Solvency Statement Procedure (Section 117)
The first way for a Malaysian corporation can reduce its share capital by a special resolution if it sends a notice to the Inland Revenue Board and Registrar within seven days of the resolution’s issuing and meeting the solvency conditions according to section 117.
If all the company directors sign a solvency declaration regarding the reduction of share capital, the conditions for solvency have been met.
For private companies
, the solvency statement must be made within 14 days ending with the date of special resolution passed by members of a company to approve reduction of share capital
For public companies, the solvency statement should be made within 21 days with the same conditions as stated above
The company must also be reminded to send a notice to IRB’ Director-General and the registrar within 7 days from when the resolution is passed of its intention to reduce the company’s paid-up share capital.
There are certain requirements of a Solvency Statement that has to be met namely:
A solvency statement is a declaration that each director believes that the company meets the solvency criteria in respect to the cut in share capital
The solvency statement must be in a manner determined by Registrar, date, and name of each director must be clearly stated in the making of the statement and all signatures must be presented supported by a declaration that a 3rd party has been inquired into the affairs of the company
All liabilities include contingent liabilities has been considered before making the solvency statement
A solvency statement should only be made if there will be sufficient funds for the company to pay its debts after reduction of share capitals has been made
The company will be able to pay off its debt fully within 12 months if winding up of company is made
Assets in the company is more than the liability as at the date of the share capital reduction
Members of a company must pass a special resolution in order to reduce a company’s capital.
For private companies, a written resolution must be presented, and every copy of the resolution must be accompanied by the solvency statement throughout the meeting.
For public companies, the solvency statement must be made available to everyone in the meeting to allow checking and inspections.
For both private and public companies, the solvency statement must be made available at the company’s registered office for its creditors to check on it from 6 weeks of the resolution.
If there are no objection, the company must lodge the resolution with the registrar for recording purpose within 6-8 weeks alongside with the necessary documents under section 119 (1) of the Act.
The reduction will take place once resolution is being recorded.
Court Confirmation Procedure (Section 116)
Even though reduction of shares by Solvency Statement Procedure may be slightly faster and incur less cost, some companies still chose Court confirmation procedure. The procedure is as follows:
Members of a company must pass a special resolution to approve the share capital reduction as per solvency statement procedure, followed by seeking confirmation from the Court.
The Court will consider any special circumstances of any case directing to the provisions of any diminution of liability in respect of unpaid share capital or payment in the form of paid-up capital to any shareholders.
The court will than make an order confirming the reduction if the Court is satisfied that every creditor is pleased with the order.
The company will lodge the Court order with the Registrar of Companies and the reduction of the share capital will take effect upon the lodgment.