Capital: serious loss

Updated: Aug 20, 2021

The 1980 Companies Act introduced a provision stating that directors of public companies must call an cxtraordinary general meeting of shareholders at any time when there appears to have been serious loss of capital. The Act does not indicate any specific measures that should be taken at that meeting, which is merely for the purpose of apprising members of the deteriorating financial position.

A serious loss of capital is deemed to have occurred when the net assets of the company have been reduced to a figure of 50 per cent or less of called-up capital. The calculation of net assets in this context will involve valuing the company’s fixed and current assets on one of two distinct bases, either on a going concern basis or on a ‘breakup’ basis. The latter will apply only where it is to be proposed that the company should go into voluntary liquidation.

Reference: The Penguin Business Dictionary, 3rd edt.

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James Knight
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James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.