Reducing a Cayman Islands company’s share capital without going to court

Historically, a reduction in issued share capital by a Cayman Islands company (other than through a redemption or repurchase of shares) required confirmation by the Grand Court of the Cayman Islands (the Court). However, following amendments to the Companies Act (as amended, the Act) that took effect in early 2026, an alternative is now available.

This guide provides an outline of the new out-of-court process, as well as potential use cases. For further information on returning funds to shareholders more generally, please see our guide to Navigating a return of funds to shareholders of a Cayman Islands exempted company.

Reducing share capital

Under the Act, a Cayman Islands company limited by shares or limited by guarantee and having a share capital (a company), may, if authorised by its articles of association, reduce its share capital in any way by special resolution, provided that the reduction is either confirmed by the Court or supported by a solvency statement, in each case in accordance with the Act.

A special resolution is a resolution passed by a majority of at least two-thirds of those shareholders who, being entitled to do so, vote in person or (if permitted) by proxy at the relevant shareholder meeting, unless a higher majority is required by the company’s articles of association. Alternatively, if permitted by the company’s articles of association, a unanimous written resolution can be passed.

Without limiting the general power described above, pursuant to a share capital reduction a company may:

• extinguish or reduce the liability on any of its shares in respect of share capital not paid up; or
• with or without extinguishing or reducing liability on any of its shares:
  • cancel any paid-up share capital which is lost or unrepresented by available assets; or
  • pay off any paid-up share capital which is in excess of the needs of the company.

Reduction confirmed by the Court

Where a company has passed a special resolution for reducing share capital, it may apply to the Court for an order confirming the reduction.

If the proposed reduction involves either the diminution of liability in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital (or if the Court otherwise directs), a prescribed process intended to ensure creditors are not prejudiced by the reduction must be followed. However, the Court may, if it thinks proper so to do having regard to any special circumstances of the case, direct that the process does not apply in respect of any class or classes of creditors. The Court, if satisfied that the requirements of the Act with respect to the company’s creditors have been complied with, may make an order confirming the reduction on any terms and conditions it thinks fit.

This process is costly and impractical, particularly if the company is solvent and therefore creditor protection is unnecessary.

Reduction supported by a solvency statement

The new process

An alternative option is now available. Under the new process the company must, within 15 days after the special resolution for reducing share capital is passed, deliver to the Cayman Islands Registrar of Companies (the Registrar) a solvency statement and a minute of the special resolution. The minute must state the amount of share capital of the company, the number of shares into which the share capital is to be divided, the par value of each share and the amount, if any, deemed to be paid up on each share.

The Registrar will then register those documents, issue a certificate confirming registration and publish a notice of registration in the Cayman Islands Gazette.

The certificate of registration constitutes conclusive evidence that all the requirements of the Act with respect to reduction of share capital have been complied with and that the share capital of the company is as stated in the minute. The special resolution (and therefore the reduction) will take effect on the date the documents are registered.

If the company fails to deliver the solvency statement and minute to the Registrar within the required 15-day timeframe, the Registrar will not register them. However, the company can apply to the Court for an order confirming the reduction of share capital in accordance with the process outlined above.

The minute, when registered, is deemed to be substituted for the corresponding part of the company’s memorandum of association and is valid and alterable as if it had been contained in the memorandum of association on the effective date of the reduction.

The solvency statement

For the purposes of the Act, a capital reduction is ‘supported by a solvency statement’ if the directors of the company make a solvency statement no more than 30 days before the date on which the special resolution for reducing share capital is passed. A solvency statement must be in the prescribed form and include a statement to the effect that a full enquiry into the company’s affairs has been made and, to the best of the directors’ knowledge and belief, the company will be able to pay its debts as they fall due in the ordinary course of business commencing on the date of the statement.

Care must be taken before making a solvency statement and appropriate due diligence should be undertaken with respect to the company’s financial situation, including its assets, liabilities, business prospects and creditors.

Any director who knowingly makes a solvency statement without having reasonable grounds to believe that the company will be able to pay its debts in full as they fall due in the ordinary course of business commits an offence punishable on summary conviction to a fine of US$12,195 and two years’ imprisonment.

Potential use cases for public companies

The new process can be particularly useful for public companies that have undertaken one or more share consolidations (also known as reverse share splits) and as a result have a relatively high per-share par value. For example, share consolidations are common where required to ensure compliance with minimum share price requirements under applicable listing rules.

A high par value can be an issue for the company as, under the Act, subject to very limited exceptions for newly incorporated companies, a company cannot issue shares at a discount to their par value. As a result, a publicly traded company that is solvent but has shares trading at prices close to or below their par value may find it difficult to raise additional equity capital. A capital reduction supported by a solvency statement can efficiently address this issue, without the cost and expense of going through the Courts.

Contacts

A full list of contacts specialising in Cayman Islands corporate law can be found here.