The issues in the case of ‘Hawthorn Blood Supplies Co Ltd’, which is a listed company on Australian Securities Exchange (ASX), are concerned protection of shareholder’s and creditor’s interests. We will identify possible legal issues in the relation to the Corporation Act 2001 and discuss whether they have been any breaches of relevant common law rules and statutory provisions in relation to ‘capital maintenance’, ‘share buy-backs’, financial assistance’ and ‘payment of dividends’. We will also briefly discuss ‘particular relevance of section 588G’ in relation to Roger.
Doctrine of Capital Maintenance
Companies limited by shares must comply with legal procedures, when undertaking certain transactions affecting its share capital (Ciro 2009) They are:
* Reduction of capital;
* Companies acquiring or controlling their own shares; and * Companies giving financial assistance for the purchase of their own shares. The transactions listed above are regulated by Ch 2j of the Corporations Act. The broad purpose of Ch 2j is to ensure that the interests of creditors and shareholders are protected when companies undertake these transactions. (Ciro 2009) Doctrine of capital maintenance was originally established by the general Law. It assumes, that once a corporation has acquired capital from issuing of its shares then, in the interests of shareholders and creditors, and making allowance for normal fluctuations in normal commercial performance, the corporation should seek to maintain that capital. The case that is usually referred to as authority to this principle is Trevor v Whitworth (1887) The rule in Trevor v Whitworth (1887) is that, a company limited by shares must maintain its share capital, therefore is prohibited from buying own shares. The strict application of the doctrine of capital maintenance has been gradually modified by reforms to the Corporations Act. Chapter 2J permits a company to engage in share buy-backs and reduction of share...
References: Ciro, T & Symes, C 2009, Corporation Law in Principle,8th edn, Lawbook Co, Thompson Reuters, Australia
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