Corporation Law: Analysis of FWPL Buyback and Capital Reduction

This assignment analyzes the corporation law implications of FWPL's decisions regarding share buybacks and capital reduction. The assignment addresses two key questions: the issue of selective buybacks and the potential for capital reduction as an alternative. It examines the relevant rules under the Corporation Act, specifically Part 2J.1, which governs share buybacks, emphasizing the need for disclosure, protection of shareholder and creditor interests, and the requirement for a special resolution in the case of selective buybacks. The application section considers the specific context of FWPL and its A class shareholders. The second question explores the option of capital reduction, referencing sections of the Corporation Act dealing with the concept. The analysis focuses on ensuring that any reduction is in the overall interest of shareholders and does not adversely affect creditor payments. The assignment concludes by emphasizing the need for a special resolution for selective reduction. The assignment is supported by references to academic literature and legal texts.

Corporation Law

TABLE OF CONTENTS
QUESTION 2...................................................................................................................................1
Issue........................................................................................................................................1
Rule.........................................................................................................................................1
Application ............................................................................................................................1
Conclusion..............................................................................................................................1
QUESTION 3...................................................................................................................................2
Issue........................................................................................................................................2
Rule.........................................................................................................................................2
Application.............................................................................................................................2
Conclusion..............................................................................................................................2
REFERENCES................................................................................................................................3

QUESTION 2
Issue
In the given case, buy back is considered by FWPL as A class shareholders are not
satisfied with company (Gevurtz, 2010). Therefore, it is thinking to buy shares at price that will
be fixed by experts hired for this purpose. This is the process under which shares that are held by
others are bought back by company. For this, option is with shareholders that whether they want
to accept or reject the offer provided to them.
Rule
The rules which are to be followed for this are specified under corporation Act in pt. 2J.1.
They are made so that interest of creditors and shareholders can be protected. For this, it is
needed that all the material information shall be disclosed under section 256A. Also, the risk
which can lead to company’s insolvency will be addressed and it will be ensured that all
shareholders are treated equally by company.
Another concept in this is of selective buy back in which participation will be permitted
to some members and for this, special resolution is needed to be passed (Andriosopoulos,
Andriosopoulos and Hoque, 2013). They will be those who no longer want to be the member of
organisation.
Application
In the present situation, point that shall be considered by Mario and Nick is selective buy
back as in this, only A class members are included. So, it will be required that compliance shall
be made of various procedures in which formal resolution is passed to agree with it (Bowman,
2010). The shareholders can never be forced for this and they are having right to decide with
respect of same.
Conclusion
It can be seen that the case is related to selective buy back and for this, Special resolution
is to be passed by FWPL so that interest of other members would not get affected. For this,
procedure will have to be complied and if this is done, then it can be carried out effectually.
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QUESTION 3
Issue
In this, FWPL is considering that reduction of capital can be undertaken in place of buy
back so that it can get itself free from A class shareholders. For this, it needs to know what
actions are to be taken and from whom is permission required to continue with the process.
Rule
In corporation Act, there are some sections which deal with the concept of Reduction in
share capital under which all procedures and other aspects are covered (Patel, 2010). The
sections which are related to it includes s256B which states that it can be carried out only if it is
in the overall interest of all shareholders and also, if payment to creditors shall not be affected by
it. Another rule in this respect is 256C which requires that approval of shareholders shall be
obtained by using ordinary resolution for equal reduction and special resolution for selective
reduction.
Application
The buyback was considered firstly but now option is there to use reduction and for this,
it will be required that an adverse impact of this on creditor’s payment shall be identified and no
impact would be there on the rights of shareholders (Wolfe and Pittenger, 2016). The reason of
such reduction shall be evaluated which in present case is dissatisfaction among shareholders as
here, only a portion is included and so, it will be considered as selective reduction.
Conclusion
It can be concluded that FWPL can go with reduction after ensuring that all the
conditions are fulfilled and as this will be selective reduction so, it is needed that special
resolution shall be passed in general meeting conducted by company.
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REFERENCES
Books and Journals
Andriosopoulos, D., Andriosopoulos, K. and Hoque, H., 2013. Information disclosure, CEO
overconfidence, and share buyback completion rates. Journal of Banking & Finance.
37(12). pp.5486-5499.
Bowman, S., 2010. Modern Corporation and American Political Thought: Law, Power, and
Ideology. Penn State Press.
Gevurtz, F., 2010. Gevurtz's Corporation Law, 2d (Hornbook Series). West Academic.
Patel, R.I., 2010. Facilitating Stakeholder-Interest Maximization: Accommodating Beneficial
Corporations in the Model Business Corporation Act. Thomas L. Rev.. 23. p.135.
Wolfe Jr, D.J. and Pittenger, M.A., 2016. Appeals and Certification of Questions of Law to the
Supreme Court of Delaware (Vol. 1). Corp and Commercial Practice in the Delaware
Court of Chancery.
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