Are there any ways to increase reserves, and if so, how long do these generally take?
Yes.
It is important to note that the Companies Act, 2008 does not permit a reduction of capital. The Act allows a company to distribute all of its net assets to its shareholders, subject to satisfying the solvency and liquidity test and draws no distinction between distribution of profits and distributions out of capital, and all distributions to shareholders (regardless of whether or not it involves payment out of capital) leave the company's share capital and capital accounts unaffected. Accordingly, the Companies Act permits payments out of capital without a reduction of the company's share capital.
The Act does however permit the company to repurchase its own shares (Share Buy-back). The board may authorize a Share Buy-back, provided that prior to effecting such Share Buy-back the solvency and liquidity test has been applied by the board.
If the Share Buy-back involves the repurchase by the company of more than 5% of the issued shares of any class of shares of the company, then the Share Buy-back must comply with the following requirements:
- The company must retain an independent expert who is qualified and has the experience necessary to understand the type of arrangement proposed, evaluate the consequences of the Share Buy-back and assess the effect of the arrangement on the value and rights and interests of the remaining shareholders and who is able to express opinions, exercise judgement and make decisions impartially.
- The independent expert must prepare a report to the board and must cause it to be distributed to all shareholders, which report should, inter alia, describe the material effects of the proposed transaction on the interests of the shareholders.
- The Share Buy-back must be approved by a special resolution (75% affirmative vote) of the shareholders.
For a Share Buy-back up to 5%, this can be implemented as soon as the board resolution and share buy-back agreement have been prepared and the solvency and liquidity test has been applied, typically within a week or two.
For a Share Buy-back of more than 5%, obtaining the report of the independent expert will impact the timing and this could take between 3 to 4 weeks.
