COMPANY LAW

Company Law

Company Law

Question 1

The liquidator can investigate transactions which took place in the six months prior to the presentation of the petition to see whether any of them constitute unfair preferences.  However, if the transaction involves a connected person i.e. someone who has a relationship with the company and/or its directors, the liquidator can go back as far as two years to overturn transactions of this nature. The liquidator can investigate transactions which took place in the six months prior to the presentation of the petition to see whether any of them constitute unfair preferences.

However, if the transaction involves a connected person i.e. someone who has a relationship with the company and/or its directors, the liquidator can go back as far as two years to overturn transactions of this nature. Except in the case of the new reduction procedure available to private companies, application should be made for confirmation by the court once the special resolution has been passed. The court has to take into account the interests of creditors and of shareholders. The rights of creditors are expressly set out in the statutory provisions and will be discussed first. Shareholder protection is left to the discretion of the courts.

Where existing creditors of the company are affected, all creditors have to be notified and given the opportunity to object against the proposed reduction, unless a sum of money sufficient to pay all creditors has been set aside or guaranteed by a bank or insurance company. The court can also order the company to follow the notification and objection procedure in any case where any liability in respect of unpaid share capital is reduced or when any paid up capital will be paid to any shareholder. The court can confirm the reduction if it is satisfied that every existing creditor has consented or that her debt has been discharged or secured. The court may also impose other terms and conditions. The court has the power to dispense with the creditor protection provisions if it is proper to do so in the special circumstances of the case.

A creditor who was unaware of the reduction and who is subsequently not paid when the company goes into insolvent liquidation may apply to the court to hold liable members who benefited from the reduction. The protection of shareholders in a capital reduction has enjoyed considerable attention by the courts. The basic points of departure are that the reduction must be fair and equitable between classes, must affect all shares of the same class in a similar manner, and that shareholders should be informed properly to enable them to make an informed decision. In taking into account the rights of different classes of shareholders, their relative rights to a return of capital on winding-up are of prime importance. The reduction should simulate a result that gives effect to these rights, which means that a return of excess capital should give preference to shares with a priority to the return of ...