Company law 2006 - An analysis Essay Example | Topics and Well Written Essays - 3000 words

Company law 2006 - An analysis - Essay Example By eliminating the loss in the profit & loss account through reduction of share capital, company can declare dividends. Even when a company is trading profitably, the accumulated loss in its profit & loss account obstruct a company’s ability to declare dividends. A public company’s Articles of Association should have a provision for the reduction of share capital prior to seeking consent from shareholders for a reduction of capital. In case, if the Articles of Association of a company does not contain a restriction for the reduction of capital, then it may be altered by passing a special resolution in the member’s meeting. Under the CA 2006, a measure of creditor’s protection is offered by the express need that the solvency statement should cover all the details of liabilities of the company. In opposition to the court sanctioned procedures, the creditors do not have any privilege to object to a diminution of share capital. The statement of solvency should take into account all the contingency and prospective liabilities. If the company is having a shareholder’s agreement or availed bank finance, then consent from these stakeholders is necessary for reduction in share capital. ... n if it involves either the payment of paid-up capital to any shareholder or a diminution of shareholder liability as regards to unpaid capital unless the court deems that creditor should not be able to oppose or should be capable to oppose in a wider ambit as per section 645. In Russell v Northern Bank Development Corporation Ltd4 , it was held by the House of Lords that a company will be binding by an agreement by members that they will not encourage a shareholder’s resolution to vary its capital whereas it may not be binding itself, not to employ its authority bestowed on it by statue to vary its share capital. In British and American Trustee and Finance Corpn Ltd v Couper, the court was of the opinion that in case of reduction of capital, if objection is raised, the court will consider whether correct procedure was followed, whether creditors’ interests are not impacted and whether the scheme is equitable and fair between the parties footing upon the background of e ach cases5. The same view was also affirmed in the case Prudential Assurance Co Ltd v Chatterley –Whitfield Collieries Ltd6. In Re Saltdean Estate Co Ltd7 , it was held that if precedence is offered to the various classes as per the terms of issue, no separate class meetings are to be held to approve a reduction of capital. In the above, there was an opposition for a reduction of capital which was to be enforced by repaying the preferred shares. The reduction of preferred shares was approved by the court and it was opined by the court, that no variation of rights of preferred shareholders was there and there is no necessity to get the approval by a separate class meeting. The above view was also confirmed in House of Fraser Plc v ACGE Investments Ltd8. However, if the Articles of Association of the