Reduction in Capital

2014 Act Reforms

Because a reduction of the issued share capital may (theoretically in many cases) jeopardise the creditors, it is tightly controlled. The conditions and restrictions are designed to preserve capital and protect creditors.

The 2014 Act simplified the procedures for the reduction of share capital. The reduction formerly required court confirmation. Under the Companies Act, 2014, private companies may reduce their issued capital, subject to conditions, using the summary approval procedure as an alternative to a court confirmed reduction.A company may not reduce its company capital otherwise than by the alternative prescribed means.

A transaction in contravention of the requirements is voidable at the instance of parties who have had actual notice of the facts constituting the breach. Contravention is a category 3 offence by the company and officers in default.

The 2014 Act provides that, save to the extent that its constitution otherwise provides, a company may (subject to compliance with conditions) reduce its company capital in any way it thinks expedient. It may thereby—

  • extinguish or reduce the liability on any of its shares in respect of share capital not paid up;
  • either with or without extinguishing or reducing liability on any of its shares, cancel any paid-up company capital which is lost or unrepresented by available assets; or
  • either with or without extinguishing or reducing liability on any of its shares, pay off any paid-up company capital which is in excess of the wants of the company.

Reasons for Reduction

There may be a reduction in capital by which, for example;

  • assets are returned to shareholders;
  • cash is paid to them;
  • the liability on shares is cancelled or reduced;
  • capital in excess of its needs is repaid.

There are two main scenarios. The first is where the company is overcapitalised and wishes to pay back capital to its shareholders. In this case, the reduction may be more readily approved.

The second scenario is where the company has accumulated losses. The negative balance on its profit and loss account inhibits the payment of dividends until the company earns sufficient profits to reinstate its capital. This may arise from trading losses. It may arise because a fall in the value of an asset has required the taking of a realised loss.

A reduction in capital may permit the resumption of dividends from profits. The reduction of capital with court consent is permitted only where it is fair and reasonable and does not discriminate. In this case, the court is likely to be more protective of creditors. The court may dispense with a creditors’ consent if the company makes appropriate arrangements for the payment of their debts.

Court Approval I

Under the court approved procedure, the company may pass a special resolution and apply to the court for an order confirming the proposal. A company which proposes to apply to the court for a confirmatory order must cause notice of the passing of the resolution to be advertised in at least one daily newspaper circulating in the district where the registered office or principal place of business of the company is situated. It must be notified by ordinary post to all creditors of the company who are resident or have their principal place of business outside the State.A petition is made to the court for approval.

The reduction must be fair and reasonable. Shareholders must be treated equally so that the reduction in respect of each share applies equitably.  It need not be necessarily equal, provided that it is broadly proportionate.

Where a repayment of capital is sought, the court seeks to ensure that creditors are protected.  Creditors may object to the reduction. The court directs a list of creditors to be prepared.  The court may dispense with creditors’ consent provided that the debt is paid or secured.

The procedure is usually simpler where the reduction is due to loss of capital.  The more extensive procedure does not apply unless the court so directs.

Court Approval II

Where the proposed reduction in the company’s capital involves either the diminution of liability on unpaid company capital, the payment to any shareholder of any paid-up company capital or in any other case, if the court so directs, the following provision applies.

Each creditor of or claimant against the company who can credibly demonstrate that the proposed reduction in company capital would be likely to put the satisfaction of its debt or claim at risk and that no adequate safeguards have been obtained from the company is entitled to object to the reduction.

The court shall settle a list of creditors entitled to object. For that purpose, it may publish notices fixing a day or days by which creditors must claim to be entered on the list or be excluded from the right to object to the reduction of company capital.

Court Approval III

Where a creditor entered on the list, whose debt is not discharged, does not consent to the confirmation, the court may dispense with its consent, on terms as the court may direct on the company securing payment of the debt. If the debt is not admitted and the company is not willing to provide for the full amount of the debt or it is contingent, the court may fix the amount to be secured after inquiry and adjudication in the same manner as if the company was being wound up

The court may, if having regard to any special circumstances of the case, it thinks proper so to do, direct that the above requirement shall not apply as regards any class or classes of creditors.

If satisfied that in relation to every creditor of the company who is entitled to object to the confirmation, either the creditor’s consent to the confirmation has been obtained, or the creditor’s debt or claim has been discharged, has terminated, or has been secured, the court may make an order confirming the resolution on such terms and conditions as it thinks fit.

Court Approval IV

The court order and a minute approved by the court is to be registered with the CRO showing the capital reduction, the number of shares into which it is divided and the amount deemed paid up on each share. The reduction takes effect on registration.

Notice of the registration and minute shall be published in such manner as the court may direct. The CRO may issue a certificate which is conclusive evidence that the requirements of the Act relating to the reduction of capital, have been followed.

The court may make an order requiring the company to publish, as the court directs, the reasons for the reduction of its company capital or such other information as the court may think expedient. This may be done with a view to giving proper information to the public, and if the court thinks fit, the causes which led to the reduction.

Where a creditor by reason of not being aware of the proceedings for the confirmation or of their nature and effect with respect to his or her debt or claim is not entered on the list of creditors, then if after the reduction, the company is unable, to pay the amount of his or her debt or claim, then every person who was a member at the date of registration of the reduction, is liable to contribute towards payment of the debt, the maximum which he would be obliged to contribute, if the company was wound up before the reduction.

SAP Procedure for Reduction I

A reduction of company capital may be effected by the company employing the Summary Approval Procedure as an alternative to passing a special resolution that is confirmed by the court.

The reduction must first be approved by the members by a special resolution.  It must be passed within the 12 month period beforehand. A declaration is required to be given by the directors at a meeting held within 30 days prior to the meeting of the shareholders to pass the special resolution, approving the proposal.

The resolution must be made by the directors or by the sole director in the case of a limited company with one director.  Where there are more than two directors, a majority suffices.

SAP Procedure for Reduction II

A copy of the declaration must be filed with the Companies Registration Office within 21 days of the relevant date.  On application, the High Court may declare the procedure notwithstanding the failure to file the declaration, where it is satisfied that it would be just and equitable to do so.

If the resolution approving the procedure was not unanimous or was not approved by at least 90 percent of the shareholders, the activity may not be undertaken for 30 days after the special resolution.  During this time, the dissenting minority may apply to the court, to cancel the special resolution.  The transaction may be suspended pending the court order.

Any transaction in contravention of the above procedure is voidable at the instance of the company against any person (whether a party to the transaction or not) who had actual notice of the facts which constitute such contravention.

If a company contravenes any of the above obligations, the company and any officer of it who is in default shall be guilty of a category 3 offence.

Declaration and Expert’s Report for SAP I

The declaration shall state

  • the circumstances in which the transaction or arrangement is to be entered into;
  • the nature of the transaction or arrangement;
  • the person or persons to or for whom the transaction or arrangement is to be made;
  • the total amount of the company’s assets and liabilities as at the latest practicable date before the date of the making of the declaration and in any event at a date not more than 3 months before the date of that making;
  • the anticipated total amount of the company’s assets and liabilities immediately after the reduction takes place;
  • that the declarants have made a full inquiry into the affairs of the company and that, having done so, they have formed the opinion that the company, after the reduction has taken place, will be able to pay or discharge its debts and other liabilities in full as they fall due during the period of 12 months after the relevant date; and
  • that the declarants do not have actual or constructive notice that the company will incur any material, extraordinary, future liability within the period of 12 months after the date of the making of the declaration.

A copy of the declaration must be delivered to the CRO within 21 days.

Declaration and Export’s Report for SAP II

The declaration must be accompanied by a report drawn up in the prescribed form, by a person who is qualified to be the auditor which shall state whether, in the opinion of that person, the declaration is not unreasonable. The declaration is ineffective without this opinion.

A director who makes a declaration without reasonable grounds for his opinion that the company is solvent may be declared personally liable without limitation for all debts and liabilities of the company. The application to have the director declared personally liable may be made by a liquidator, creditor or shareholder.  In the case of a successor, it may be made by the officers of that entity.  It may be made by the ODCE.

Where the company is wound up within 12 months, it is presumed that the director did not have reasonable grounds for making the declaration.

References and Sources

Primary References


Companies Act 2014 (Irish Statute Book)

Companies Act 2014: An Annotation (2015) Conroy

Law of Companies 4th Ed.  (2016)  Ch.10   Courtney

Keane on Company Law 5th Ed. (2016) Ch.16 Hutchinson

Other Irish Sources

Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury

Introduction to Irish Company Law    4th Ed. (2015) Callanan

Bloomsbury’s Guide to the Companies Act 2015      Courtney & Ors

Company Law in Ireland 2nd Ed. (2015) Thuillier

Pre-2014 Legislation Editions

Modern Irish Company Law   2nd Ed. (2001) Ellis

Cases & Materials Company Law 2nd Ed. (1998) Forde

Company Law 4th Ed. (2008)  Forde & Kennedy

Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy

Companies Acts 1963-2012   (2012)  MacCann & Courtney

Constitutional Rights of Companies   (2007)  O’Neill

Court Applications Under the Companies Act (2013) Samad

Shorter Guides

Company Law – Nutshell 3rd Ed. (2013) McConville

Questions & Answers on Company Law (2008)        McGrath, N & Murphy

Make That Grade Irish Company Law 5th Ed. (2015) Murphy

Company Law BELR Series (2015)   O’Mahony

UK Sources

Companies Act 2006 (UK) (

Statute books Blackstone’s statutes on company law (OUP)

Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington

Company Law in Context 2nd Ed. (2012) D Kershaw

Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam

Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington


UK Practitioners Services

Tolley’s Company Law Handbook

Palmer’s Company Law