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Capital Maintenance: Australian Corporation Law

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Capital Maintenance: Australian Corporation Law

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Discuss about the Capital Maintenance for Australian Corporation Law.

According to the principles of corporation law the directors have been provided with the responsibility to look after the company as it does not have capacity to carry out its functions on its own. As the overall maintenance of the company is under the supervision of the directors the responsibility of protecting the interest of the creditors also vests in them. However providing supreme powers to the directors may give birth to mala fide intentions. Thus to protect the creditors from being exploited by the directors various laws have been enacted through legislations as well as through the provisions of common law.
The doctrine of capital maintenance was brought into corporation law when the judges in the case of Trevor v Whitworth 1887 prevented the directors of the company from buying back their own shares. Thus according to the doctrine of capital maintenance the directors cannot issue shares without receiving proper remuneration from them. They are also not allowed to provide any sort of financial assistance which would reduce the capital of the company. However circumstances changed from that time and presently the old doctrine is considered to be too rigid to be used in modern business. The doctrine does not allow the directors to freely exercise their powers with respect to the company. Thus various alterations were made to the doctrine so that its benefits can be used to protect the creditors and the shareholders.
The Australian corporation law embeds the doctrine in it through the Corporation Act 2001. Australia has excluded the underlying customary capital maintenance precept as it was not extremely adaptable and was a deterrent in the correct advancement and working of an organization. In the event the directors are completely prevented from lessening the capital of the organization the organization might be subjected to undesirable misfortunes. It might be important for the directors to lessen the capital amid budgetary unsteadiness and powerlessness to do as such would convey hindrance to the organization. In this way so as to guarantee effectiveness the Enterprise Demonstration 2001 permits share capital decrease in restricted conditions (Robak et al. 2014). 
The directors with respect to bonus shares and profits may lessen the capital of the organization just if the organization makes overabundance benefit with reference to Section 254 A and 254 T of the Corporation Act. The executives can likewise lessen the capital of the organization as far as mostly paid offers. In this manner it can be reasoned that Australia has rejected the precept of capital maintenance yet utilizes the idea of security through different changes.
Corporation Act 2001
Council, B.M.D., 2014. Capital Maintenance Programme.
Islam, M.S., 2015. The Doctrine of Capital Maintenance and its Statutory Developments: An Analysis. Northern University Journal of Law, 4, pp.47-55.
Jiang, D., 2016. Indeterminacy, capital maintenance expenditures and the business cycle. Economic Modelling.
Robak, A., Landers, S., Bush, S., Hunter, E. and Greaves, R., 2015, June. A Case for Breaking Down the Capital-Maintenance Barrier. In 9th International Conference on Managing Pavement Assets.

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