# Reducing Share Capital: The Court Route and the Solvency Statement Route

> How a Malaysian company reduces its share capital under section 116 by court confirmation or section 117 by solvency statement, the six-week creditor objection window, and the five-year imprisonment risk attached to a false solvency statement.

- Category: company-secretary
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/company-secretary/capital-reduction

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Malaysian secretarial content treats paid-up capital as a fixed number — something you
set at incorporation, top up when a bank asks, and never touch again. The Companies Act
2016 provides two complete procedures for taking it back out, one of which needs no
court at all. It also attaches a five-year prison term to getting the solvency judgment
wrong, which is presumably why nobody writes about it.

## The two routes

Section 115 is short and exhaustive. Unless the constitution provides otherwise, a
company may reduce its share capital by:

- **(a)** a special resolution and confirmation by the Court, under s.116; or
- **(b)** a special resolution supported by a solvency statement, under s.117.

Either way you need a **special resolution** — 75%, with 21 days' notice under
s.292(1) if passed at a meeting, or in writing for a private company under s.292(1)(b)
with the s.292(2) labelling requirement. Note that a capital reduction is **not** one
of the two matters s.297(2) bars from the written route, so a Sdn Bhd can do this by
written special resolution.

Section 116(11) excludes unlimited companies from the court route while preserving
their freedom to reduce capital in any manner.

## What a reduction can actually do

Section 116(1) lists three forms, and they are conceptually different transactions:

| Form | Effect | Value leaves? |
| --- | --- | --- |
| Extinguish or reduce liability on unpaid capital | Releases shareholders from calls | No cash, but a claim is lost |
| Cancel paid-up capital **lost or unrepresented by available assets** | Aligns the balance sheet with reality | No |
| Return paid-up capital **in excess of the needs** of the company | Pays cash out | Yes |

The middle one is the write-off case, treated differently throughout. Under
**s.117(4)** a company need not meet the solvency requirements at all where the
reduction is **solely** a cancellation of lost or unrepresented paid-up capital.
Nothing is distributed, so there is nothing to protect creditors from.

## Route one: court confirmation under s.116

The court route is slower and more expensive. It is the right choice where the company
cannot honestly support a solvency statement, where creditor consent is contested, or
where the scheme is complex enough to want the certainty of an order.

Section 116(2) engages the creditor machinery where the reduction involves diminution
of liability on unpaid capital or payment of paid-up capital to a shareholder, and in
any other case if the Court so directs. Every creditor with a claim admissible in proof
at the date the Court fixes may **object**; the Court **settles a list** of those
entitled to object unless satisfied on affidavit that there are none; and where a
listed creditor withholds consent the Court may **dispense with it** if the company
secures the debt. Section 116(3) lets the Court disapply that machinery for any class
of creditors in special circumstances.

Under s.116(4) the Court may confirm the reduction on such terms as it thinks fit, once
satisfied that each objecting creditor has consented or has had their claim discharged,
determined or secured. Section 116(5) requires the order to specify the altered share
capital, the number of shares and the amount deemed paid up on each.

The reduction takes effect **on lodgement of the order with the Registrar** —
s.116(6). Section 116(7) makes the Registrar's notice conclusive evidence of
compliance, and s.116(8) deems the specified particulars to substitute the
corresponding particulars in the constitution.

Section 116(9) protects a creditor left off the list through ignorance of the
proceedings: if the company later cannot pay, every person who was a member when the
order was lodged may be required to contribute up to what they would have owed on a
winding up the day before.

And s.116(12) is the criminal backstop — an officer who wilfully conceals a creditor's
name, wilfully misrepresents the nature or amount of a claim, or aids or abets such
conduct, faces up to **five years' imprisonment or a fine up to RM3 million or both**.

## Route two: the solvency statement under s.117

This is the route most private companies will use, and it is a strict timetable rather
than a hearing.

**Step 1 — the solvency statement.** Under s.113(2)(a), for a reduction of share
capital the statement must be made by **all of the directors**. A majority is enough
only for financial assistance and share buyback under s.113(2)(b). One director who
will not sign ends the s.117 route.

Section 113(1) requires the statement to be made in the manner the Registrar
determines, to state its date and the name of each director making it, to be signed by
each of them, and to be supported by a declaration that the directors have inquired
into the affairs of the company. Section 113(4) defines that inquiry: the company's
state of affairs and prospects, taking into account **all** liabilities including
**contingent** liabilities.

**Step 2 — the solvency test itself.** Section 112(1) sets three limbs, all of which
must hold:

- **(a)** immediately after the transaction there will be no ground on which the
  company could be found unable to pay its debts;
- **(b)** either the company will be able to pay its debts in full within twelve months
  of the commencement of a winding up intended within twelve months of the transaction,
  or in any other case the company will be able to pay its debts as they become due
  during the **twelve months immediately following** the transaction; and
- **(c)** the **assets exceed the liabilities** at the date of the transaction.

Limb (c) is a balance-sheet test and limb (b) a cash-flow test. Both must pass.

**Step 3 — timing.** Under s.117(3)(b) the statement must be made within the **14 days**
ending with the date of the resolution for a private company, or **21 days** for a
public company, and in time to comply with s.117(5) or (6). It cannot be dated after
the resolution, and it cannot be stale.

**Step 4 — notice within 7 days.** Section 117(1)(a) requires notice to the **Director
General of Inland Revenue** under s.134 of the Income Tax Act 1967 **and** to the
Registrar within **seven days** of the resolution, stating that it has been passed and
containing its text and date. Under s.117(3)(c) a copy of the solvency statement is
lodged with that notice. The LHDN limb is regularly missed — a reduction that returns
capital to shareholders has obvious revenue implications, and the Act builds the notice
in.

**Step 5 — availability for inspection.** For a private company, s.117(5) requires that
where the special resolution is passed in writing, **every copy served must be
accompanied by a copy of the solvency statement**; where it is passed at a general
meeting, the statement must be available for inspection by members throughout. In both
cases s.117(5)(c) requires it to be available at the registered office for **free
inspection by any creditor for six weeks** from the date of the resolution, and
s.117(6) applies the equivalent to public companies. Section 117(7) makes contravention
an offence for every officer, but s.117(8) preserves the resolution's validity.

**Step 6 — advertise within 7 days.** Section 117(10) requires the company to
advertise a notice of the reduction in **one widely circulated Malay-language
newspaper and one widely circulated English-language newspaper** in Malaysia not later
than seven days from the passing of the special resolution. Section 117(11) makes
default an offence.

## The six-week creditor window

Section 118(2) lets any creditor apply to the Court for the resolution to be cancelled
**within six weeks from the date of the resolution**. Section 118(3) defines the
qualifying creditor by reference to a claim admissible in proof at the date of the
application, treating that date as the commencement of winding up. Under s.118(4) the
creditor serves the application on the company as soon as possible, and the company
must then notify the Registrar as soon as possible.

Section 120(2) tells the Court when to cancel: where the resolution stands, the claim
is outstanding, and the Court is satisfied both that the claim is unsecured with no
other adequate safeguard **and** that security is not unnecessary in view of the assets
the company would have after the reduction. Otherwise it is dismissed under s.120(3).

Where the Court cancels, s.120(4) requires the company to lodge a copy of the order
within **14 days**.

## The lodgement window: after six weeks, before eight

Section 119(1) is precise, and it is the deadline most likely to be blown. Where no
cancellation application was made, the company lodges with the Registrar **after the
end of six weeks and before the end of eight weeks** from the date of the resolution:

- **(a)** a copy of the resolution;
- **(b)** a copy of the solvency statement, if applicable;
- **(c)** a statement by the directors confirming that s.117(1) and, where applicable,
  the s.117(3) solvency requirements have been complied with, and that no cancellation
  application has been made; and
- **(d)** a copy of the s.117(10) newspaper notice.

It is a **two-week window, not a deadline**. Lodging in week four is as wrong as week
nine, because the six-week creditor period must run out first. Where applications were
made and have all ended, s.119(2) gives **14 days** from the date the last one ended to
lodge the equivalent bundle plus a copy of any dismissal order.

Under s.119(3) the reduction takes effect **when the Registrar has recorded the
information** in the appropriate register — not when the resolution passed, and not
when the documents were lodged. Section 119(4) makes the Registrar's confirmation
notice conclusive evidence of compliance.

## Director liability, twice over

Two separate offences bracket the s.117 route.

**Section 114** — a director who makes a solvency statement **without reasonable
grounds** for the opinion expressed: up to **five years** imprisonment, a fine up to
**RM500,000**, or both.

**Section 121** — a director making the s.119(2)(a) confirmation statement that is
false, or which he does not believe to be true: up to **five years**, a fine up to
**RM3 million**, or both.

Note the framing of s.114. It is not "made a false statement" — it is making the
statement **without reasonable grounds**. A director who signed because the finance team
said it was fine, without the s.113(4) inquiry, is squarely within it even if the
company happened to stay solvent.

Section 122 limits the flipside: a past or present member is not liable on reduced
shares for more than the difference between the issue price and the aggregate of the
amount paid up and the amount reduced.

## Common mistakes

**A majority of directors signing the solvency statement.** Section 113(2)(a) requires
all of them for a capital reduction; majority is s.113(2)(b), for financial assistance
and buybacks.

**Missing the LHDN notice.** Section 117(1)(a) names the Director General of Inland
Revenue alongside the Registrar, on the same seven-day clock.

**Lodging too early.** Section 119(1) opens the window at six weeks.

**One newspaper instead of two.** Section 117(10) requires one national-language and one
English-language paper.

**Serving a written resolution without the solvency statement attached.** Section
117(5)(a) requires every copy served to carry one.

**Running a solvency statement for the write-off case.** Section 117(4) removes the
requirement, and with it the s.114 exposure.

**Treating the special resolution as the reduction.** It takes effect only on lodgement
of the court order (s.116(6)) or on the Registrar recording the information (s.119(3)).

**Testing solvency on the balance sheet alone.** Section 112(1) requires all three
limbs, including the forward twelve-month cash-flow test.

## What's next

Decide the route first; the timetables differ completely. If the company can honestly
satisfy s.112(1) on all three limbs and every director will sign, s.117 is faster and
cheaper. If not, the honest answer is s.116 — or not reducing at all.

For the parallel solvency judgment on dividends, which uses a different and narrower
test, see `dividends-and-solvency`. For issuing capital rather than returning it, see
`share-allotment`.

## Sources

- Companies Act 2016 (Act 777), reprint as at 1 August 2022 — ss.112–122 — https://www.ssm.com.my/Pages/Legal_Framework/Document/Companies%20Act%202016_Akta%20777_BI%20(1.8.2022).pdf (SSM)
- Companies Act 2016 (Act 777) — ss.292 and 316 on special resolutions and notice — https://www.ssm.com.my/Pages/Legal_Framework/Document/Companies%20Act%202016_Akta%20777_BI%20(1.8.2022).pdf (SSM)
- SSM Table of Fees — Registration of Companies — https://www.ssm.com.my/Pages/Legal_Framework/Document/Practice%20Directive%201_2017%20(Revised)%201%20Oct%202024.pdf (SSM)

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Source of truth: https://github.com/negaraku-md/NegaraKu.md
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