Critical Analysis of Capital Maintenance Doctrine in Company Law

This report examines the doctrine of capital maintenance within the framework of company law, focusing on the protection of creditors and the rights of stakeholders. It analyzes the significance of capital as a safeguard against business risks and explores how the Companies Act 2006 governs capital maintenance. The report delves into the historical context, referencing the case of Trevor v Whitworth, and discusses the restrictions imposed on companies regarding share repurchases and dividend payments from capital. It highlights the changes introduced by the Act, including the new processes for share capital reduction and the requirement for solvency statements. The report also considers the impact of these changes on creditors and the balance between their interests and those of shareholders, referencing relevant case law and legal amendments. It provides a critical analysis of the doctrine's evolution and its implications for corporate finance and governance.

Running head: QUESTION 0
company law
NOVEMBER 30, 2018
STUDENT DETAILS:

QUESTION 1
The company may not operate properly with limited capital therefore mandating the
need of capital from means deemed lawful as specified in Act. Creditors, in addition to
capital raised from stakeholders or investors, assist to the finance the business operation of
the corporations. Creditors and other stakeholders require guarantee that that the funds in the
companies are protected from the changes of business procedures. The reservations of
creditors and the prospects and limits of stakeholders are consequently stated by the doctrine
of capital maintenance under The Companies Act 2006. In the following parts, new laws
regarding doctrine of capital maintenance, requirement of changes and what does changes
mean to creditors, are discussed and critically examined.
The capital serves the protection for the creditors, for the debt owed to them. It led to
changes to provide more protection to creditors. The changes in the law has an impact that
the capital of company can be paid without reducing the capital if approved by the
Companies Act. It was worn that as per the rule of capital maintenance, dividend could not
made out of the capital, the corporation cannot purchase the own shares, and stakes at par
value could not be issued at the discount excluding severe situations (Law, 2016).
Additionally, the shareholders will choose that they are paid from the corporate coffer
regardless of what gets when creditor is cautious for the protection of the personal
investment. Though, doctrine of capital maintenance restricts corporations from inveterate to
the funds of stakeholders that were primarily contributed for the stakes. In the case of Trevor
v Whitworth (1887) 12 App Cas 409, the corporation purchased again practically the quarter
of the personal share so during the liquidation of the corporation, it is requested by a
stakeholder that balance that stayed be moved to him in respect of due amount. The exercise
is banned for the corporations trying to make attempt to decrease the capital by buy back the
share (Hannigan, 2018).

QUESTION 2
Furthermore, in addition to the present process where the corporation can decrease the
capital with court’s consent, from 1 October 2008 there will be a new process for reduction
by private corporations limited by shares, which are not approved by the court. This decline
will have to be maintained by the written solvency statement by managers. This process
would permit the quicker and inexpensive reduction where the managers have no reason to be
worried at the view of entitlements from creditor. Though, when the corporation continued
the reduction and was then the aim in the purchase, the purchaser will require to carry the
cautious investigation to make sure the process had been accordingly carried. Compare the
reductions allowed by court that is definite for the objects and may not later be opened again
(Bartolacelli, 2016).
Likewise, before the changes or amendments, the corporation cannot decrease the
market value as mentioned in the case of Aveling Barford Ltd v Perion Ltd [1989]. Perion
Ltd and Avelong Barfor related to one individual. In way of running business, the possessor
cannot create allocation to the stakeholders of Aveling Barford. Aveling Barford was
successively proposed by the holder when assigning the properties to Perion Ltd at the under
value. The court gave decision in favour of the receiver (Bond, 2015). The limitation was
deemed essential to secure the creditor’s interest. Though, the changes in Companies Act
2006 now specifies that if the corporation is making the transfer of the asset where the book
value is less than value, if corporation have profits to allocate, it can proceed with business."
Conversely, if the company is executing the transfer of its asset where the book value is more
than the value, calculation of distribution would be depended on the book value (Novak,
2014).
Though, after making the changes in the doctrine, the corporations have authorised to
decrease the share capital if require be. In amendments, the corporation may decrease the
share capital by mutual determination of the managers of corporation in accordance to

QUESTION 3
bankruptcy statement. The creditworthiness is the capacity of corporation to fulfil the long-
term accountabilities and to complete long-term progress and development objects. With
changes in doctrine capital maintenance, the managers are to decide and provide solvency
statement according to the provisions mentioned by the Act (Takahashi, 2015).

QUESTION 4
References
Bartolacelli, A. (2016). The New Italian Almost Capital-less Private Companies: A Brand
New Tile in the Mosaic. European Company and Financial Law Review, 13(4), 665-
707.
Bond, P. (2015). BRICS and the sub-imperial location. BRICS: An anti-capitalist critique,
15-26.
Hannigan, B. (2018). Company law. Oxford: Oxford University Press.
Law, J. (2016). A dictionary of accounting. Oxford: Oxford University Press.
Novak, A. (2014). Capital sentencing discretion in Southern Africa: A human rights
perspective on the doctrine of extenuating circumstances in death penalty
cases. African Human Rights Law Journal, 14(1), 24-42.
Takahashi, E. (2015). Reception and Convergence of Japanese and German Corporate
Law. U. St. Thomas LJ, 12, 228.