Exam (elaborations)
Maintenance of Capital - Exam Notes
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Consolidated maintenance and capital notes with exceptions.
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Maintenance of capitalPaid up capital must not be returned to SHs as is the fund creditors look for payment of debts as
liability of SHs is limited.
Consequences of the principle:
s658 C must not generally purchase its own shares;
public C may not generally give financial assistance to anyone for the purposes of buying the
C’s shares;
dividends must not be paid out of capital (only out of distributable profits);
if a public C suffers serious loss of capital, GM must be called to discuss the problem;
a subsidiary may not be a member of its own holding C, and any allotment or transfer of
shares in a holding C to its subsidiary is void;
to realise investment, they must sell their shares to another investor.
Exceptions:
ss641-648 reduce capital by passing SR (court consent if public C);
s690 buy back or s684-689 redeem its own shares;
purchase its own shares under a court order made under s994 to buy out unfairly prejudiced
minority, or under s98-99 to buy out minority on the conversation of public C to private; or
return capital to SHs after payment of Cs debts in winding up.
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