Companies Act 2006 - implications for shareholders - maintenance of capital

When is it in force?

1 October 2009 for all points on this page. 

Can a company give financial assistance?

Yes. The familiar prohibition on giving financial assistance for acquisitions of the company's shares and “whitewash” procedure are abolished for private companies (in force 1 October 2008). That will cut costs of corporate transactions and make them easier to finance by giving security over the company's asset.

The financial assistance prohibition is largely unchanged for public companies.

But watch for directors’ duties, as the directors will still need to justify the financial assistance - click here for more information on directors' duties.

Can a company reduce its share capital?

Yes, unless there is a specific restriction in its articles.

Previously there was a cumbersome and expensive procedure needing approval by the court. Now a private company can reduce its capital under a simplified procedure requiring:

• a special resolution;
• a solvency statement from the directors;
• keeping at least one issued non-redeemable share.

Companies can use this to return capital to shareholders or to write off deficits on P+L account, allowing them to pay dividends out of future profits.

In force 1 October 2009.

How are dividends in specie made easier?

The Act clarifies the treatment of assets distributed to shareholders as a dividend in specie. It resolves a legal uncertainty about the amount of distributable profits needed. It is now clear that the amount of the distribution is the book value. If the asset is sold at book value (common in intra-group transactions) the sale is permitted if the company has distributable profits, but will not reduce them.

In force 1 October 2009.