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    Reduction of Share Capital

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    Juniko Akinetsu
    This document discusses reduction of share capital under Section 64 of the Companies Act. It provides exceptions where a company may reduce its share capital, such as extinguishing liability on partly paid shares or canceling paid-up capital that is lost or exceeds the company's needs. The procedure for reduction requires authorization in the articles of association, a special resolution, and court confirmation. Creditors are entitled to object. The court may order reduction if creditors consent or their claims are secured. The document also discusses dividends, including that they must be paid out of profits and the roles of directors and shareholders in declaration.

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    Reduction of Share Capital

    Uploaded by

    Juniko Akinetsu
    327 views25 pages
    This document discusses reduction of share capital under Section 64 of the Companies Act. It provides exceptions where a company may reduce its share capital, such as extinguishing liability on partly paid shares or canceling paid-up capital that is lost or exceeds the company's needs. The procedure for reduction requires authorization in the articles of association, a special resolution, and court confirmation. Creditors are entitled to object. The court may order reduction if creditors consent or their claims are secured. The document also discusses dividends, including that they must be paid out of profits and the roles of directors and shareholders in declaration.

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    This document discusses reduction of share capital under Section 64 of the Companies Act. It provides exceptions where a company may reduce its share capital, such as extinguishing liability on partly paid shares or canceling paid-up capital that is lost or exceeds the company's needs. The procedure for reduction requires authorization in the articles of association, a special resolution, and court confirmation. Creditors are entitled to object. The court may order reduction if creditors consent or their claims are secured. The document also discusses dividends, including that they must be paid out of profits and the roles of directors and shareholders in declaration.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    327 views25 pages

    Reduction of Share Capital

    Uploaded by

    Juniko Akinetsu
    This document discusses reduction of share capital under Section 64 of the Companies Act. It provides exceptions where a company may reduce its share capital, such as extinguishing liability on partly paid shares or canceling paid-up capital that is lost or exceeds the company's needs. The procedure for reduction requires authorization in the articles of association, a special resolution, and court confirmation. Creditors are entitled to object. The court may order reduction if creditors consent or their claims are secured. The document also discusses dividends, including that they must be paid out of profits and the roles of directors and shareholders in declaration.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 25

    Reduction of Share Capital

    Generally a company is prohibited from


    reducing its share capital.
    Effect: reduce the assets that are available
    for the creditors if companies goes into
    liquidation.

    Exception Sec 64

    A company may reduce its shares by:


    a)
    Extinguish or reduce the liability on
    any of its shares in respect of share
    capital not paid up
    b) Cancel any paid up capital which is lost
    or unpresented by available assets;
    c) Pay off any paid up share capital which is
    in excess of the needs of the company.

    Extinguish or reduce the liability on


    any of its shares in respect of
    share capital not paid up
    Where company issued partly paid shares,
    later the company no longer needed the
    uncalled amount;
    May carry out a reduction of capital by
    cancelling the amount that is no longer
    required.

    Cancel any paid up capital which is lost


    or unpresented by available assets

    A company may lose money during its


    trading & the amount shown as paid up
    capital in a cos financial statement may no
    longer reflect the value of assets.
    Co may wish to cancel some of its capital so
    that the balance sheet would gives more
    accurate view of the companys financial
    position.

    Pay off any paid up share capital which is


    in excess of the needs of the company

    Re Fowlers Vacola Manufacturing Co


    Ltd
    Co sold a substantial part of its business
    operations which resulted in excess capital to
    members.

    Procedure for reduction


    sec 64 (1)
    i.

    ii.

    iii.

    Authorization from the articles Table Article


    42
    A special resolution in general meeting
    and
    Confirmation by the court (High court + by
    way of petition)

    Creditors rights sec 64 (2)

    Sec 64 (2) (a) creditors entitled to object;

    Sec 64 (2) (c) (i) & (ii) payment of


    creditors debt

    Court may order reduction


    if:

    The consent of the creditors who are


    entitled to object has been obtained or

    Their debts and claims have been


    discharged determined or secured
    sec 64 (4)

    Case

    Merchant Credit Pte Ltd v Industrial & Commercial


    Realty Co. Ltd (1983)

    A company limited by shares cannot return the


    capital to the shareholders.
    (1)the appellant company could not convert or agree to convert
    their equity capital into a loan, conditionally or unconditionally
    and repay the loan without reduction in capital which no
    company could effect without the leave of the court;
    (2)the appellant company had no power to rescind the contract
    for shares and to return the application moneys as moneys
    borrowed or as moneys had and received because an illegal
    reduction of capital would thereby be involved;

    Other reduction permitted


    Sec 62 (1) (e), (2) cancellation of shares
    not a reduction
    Sec 61 redemption of redeemable
    preference shares
    Sec 60 (3) (e) & (f) application of share
    premium account
    Sec 181 (2) (c) court order

    Is reduction variation?

    Paying off preference shareholders depends


    on whether the class rights would have
    been affected upon winding up.

    If what is proposed (reduction) is in


    accordance with the class rights upon
    winding up; there is no variation.

    House of Fraser plc v ACGE


    Investment Ltd
    F: General meeting passed a special resolution
    - paying off the preference share capital.
    Preference shareholders; no class meeting
    & court could not confirm.
    HOL: The preference shareholders had a right
    to a return of capital in priority to other
    shareholders and that right was not
    affected.

    Re Northern Engineering
    Industries plc
    F: AOA- rights of any class were to be deemed
    to be varied by the reduction of the capital
    paid up on those shares. Co proposed
    paying off its preference shares and
    cancelling them.
    COA: It was a reduction; there should be
    separate class meeting.

    Dividends

    A company cannot use the funds or money


    which it has raised from the shareholders to
    pay dividends
    Illegal return of capital to the shareholders
    Fraud on the creditors as the company would be
    less able to pay its debts.

    Sec 365 (1)


    No dividend shall be payable to the
    shareholders of any company except out of
    profits or pursuant to section 60 (sec 60 (3)
    (c).
    Art 100 of Table A.

    Rights of a shareholders to
    dividends

    Conditional right
    - depends on the existence of profits
    - decision is a matter of internal
    management

    If declared debts owed by the company to


    the shareholders;
    Cannot be revoked, cancelled or reduced

    Hilton International
    - D should be paid out of profits
    - No D; if co. insolvent or jeorpadize cos
    balance sheet
    Chip Thye Enterprise Pty Ltd
    - Not justify to declare D when the co is
    insolvent

    Method of payment of dividends


    By cash
    By issue of fully paid up shares (bonus
    shares) sec 60 (premium account)
    Sec 67A (3B): treasury shares (share
    dividend)

    2 steps involved
    Declaration of the dividend by competent
    authority;
    Payment

    Who may declare


    dividends
    Company in general meeting, subject to the
    amount recommended by the directors (Art
    98)
    Industrial Equity Ltd v Blackburn
    - It is possible for the articles to vest the
    power to declare dividends in the directors.

    Available of profits

    Marra Development Ltd

    - Profits for payment of dividends need to be


    available at the time the dividends are
    declared and not necessary available when
    the dividend is actually paid

    Industrial Equity Ltd v


    Blackburn
    Profits belonging to a subsidiary could not be
    applied for the payment of its holding

    Effect of Contravention
    Sec 365 (2) (a)
    Every director or manager who permitted
    the payment of such dividend would be
    guilty;
    Sec 365 (2) (b)
    Directors maybe personally liable to
    compensate the creditors.

    Interim Dividends
    Article 99
    Its declaration does not create a debt
    May revoke before payment.

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