Capital Maintainence Rules Flashcards
What does Section 117(1) CA 2014 state about distributions?
A company may only make a distribution out of profits available for that purpose.
What is the definition of ‘profits available for distribution’ in Section 117(2) CA 2014?
Profits available are accumulated, realised profits minus any accumulated realised losses not previously written off.
What does Section 123 CA 2014 list?
Certain exemptions from the definition of a distribution, including the issue of bonus shares and redemption of shares out of new issue proceeds.
What happens if a member receives an unlawful distribution under Section 122 CA 2014?
The member must repay the distribution to the company if they knew or should have known it was unlawful.
Why is it prohibited for a company to buy back its own shares?
It could erode capital, reducing funds available to creditors and creating potential conflicts of interest.
What was the case law reasoning behind the prohibition on share buybacks?
Trevor v Whitworth [1887]: It could make the company’s capital illusory, harming creditors.
What does Section 102 CA 2014 allow regarding a company acquiring its own shares?
It permits acquisition of fully paid shares under specific conditions, such as reducing share capital, court order after oppression, or redeemable shares.
What is required for a company to redeem shares under Section 105 CA 2014?
Redemption can only occur out of profits or proceeds from a new share issue, and the company must follow a special resolution.
What are treasury shares?
Treasury shares are redeemed shares that remain within the company without voting or dividend rights.
What is the main restriction under Section 82 CA 2014 about financial assistance?
A company cannot give financial assistance for the purchase of its own shares, directly or indirectly, through loans, guarantees, or securities.
What does Section 82(5) CA 2014 allow for regarding financial assistance?
Financial assistance is allowed if it is incidental to a larger company purpose and is given in good faith.
Which transactions are exempt from the prohibition on financial assistance under Section 82(6) CA 2014?
Exemptions include dividends, debt repayment, certain employee share schemes, and refinancing.
What must a company do if it seeks to acquire its own shares through a special resolution under Section 105?
It must pass a special resolution with 21 days’ notice and allow inspection of the contract for the buyback.
What is the definition of ‘financial assistance’ under Section 82 CA 2014?
Financial assistance includes loans, guarantees, and the provision of security, or any other means that indirectly help someone acquire shares.
What happens if a company violates Section 82 by giving financial assistance?
The transaction is voidable by the company if the other party had actual notice of the breach.
What does Section 82(9) CA 2014 say about the validity of transactions violating financial assistance rules?
Transactions violating financial assistance rules are voidable by the company against anyone with actual notice of the breach.
What is the general prohibition on issuing shares at a discount under Section 71(2) CA 2014?
A company cannot issue shares below their par value to maintain proper capital levels.
What case law established the prohibition on issuing shares at a discount?
Ooregnum Gold Mining Co v Roper [1892] – Issuing shares below par value is invalid.
