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ACCA Applied Skills · Corporate and Business Law (Global) · Capital maintenance and dividend law

Karvale Ltd wishes to reduce its share capital. Under the general company law rules applied in the LW Global syllabus, which of the following is normally the first requirement for a valid reduction?

A company must be permitted by its articles to reduce capital and must pass a special resolution of its members. It does not need every creditor's consent, nor must it convert shares into redeemable shares, because creditor protection is achieved by other procedures.

  1. AThe company must have the reduction authorised by its articles and approved by a special resolution of the membersCorrect
  2. BThe company must obtain the consent of every creditor in writing
  3. CThe company must first convert all its shares into redeemable shares

Explanation

A reduction of share capital needs authority in the articles and a special resolution (75% majority) of members. Creditor consent from every creditor is not required; creditors are protected through court or solvency-statement procedures. Conversion into redeemable shares is unrelated.

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