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Q：
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What is capital reduction?
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A：
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Capital reduction is a process of capital repayment to the shareholders by decreasing its share capital through share cancellation.
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Q：
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Why would a company undergo a capital reduction?
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A：
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The main objectives of capital reduction are to return surplus capital to shareholders, manage the company’s liabilities or losses, create a distributable reserve for dividend payments and alter the capital structure.
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Q：
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What are the methods of capital reduction?
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A：
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According to Section 115 of the Companies Act 2016 (CA 2016), and subject to the constitution of the company, a company may opt to reduce its share capital either through a solvency statement or a court order.
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Q：
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How the company satisfy the solvency test?
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A：
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The company meets the solvency test for capital reduction if it can pay its debts right after the capital reduction and as they become due within the 12 months immediately following the capital reduction. Further, the assets of the company shall exceed its liabilities at the time of capital reduction.
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Q：
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What should the creditor do if he objects to the capital reduction via solvency statement?
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A：
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A creditor of the company may file an objection to the capital reduction with the court within 6 weeks of the date of the special resolution is passed. The creditor must provide the company with the application to the court regarding this objection in order for the company to notify the Registrar accordingly.
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FAQ
