Capital Maintenance

A brief lecture on capital maintenance for students MGM 4321

[shanggarimuthurajan]

Group : Green Hulk
In short, capital maintenance rules can be seen as mechanism intended to protect creditors against shareholder fraud and breach of contract opportunistic actions in relation to the property of a company. Capital maintenance involves four transactions which are financial assistance, share buy back, capital reduction and redemption of preference of shares. Firstly, company should fulfil solvency requirements before make any truncations because all the directors of a company must make solvency statement in relation to the reduction of share capital.
Solvency requirements involves solvency statement S113 and solvency conditions ( S112). Under S 117 solvency test procedure, if the company does not want to go court instead company can choose the method of solvency test ( Sec 112) and ( Sec 113 ).In executing capital reduction, a company is given freedom to two choices which are conformation bu court ( S 116 ) or solvency statement ( S 117). Thus, advantage of S117 is cheaper as the court process involves cost.

[nuralinasyahfikabtnorazlin]

Team Justice
Generally, capital is a source of funding that the company use to operate the business (ordinary course of business). However, the capital can be misuse the capital; therefore, to avoid the misuse of the capital, capital maintenance rule has been develop. This rule involves 4 transactions which are financial assistance, share buy back, capital reduction and redemptiom of preference shares. All of this transactions could be done if ony they meet the solvency requirement which involves solvency statement ( S. 113) and condition of solvent ( S.112). If it is not fulfill the solvency requirement, according to Section 114, it held that the directors commits a criminal offence.

[haziqhazwanhusainizam]

Capital Maintenance (BuzzLaw)


To sum up, capital is the money that the company got from the shareholder by selling the company share. The law has developed the capital maintenance rule to avoid misused of capital by the company. Next, capital maintenance rule consists of four transactions which are financial assistance, share buyback, capital reduction and redemption of preference share. If the company wants to proceed with those transactions, they need to fulfill the solvency requirement. The solvency requirement is a requirement for the company to produce a solvency statement (Section 113) and mentioned the solvency conditions (Section 112). If the director or the company does not follow the condition of solvency in the solvency statement, they will be subject to legal action under Section 114 of CA 2016.

[nuralisha]

Group: Violet
Capital maintenance
Capital is money got from shareholders by selling company share to their shareholders. Capital maintenance rule has/have been develop to avoid the capital being misused. Capital maintenance rule involves four transactions which are financial assistance, share buy back, capital reduction and redemption of preference share.

[amaliaaisyah]

Group: A'dalah


In order to avoid the capital being misused by the company, the law has developed the “capital maintenance rule” to avoid company, directors, or board of directors who handle the company from being misused the company capital.

Capital maintenance rule involves four transactions which are Financial Assistance, Share Buy-back, Capital Reduction, and Redemption of Preference Share. These transactions could be done only if the company fulfills solvency requirements.

Solvency requirements involve a solvency statement (S 113) and solvency conditions (S 112). According to Section 114 of Company’s Act 2016, if solvency requirements are not fulfilled, the director commits an offence and imprisonment not exceeding 5 years and fine not exceed RM500k or both.

[leia]

Capital maintenance rules exist to retain a company's capital for payment to its creditor in the event of a winding up process. It means that only income of a corporation can be allocated to shareholders while business continues. Therefore, it is important to determine the probability and safety of capital before the creditor take risk to invest in a company. In this topic, transaction such as share buy-back, financial assistance, capital reduction, and redemption of preference share must go through the solvency requirement first. This is to make sure that the company able to pay their debt to the creditor. Dividend also will only be paid if the company made profit.

Group name : 7UP

[leia]

Capital Maintenance Rules :

* Objective - to avoid any misused of capital by the company
* 4 transaction involve - financial assistance, share buy back, capital reduction, and redemption of preference share
* All transaction can be accepted after fulfill the solvency requirements
* Solvency requirements divided into 2 parts :- solvency statements & solvency conditions
* Solvency statements (sec 113) - statements signed by all directors & acknowledged company able to pay debt to creditors
* Solvency condition (sec 112) - company able to pay debt within 12 months after transaction & their assets more than liability

Group name : 7UP

[aimizafirah]

Group: Haq


Law of “capital maintenance rule” are developed for avoiding misuse of capital by company, to protect creditors from the risk of company unable to payback and put limit of the use of company asset.
Section 125 stated the financial assistance transactions that are not prohibited. First, took loan from the company to purchase the company’s shares. Second, company assist employees to enable employee to purchase company’s shares – company give loan to employee purchase its own shares (deduct salary) or dividend deductions. Reduction of capital transactions is when company want to reduce its shares capital (reduce their shares). Company wants to cancel unpaid shares of investors. Section 115 stated that company can reduce the capital by section 116 – by special resolution and confirmation by court or section 117 – by special resolution supported by a solvency statement.

[nurhumairasuhaimi]

Group: AVENGERS

1) Capital is a fund that company use to run the business
2) The purpose of capital maintenance is to avoid the company from misusing the capital
3) Four transactions involved are financial assistance, share buy-back, capital reduction and redemption of preference shares
4) The company need to fulfill the solvency requirements under section 112 and 113 and some conditions in order to perform these transactions
5) If a company is making loss with no reserves, the company is not bound to pay dividend to shareholders