Get Solvency Statement

Capital reduction is the process of decreasing a company's shareholder equity through share cancellations and share repurchases, also known as share buybacks. The reduction of capital is done by companies for numerous reasons, including increasing shareholder value and producing a more efficient capital structure.

Reduce the liability of its shares in respect of the share capital not paid-up. Cancel any paid up share capital which is lost or is unrepresented by available assets. Pay off any paid up share capital which is in excess.

A company may want to reduce its share capital for various reasons, including to create distributable reserves to pay a dividend or to buy back or redeem its own shares; to reduce or eliminate accumulated realised losses in order to be able to make distributions in the future; to return surplus capital to shareholders; ...

The solvency test plays an important role in the management of companies. ... To satisfy the solvency test: A company must be able to pay its debts as they become due in the normal course of business. The value of its assets must be greater than the value of its liabilities (including contingent liabilities)

The solvency test consists of two parts: Trading solvency/liquidity - the company is able to pay its debts as they become due in the normal course of business; and. Balance sheet solvency - the value of the company's assets is greater than the value of its liabilities, including contingent liabilities.

A share capital reduction is an allowed way for limited companies to reduce their share capital without the need to meet the requirements for a redemption or purchase of own shares out of capital. There are a number of ways that the reduction of share capital can be achieved.

A solvency statement is a statement in writing signed by all of the directors which states that, as regards the company's situation at the date of the statement: There are no grounds on which the company could be found to be unable to pay or otherwise discharge its debts; and.

Under the Act (Section 131, 132 and 133), stricter requirements have been imposed to ensure that distribution of dividends must meet a solvency test. This solvency test for dividends is defined as the company being able to pay its debts as and when the debts become due within 12 months after distribution.

The solvency ratio helps us assess a company's long-term financial performance as determined by its debt repayments. To calculate the ratio, divide a company's net income after subtracting its tax obligations by the sum of its liabilities (short-term and long-term).