply to court to reduce their share capital under Section 135 of the 1985 Act, which is amended by Clause 566. I am grateful to both the noble Lord and the Law Society for raising this point. Amendment No. 423 is designed to address the noble Lord’s concerns. It limits the qualification that is presently in subsection (1B) of Clause 566 to private companies who wish to use the new solvency statement procedure to effect a reduction of capital. Amendment No. 424 provides a different drafting solution to the perceived problem, but, with the exception of what I am about to say about the reference to treasury shares in subsection (1B), the drafting solution which we have proposed in Amendment No. 423 achieves the same effect as this amendment. I therefore trust that noble Lords will agree to the amendment. The deletion of the reference to treasury shares in subsection (1B) has been proposed because a private company may not hold its own shares in treasury, and since the redrafted proviso now applies only to private companies seeking to reduce their share capital under the new solvency procedure statement—whereas previously the proviso applied to both public and private companies—it is no longer necessary to refer to treasury shares. I beg to move.