Key Takeaways: - Reduction of share capital with the approval of court - Reduction of share capital without the approval of court - Opportunity for Creditors to object capital reduction

1. Reduction of share capital under
Singapore Companies Act
CS Meenakshi Jayaraman

2. Credits and Acknowledgments
Iswariya BS
2

3. 3
Legends used in the Presentation
3
GM General Meeting
Sec. Section
u/s. Under Section

4. 4
Presentation Schema
Reduction of Share capital
without the approval of
the Court
Opportunity of creditor to
object capital reduction
Reduction of share capital
with the approval of the
Court
4

5. Reduction of share capital
5
Share capital reduction refers to the process of decreasing the amount of a Company’s
shareholder equity
Such reduction is made due to various reasons such as increasing the shareholder
value, creation of more efficient capital structure, returning of surplus capital etc.
As a result of this, the Company’s market capitalization does not change but the
number of shares outstanding and allowed to be traded will be declined
Capital reduction may also be performed due to decline in Company’s operating profit / loss
of revenue that cannot be recovered from a Company’s future earnings

6. Contd.
6
If the Company does not have any distributable profits, it may reduce its share capital as
it cannot afford for dividend payments in future
By changing the capital structure, the Company may potentially be able to engage
in greater debt financing
It also helps availability of distributable funds so that Company can maintain sustainable
dividend payments

7. Part IV - Division 3A – Reduction of
share capital
7

8. Sec. 78A – Preliminary
8

9. 9
A Company may reduce its share capital as per the provisions of this Division in any way and in
particular, do all or any of the following:
Extinguish / reduce the liability on any of its shares in respect of share capital not paid up
Cancel any paid up share capital which is lost or unrepresented by available assets
Return to shareholders any paid up share capital which is more than it needs
Such reduction shall be as per the provisions of this Division
Company’s constitution may exclude / restrict any power to reduce share capital conferred on
the Company by this Division

10. 10
Contd.
Other methods which results in reduction of share
capital of the Company
(not expressly mentioned in Companies Act)
Selling the Company’s
assets and dividing the
proceeds among
members
Surrender of shares to
the Company
Refunding monies
subscribed for shares
to shareholders
Any other mode of
reduction

11. Contd.
11
To an Unlimited Company and this Division shall not preclude such a Company from reducing its
share capital in any way
• “Resolution date”, in
relation to a resolution,
means the date when the
resolution is passed
• “Reduction information” in relation to a proposed
reduction of share capital by a special resolution of a
Company, means:
• the amount of the Company’s share capital that is
thereby reduced and
• the number of shares that are thereby cancelled
Non-Applicability of the Division:
To any redemption of preference shares issued by a company u/s 70(1) which results in a
reduction in the Company’s share capital

12. Contd.
12
To the purchase or acquisition or proposed purchase or acquisition by a company of its own
shares in accordance with sections 76B to 76G
Sec. 76B- Company may acquire its own shares
Sec. 76C- Authority for off-market acquisition on equal access scheme
Sec. 76D- Authority for selective off-market acquisition
Sec. 76DA- Contingent purchase contract
Sec. 76E- Authority for market acquisition
Sec. 76F- Payments to be made only if Company is solvent
Sec. 76G- Reduction of capital / profits / both on cancellation of repurchased
shares

13. Reduction of Capital without the
approval of the Court
13

14. Sec. 78B- Reduction of share capital by a
Private Company
14

15. A Private Company Limited by shares may reduce its share capital in any way by a special
resolution on satisfying the 2 conditions as follows:
Condition 1: On meeting the solvency requirements
The Company will meet solvency requirements if-
 all the directors of the company make a solvency statement in relation to the reduction of
capital and
 A statement is made in time for sec. 78B(4)(a) to be complied with but not before the
beginning of the period of 20 days ending with the resolution date
Sec. 78B(4)(a):
 if the resolution for reducing share capital is a special resolution to be passed by written means
u/s. 184A- Passing of resolution by written means, the Company shall ensure that every copy of the
resolution is served as per sec.183(3A) – Circulation of resolution, notification and statement to
members or as per sec.184C(1)- Where directors seek agreement to resolution by written means on
sending a copy of text of resolution (as the case may be) + accompanied by a copy of the solvency
statement or
 if the resolution is a special resolution to be passed in a GM, throughout that meeting make the
solvency statement or a copy of it available for inspection by the members at that meeting 15

16. Contd.
16
Sec. 78B(4)(b):
The Company shall, throughout the 6 weeks beginning with the resolution date, make the solvency
statement or a copy of it available at the Company’s registered office for inspection free of charge by
any creditor of the Company. This requirement will be ceased if the resolution is revoked
Validity of the resolution:
The resolution passed does not becomes invalid by virtue only of contravention of Sec. 78B(4) but
every officer of the company who is in default shall be guilty of an offence
Exception to solvency requirements:
If the reduction of share capital of the Company does not involve:
a. reduction or distribution of cash or other assets by the Company or
b. release of any liability owed to the Company
Condition 2: On meeting such publicity requirements as may be prescribed by the Minister
But the resolution and the reduction of the share capital shall take effect only as provided u/s 78E

17. Sec. 78C- Reduction of share capital by a
Public Company
17

18. 18
A Public Company may reduce its share capital in any way by a special resolution on
satisfying the 2 conditions as follows:
Condition 1: On meeting the solvency requirements
Sec. 78C (3) read with (4)(a): The Company will meet solvency requirements if-
 all the directors of the company make a solvency statement in relation to the reduction of
capital
 A solvency statement / a copy of it is made available by the Company throughout the
meeting at which the resolution is to be passed for inspection by the members at the
meeting but not before the beginning of the period of 30 days ending with the resolution
date
 A copy of the solvency statement is lodged with the Registrar, together with the copy of
the resolution required to be lodged with the Registrar u/s. 186- Registration and copies of
certain resolutions, within 15 days beginning with the resolution date and this
requirement will be ceased if the resolution is revoked

19. 19
Contd.
Sec. 78C(4)(b):The Company shall, throughout the 6 weeks beginning with the resolution date, make
the solvency statement or a copy of it available at the Company’s registered office for inspection free
of charge by any creditor of the Company. This requirement will be ceased if the resolution is revoked
Validity of the resolution:
The resolution passed does not becomes invalid by virtue of only contravention of Sec. 78C(4) but
every officer of the company who is in default shall be guilty of an offence
Exception to solvency requirements:
If the reduction of share capital of the Company does not involve:
a. reduction or distribution of cash or other assets by the Company or
b. release of any liability owed to the Company
Condition 2: On meeting such publicity requirements as may be prescribed by the Minister
But the resolution and the reduction of the share capital shall take effect only as provided u/s. 78E

20. Sec. 78D- Creditor’s right to object
Company’s reduction
20

21. 21
Applicability
•To a Private Company and Public Company which has passed special resolution as per
sec. 78B and 78C respectively
Creditor’s
right
•Any creditor of the above Company* may at any time within 6 weeks beginning with
the date of passing of resolution can apply to the Court for cancellation of resolution
Intimation
•The creditor shall serve an application to the Company as soon as possible and in turn
Company shall intimate the notice of application to the Registrar as soon as possible
Eligibility
of creditor
•*Creditor of the Company is a person who, at the date of his application to the Court,
is entitled to any debt or claim which, if that date were the commencement of the
winding up of the Company, would be admissible in proof against the Company

22. Sec. 78E- Position at the end of period
for creditor objections
22

23. 23
Where a Private Company passes a special resolution for reducing its share capital;
• Meets such publicity requirements as may be prescribed by the Minister;
• Meets solvency requirements (if applicable) and
• No application for cancellation of the resolution has been made by the creditor during the 6 weeks
beginning with the resolution date
• The Company shall lodge the following documents with the Registrar for the reduction of share capital
to take effect-
A copy of resolution in accordance with sec. 186
 A copy of solvency statement (if applicable)
 A statement by the directors confirming that the
requirements of publicity and solvency (if applicable)
have been complied with, and no application for
cancellation of the resolution has been made and
 A notice containing the reduction information
Has to be lodged with the
Registrar after the end of 6
weeks, and before the end
of 8 weeks, beginning with
the resolution date
Private Company- without any objection

24. Public Company- without any objection
24
Where a Public Company passes a special resolution for reducing its share capital;
• Meets such publicity requirements as may be prescribed by the Minister;
• Meets solvency requirements (if applicable) and
• No application for cancellation of the resolution has been made by the creditor during the 6 weeks
beginning with the resolution date
• The Company shall lodge the following documents with the Registrar for the reduction of share capital
to take effect-
 A statement by the directors confirming that
the requirements of publicity and solvency (if
applicable) have been complied with, and no
application for cancellation of the resolution has
been made and
 A notice containing the reduction
information
Has to be lodged with the
Registrar after the end of 6
weeks, and before the end
of 8 weeks, beginning with
the resolution date

25. Private Company- On receiving objection from Creditor
25
Where a Private Company passes a special resolution for reducing its share capital;
• Meets such publicity requirements as may be prescribed by the Minister;
• Meets solvency requirements (if applicable) but
• Received 1 or more applications for cancellation of the resolution from the creditor during the 6 weeks
beginning with the resolution date
• Then, the Company shall satisfy the following conditions for the reduction of share capital to take
effect-
 The Company shall notify the Registrar as soon as possible on receiving such
application(s) from the creditor(s)
 The proceedings in respect of each such application has to come to an end either by
dismissal of application as per sec. 78F or without determination (for example, because the
application has been withdrawn)

26. Contd.
26
 A statement by the directors confirming that
• the requirements of publicity and solvency (if
applicable) have been complied with;
• the notice of application has been made with the
Registrar and
• the proceedings in relation to each such application
have been brought to an end by the dismissal of the
application or without determination
 A copy of the order of the Court dismissing the
application in relation to each such application
dismissed by the Court and
 A notice containing the reduction information
And the Company shall
lodge with the Registrar
within 15 days beginning
with the date on which the
last such proceedings were
brought to an end-

27. 27
Public Company- On receiving objection from Creditor
Where a Public Company passes a special resolution for reducing its share capital;
• Meets such publicity requirements as may be prescribed by the Minister;
• Meets solvency requirements (if applicable) but
• Received 1 or more applications for cancellation of the resolution from the creditor during the 6 weeks
beginning with the resolution date
• Then, the Company shall satisfy the following conditions for the reduction of share capital to take
effect-
 The Company shall notify the Registrar as soon as possible on receiving such
application(s) from the creditor(s)
 The proceedings in respect of each such application has to come to an end either by
dismissal of application as per sec. 78F or without determination (for example, because the
application has been withdrawn)

28. 28
Contd.
 A statement by the directors confirming that
• the requirements of publicity and solvency (if applicable)
have been complied with;
• the Company has received application from the creditor;
• the notice of application has been made with the Registrar
and
• the proceedings in relation to each such application have
been brought to an end by the dismissal of the application
or without determination
 A copy of the order of the Court dismissing the application
in relation to each such application dismissed by the Court
and
 A notice containing the reduction information
And the Company shall
lodge with the Registrar
within 15 days beginning
with the date on which the
last such proceedings were
brought to an end-
All the resolutions as stated in the 4 scenarios and the reduction of share capital shall take effect when the
Registrar has recorded the information lodged with him in the appropriate register

29. 29
Sec. 78J- Offences for making groundless
or false statements

30. 30
Guilty of an offence:
A director will be guilty of an offence if the statements required to be
made by him u/s 78E is false and is not believed by him to be true

31. Sec. 78F- Power of Court when creditor
objection made
31

32. 32
The application made by the creditor shall be determined by the Court in accordance with
this sec.
The Court shall order for cancellation of resolution passed in the following circumstances
if the resolution is not cancelled previously-
 If at the time of application there was any debt or claim on which the application was
based is outstanding and the Court is satisfied that -
a. the debt or claim has not been secured and the applicant does not have other adequate
safeguards for it and
b. it is not the case that security or other safeguards are unnecessary in view of the assets
that the Company would have after the reduction
If the above conditions are not satisfied, the Court shall dismiss the application made by
the creditor

33. Contd.
33
If the Court orders for cancellation of resolution passed by the Company, then the Company
must send notice of the order to the Registrar within 15 days beginning with the date the
order is made
If the Company contravenes in sending notice to the Registrar, then every officer of the
Company who is in default shall be guilty of an offence
For the purpose of this Sec.
 A debt is outstanding if it has not been discharged and
 A claim is outstanding if it has not been terminated

34. Reduction of share capital with the
approval of court
34

35. Sec. 78G- Reduction by special resolution
subject to court approval
35

36. 36
A Company limited by shares may, as an alternative to reducing its share capital under section 78B /
78C, reduce it in any way by a special resolution approved by an order of the Court under
section 78I
But such resolution and reduction of the share capital shall take effect only after –
 The order is made
 the company has complied with section 78I(3) (lodgment of information with Registrar) and
 the Registrar has recorded the afore said information lodged with him in the appropriate
register.

37. Sec. 78H- Creditor protection
37

38. 38
On such application to the Court, the Court shall settle a list of qualifying creditors
Applicability of the sec.:
If the application is made u/s 78G and the proposed reduction of share capital involves either of the
following-
• a reduction of liability in respect of unpaid share capital or
• the payment to a shareholder of any paid-up share capital
And also applies if the Court so directs in any other case where a Company makes an application
under that sec.
Qualifying creditor means a creditor of the Company who, at a date fixed by the Court, is entitled to
any debt or claim which, if that date were the commencement of the winding up of the Company,
would be admissible in proof against the Company

39. Contd.
39
If the proposed reduction of share capital involves either of the following-
• a reduction of liability in respect of unpaid share capital or
• the payment to a shareholder of any paid-up share capital
Then, the Court may, if having regard to any special circumstances of the case it thinks it appropriate
to do so, direct that any class or classes of creditors shall not be qualifying creditors
The Court shall for the purpose of settling the list of qualifying creditors-
 ascertain, as far as possible without requiring an application from any creditor, the names of
qualifying creditors and the nature and amount of their debts or claims and
 may publish notices fixing a day(s) within which creditors not included in the list are to claim to be
so included or are to be excluded from the list

40. 40
Contd.
Penal provision:
Any officer of the Company who-
 intentionally conceals the name of a qualifying creditor
 intentionally misrepresents the nature or amount of the debt or claim of any creditor; or
 aids, abets or is privy to any such concealment or misrepresentation
shall be guilty of an offence and shall be liable on conviction
Fine: < 15,000 SGD or Imprisonment for a term: < 3 years

41. Sec. 78I- Court order approving the
reduction
41

42. 42
•On receiving an application from the Company u/s 78G the Court may
make an order approving the reduction in share capital
unconditionally or on such terms and conditions as it thinks fit,
subject to the following
The Court must not make an order approving
the reduction unless satisfied, as respects
each qualifying creditor, that-
 he has consented to the reduction;
 his debt or claim has been secured or he
has other adequate safeguards for it or
 security / other safeguards are
unnecessary in view of the assets the
company would have after the reduction
If there is any qualifying creditor at the time of
considering the application-
• who is included in the Court’s list of
qualifying creditors and
• whose claim has not been terminated or
whose debt has not been discharged

43. 43
Contd.
Intimation to Registrar:
If an order is made by the Court approving the reduction of share capital, the
Company shall lodge the following with the Registrar for the reduction to take effect
within 90 days beginning with the date the order is made, or within such longer
period as the Registrar may, on the application of the company and on receiving the
prescribed fee, allow-
o A copy of order and
o A notice containing the reduction information

44. Sec. 78K- Liability of members on
reduced shares
44

45. 45
 Where a company’s share capital is reduced under any provision of this Division, a member of the
company (past or present) is not liable in respect of the issue price of any share to any call or
contribution greater in amount than the difference (if any) between -
(a) The issue price of the share and
(b) The aggregate of the amount paid up on the share (if any) and the amount reduced on the share

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