78A. Preliminary Flashcards
78A. Preliminary
General overview
[78A.01] Section 78A allows a company to legally reduce its share capital without infringing the capital maintenance rule. A company may reduce its share capital by way of a special resolution and in any way, although three specific ways are set out in s 78A(1)(a), (b) and (c). Generally, the reduction of capital by private companies is governed by ss 78A and 78B. On the other hand, the reduction of capital by public companies is governed by s 78C. As a reduction of capital would affect creditors, they have a right to object to such a reduction by applying to court for an order to cancel the resolution calling for a reduction pursuant to s 78D. Where no creditor objects to the reduction, s 78E sets out the compliance procedures for the company undertaking the reduction to follow during the six weeks beginning with the date of the resolution.
Reduction of share capital
[78A.02] A company may reduce its share capital under s 78A in any way, and in particular, to: (a) extinguish or reduce the liability on any of its shares in respect of share capital not paid up; (b) cancel any paid-up share capital which is lost or unrepresented by available assets; or (c) return to shareholders any paid-up share capital which is more than it needs: s 78A(1). The proposed cancellation of preference shares involved the fulfilment and satisfaction of the contractual rights of the shareholders including the return of capital in priority to other shares; and that, since there had been no variation of those rights, no separate class meeting of the preference shareholders is required: House of Fraser plc v ACGE Investments Ltd & Ors [1987] 1 AC 387, HL ; Re Saltdean Estate Co Ltd [1968] 1 WLR 1844, Ch D ; Re William Jones & Sons Ltd [1969] 1 WLR 146, Ch D . There is no reduction of capital if it did not involve either the diminution of any liability in respect of unpaid capital or the payment to any shareholder of any paid-up capital
Preference shares
[78A.03] A company has the right to reduce its share capital by extinguishment of preferred shares provided the creditors were not prejudiced and there was no reasonable objection from the preferred shareholders themselves: Re Beaufort Sentosa Development Pte Ltd [2001] 2 SLR(R) 749; [2001] SGHC 220, HC. Moneys paid to an allotment of shares which were not issued cannot be returned as it would involve an illegal return of capital
