ACCA Applied Skills · Corporate and Business Law (Global) · Share capital
Corvina Ltd, a private company with insufficient distributable profits, wants to buy back shares and pay for them partly out of capital. Which of the following is a required step in that process?
The directors must make a solvency statement that the company will be able to pay its debts over the next twelve months, supported by an auditor's report, and members must approve by special resolution. Unanimous creditor consent and conversion of shares are not required.
- AThe directors must make a solvency statement confirming the company can pay its debts for the following twelve monthsCorrect
- BThe company must obtain consent from every one of its creditors
- CThe company must first convert all its redeemable shares into ordinary shares
Explanation
A private company may pay for a buyback out of capital only once its distributable profits are used first, and the directors must make a statement of solvency, supported by an auditor's report, that the company can pay its debts for the next twelve months. Creditor unanimity is not required, and conversion of shares is irrelevant.
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