How can I reduce my share capital in Malaysia?
How can I reduce my share capital in Malaysia?

How can I reduce my share capital in Malaysia?

What does it mean?

A capital reduction is when a company reduces its share capital to a certain amount of its share capital by making payments to its shareholder out of its capital equal to the amount that the shareholder invested in the company, or it could be by a share buyback.

Why would a company want to reduce share capital?

So, before a company’s director decides to reduce the company's share capital, we need to study why we need to do that: -

It could be: -

1) to create distributable reserves to pay a dividend; or

2) to buy back or redeem its own shares; or

3) to reduce or eliminate losses; or

4) to return surplus capital to shareholders;

5) to change in capital structure; etc

How to proceed with the reduction of share capital?

There are 2 ways you could proceed to share capital reduction.

1) By way of Court Confirmation Procedure (Section116, CA 2016).

2) By way of solvency statement procedure (Section 117, CA 2016).

Why do people choose Solvency Statement Procedure?

1) it is faster

2) it incurs less cost

3) it is more simplified and less tedious

Who could assist you with Solvency Statement Procedure?

  1. Accountant for Solvency Statement preparation and

  2. Company Secretary

Reduction of Share Capital via Solvency Statement Procedure for Sdn. Bhd.

Under Section 115 (b), CA 2016, unless otherwise provided in the constitution, a company may reduce its share capital by a special resolution supported by a solvency statement in accordance with Section 117.

A) Solvency statement

1. All directors have to make a solvency statement in relation to the reduction of share capital within 14 days before the end of the date of a special resolution passed by members of a company to approve the reduction of share capital.

(Solvency statement is not required if the reduction is mainly for the purpose of cancellation of any loss of paid-up capital or unrepresented by available assets.)

2. Special resolution passed by way of written resolution must be accompanied by the solvency statement, or if passed at a general meeting, the solvency statement must be made available for inspection throughout the meeting.

3. The solvency statement must be available for the creditor’s inspection for six weeks at the company’s registered office.

B) Within 7 days after the resolution is passed, the company must send a notice to IRB and the Registrar stating that the resolution has been passed together with the solvency statement. And within the same period, the company must advertise a notice of the reduction of the share capital in one widely circulated in Malaysia in the national language and one widely circulated newspaper in Malaysia in English under Section 117(10).

The company’s creditor will have six weeks from the date of the resolution to give a notice of application from the court to the Registrar to cancel the resolution.

If there is no application for cancellation from the creditors after 6 weeks, the company must lodge the following documents with the Registrar within 2 weeks after the period of 6 weeks under Section 119(1)

a) a copy of the resolution;

b) a copy of the solvency statement, if applicable;

c) a statement made by the directors under Section 117(1) and Section 117(3).

d) a copy of the newspaper advertisement.

C) The capital reduction will take effect once the Registrar has recorded the information lodged to them.

 

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Published : 17-May-2023

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