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Law: International Company And Commercial Law
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Law: International Company And Commercial Law
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Question:
Discuss about the Law for International Company and Commercial Law.
Answer:
Doctrine of Capital Maintenance:
Doctrine of Capital maintenance defines that company must receive adequate consideration for issued shares, and only in some excepted situations these capital repaid to the members of the company. Generally, this doctrine is known as the fundamental principle of the company law. This doctrine mainly aims at fundamental duty of the corporations for retaining their capital in the company for the protection of creditors (Ewang, 2005).
Legal rules related to important areas of law are stated by this doctrine such as payment made to shareholder as dividend and other reserves, and this covered by section 256B of the Corporation Act 2001. As per this section reduction of share capital can be done by company only through way which is authorized by law and it is necessary that such reduction must not affect the payment capacity of the company. This doctrine also provide rules for providing financial assistance to the company for the purpose of purchasing its own shares, and this is stated under section 260A which states the rules for the purpose of providing financial assistance to the company for purchasing shares in own company or in holding company.
Section 259A of the Act states that company cannot directly acquire its own shares, except in case of some exceptions, and this doctrine also states various rules for the purpose of acquiring own shares by company.
Doctrine also covers the area of redemption and purchase of own shares by company, and with this section 257 B relates which states a valid procedure for the purpose of buy back of shares for ensuring the protection of creditors of the company (Corporation Act, 2001).
Advantages:
This doctrine is mainly use to prevent the company’s frauds, and also for protecting the creditors of the company against the reduction of the company’s share capital, and also for ensuring shareholders liability (Tomasic, 2015).
History of Doctrine:
Development of this doctrine is done through the series of judicial interpretation in cases related to company law. Jessel M. R., was the person who state the two important elements of this doctrine in case of Flitcrofts. He stated in the case creditor has right to ensure that capital of the company is not dissipated in any way which is not lawful, and capital of the company must not returned to the member surreptitiously. In case Trevor v Whitworth, Court of appeal held that company is liable under the act to make payment to that shareholder, and House of Lords stated that such buyback made by company is ultra vires in nature because company cannot purchase its own shares.
References:
Tomasic, R. (2015). The Rise and Fall of the Capital Maintenance Doctrine in Australian Corporate Law. International Company and Commercial Law Review. Volume 26(5), Pp- 174-187.
Ewang, N. F. (2005). The Capital Maintenance Doctrine provides essential protection to corporate creditors. University of Adelaide.
Trevor v Whitworth (1887) 12 App. Cas. 409.
Corporation Act 2001.
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