Report on Capital Maintenance Doctrine in Finance and Corporate Law

This report delves into the doctrine of capital maintenance, a crucial concept in finance and corporate law. It begins with an introduction to the doctrine, emphasizing its significance in restricting a company's ability to return funds to shareholders. The report traces the historical development of the doctrine, highlighting its origins and importance for creditors, referencing the Flitcroft's Case. It then outlines the benefits of the doctrine, focusing on its role in protecting creditor interests and ensuring lawful asset management. The report also explores the exceptions to the doctrine, referencing specific sections of the Corporations Act 2001, such as those related to share capital reduction, share buy-backs, and other relevant legislation. The conclusion summarizes the key aspects, reiterating the doctrine's importance for both creditors and the company's financial stability. The report also includes a list of cited references.

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DOCTRINE OF CAPITAL MAINTENANCE
STUDENT’S NAME
STUDENT’S ID

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Table of Contents
Introduction:....................................................................................................................................3
History of Capital Doctrine:............................................................................................................3
Benefits of the Doctrine:..................................................................................................................3
Exceptions of the Doctrine:.............................................................................................................3
Conclusion:......................................................................................................................................4
Reference list:..................................................................................................................................5

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Introduction:
This assignment focuses on the main aspects related with Finance and Corporate law,
namely the doctrine of capital maintenance. The topic deals with certain rules that provide
restrictions to the company's freedom of returning to the funds of the shareholders. The study
deals with the re-examination of capital maintenance along with the legislation in Anglo-
Australian context.
History of Capital Doctrine:
It was observed by companies as to be important for the company related creditors. Jessel
MR of Re Banking Exchange Company (Flitcroft’s Case) has explained the reasons behind the
importance of capital maintenance (Arnold, 2017). According to the Flitcroft's Case, the two
aspects are governed by two rules. The rules are the rules related to capital reduction and
distribution of the company.
The requirement of maintaining capital led to the formulation and development of a universally
known doctrine, the ‘Capital Maintenance Doctrine’ (Patakyová & Grambličková, 2016). It was
originally developed by the courts. It was structured by statute to remove few risks derived from
limited liability.
Benefits of the Doctrine:
The capital maintenance doctrine is beneficial for two purposes. Firstly, it is required for the
protection of the creditor’s interests. Secondly, it is needed for ensuring the company’s asset
dissipation. According to the Flitcroft's Case, the two aspects stated by Jessel M. R., are
governed by two rules (Taleb, 2016). The rules are the rules related to capital reduction and
distribution of the company. The objective of these rules was the protection of the creditors.
Exceptions of the Doctrine:
There are several exceptions to the capital maintenance doctrine, such as the Sections 256B,
257B, 260A, 259A of various acts (Bourne, 2016).
According to the section 256 B of Corporations Act 2011, a company can make reductions in its
share capital.

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According to section 257 B of Corporation law 2001, a company is allowed to buy-back its own
shares using one of the several methods.
According to the section 260 A of Income Tax Act, 1961, an appeal will lie to the High Court
from all the orders passed in Appellate Tribunal’s appeal.
According to the 259A of the Corporations Act 2001, a company should not acquire shares or its
units in it.
Conclusion:
From the study based on the research on the capital maintenance doctrine, the importance
of the doctrine for both company’s creditors and the company's lawful asset dissipation is
derived. Here, the background history of the doctrine, how beneficial the doctrine is for the
company, along with the possible exceptions of the doctrine is explained briefly.

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Reference list:
Arnold, A. J. (2017). Capital reduction case law decisions and the development of the capital
maintenance doctrine in late-nineteenth-century England. Accounting and Business
Research, 47(2), 172-190.
Bourne, N. (2016). Bourne on company law. Abingdon: Routledge.
Patakyová, M., & Grambličková, B. (2016). Capital doctrine in the European union–a lesson to
learn from finland?. The Lawyer Quarterly, 6(3).
Taleb, M. S. T. A. (2016). Advancing Sustainable Income Accounting: An Australian Case
Study. International Journal of Accounting and Financial Reporting, 5(2), 242-257.