Capital maintenance

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  • Created by: Lucy
  • Created on: 20-07-15 17:40
Capital maintenance exists to protect who ?
creditors from owners of companies who may wish to withdraw company assets to the detriment of creditors.
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What is the creditor buffer made up of ?
Share capital, ordinary or preference, and non-distributable reserves of a company.
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What are the assets represented by the creditors' buffer used for ?
to enable the company to trade.
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Can the creditors buffer capital be returned to shareholders
no, not withinout safeguarding creditors interests.
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What are the 3 requirements under the reduction of capital S.641 CA 2006
Power in articles, special resolution and court sanction
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What are the 3 suggested methods under S.641 for reducing capital?
cancel future calls on unpaid capital, repay surplus capital, write off capital that is permanently lost (purely a book entry)
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Which method can the creditors no object to the courts about in relation to reducing capital ?
Writing off capital that is permanently lost.
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How can Companies can avoid problems ?
by paying off creditors or giving them a guarantee that debts will be paid.
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Private companies can avoid using the court if they provide what ?
a statement of solvency 15 days in advance of the special resolution
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What must the statement of solvency state?
there are no grounds to suspect the company is currently unable or will be unlikely to be able to pay its debts for the next 12 months.
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Who can be held liable for company debts ?
Directors, they can also be fined or imprisoned if shown to have acted negligently.
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Who must report on the directors statement ?
auditors
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Notice of solvency must be given where ??
national newspaper or to all creditors within 1 week of S.R
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Who may object to court when they see fit
any member or creditor
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What is the aim behind the legislation of financial assistance for the acquisition of own shares?
to prevent quoted companies from ramping their share price by buying shares in the market.
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Who is it unlawful for any company to give financial assistance to ?
any person for the purchase of its own shares, or those of its holding company, directly or indirectly, whether before or at the same time the shares are acquired or after they are acquired.
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When is it possible to provide financial assistance ?
the assistance was given in good faith + was not the principle purpose of the transaction or is an incidental part of some larger purpose
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Is it possible to provide financial assistance is the for the employee share scheme ?
Yes
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If loans to employees can they be provided with financial assistance?
Yes
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When is it possible to provide financial assistance ?
Loans in the ordinary course of business.
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Who can provide financial assistance ?
Private companies
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Any reduction in net assets must come from where ?
distributable profits
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What do auditors report on ?
statutory declaration
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which resolution is a condition of providing financial assistance
special resolution
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directors statutory declaration of solvency states what ?
company able to meet liabilities now and for 12 months after financial assistance given.
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Financial assistance must be provided within how many weeks after the SR
4-8 weeks
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How much % of class of shareholders can object to court which will do as it thinks fit ?
10%
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What are the penalties for contravention ?
Company and director can be fined, director can be imprisoned. Directors can be compelled to contribute to company assets.
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Who declares dividends ?
directors. Members accept or reject the purposed dividend.
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Where are dividends paid out of ?
Distributable profits
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What are distributable projects definaed as
accumulated realised profits less accumulated realised losses. No distinction between revenue/capital profits.
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What must be in excess of plc called up share capital + non-distributable reserves - after dividend paid.
Net assets. - means a plc must consider debit balances in such reserves.
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Who are liable if dividend is paid out of capital
Directors, but if they may honestly rely on the accounts which appear to show an availability of distributable profits.
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Who may obtain an injunction to restrain a company from paying an unlawful dividend.
any member
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if member knew the dividend was unlawful or had reasonable grounds for believing it to be unlawful what can the company do ?
recover the dividend.
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What are treasury shares
if any company buys back its own shares out of distributable reserves.
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Where are treasury shares shown in the companys statements ?
statement of financial position (balance sheet)
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Other cards in this set

Card 2

Front

Share capital, ordinary or preference, and non-distributable reserves of a company.

Back

What is the creditor buffer made up of ?

Card 3

Front

to enable the company to trade.

Back

Preview of the back of card 3

Card 4

Front

no, not withinout safeguarding creditors interests.

Back

Preview of the back of card 4

Card 5

Front

Power in articles, special resolution and court sanction

Back

Preview of the back of card 5
View more cards

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