CAPITAL LTD, an analysis into the division of powers between the members of a company and its board of directors was completed as well as the protection of interests of a company’s creditors. This case touched on these two issues in the context of reduction of capital under section 256B of the Corporations Act (2001).
The Facts
In this case, the Supreme Court of New South Wales found that the power to effect a capital reduction is entrust in the board of directors, with the role of shareholders simply being to approve the decisions of the board. The Court held that the power cannot be transferred to shareholders due to an amendment to the constitution. This case also analyses …show more content…
There was sufficient evidence that the reduction “might” materially prejudice the ability of Molopo to pay its creditors which was enough to breach section 256B(1).
However, White J held that, “The Molopo directors were required to convene a meeting to consider the resolutions in the Second Request, finding firstly that the fact that a resolution is conditional does not in itself make a requisition under section 249D invalid, and further that there was no evidence to suggest that the newly appointed directors would seek to effect a capital reduction in breach of their duties as directors.”
The …show more content…
While it is clear that the courts will be eager to ensure that proper steps are taken in the reduction of capital scenario, there is no good reason why shareholders cannot obtain the appropriate legal advice, professional assistance and such other help necessary to ensure the steps that need to be taken are taken properly and efficiently.
The reference to the 'company' making a reduction in section 256B(1) of the Corporations Act 2001 (Cth) should be understood as referring to 'the company by its directors'. Among other things, Justice White based this conclusion on the need to protect creditors; and where it appears that a reduction might materially prejudice the company's ability to pay its creditors — that is, it cannot affirmatively be said that the reduction does not have that effect — the reduction is prohibited under s