ACCA Applied Skills · Corporate and Business Law (Global) · Share capital
Lumen Ltd has accumulated losses and wants to reduce its share capital to write off part of the loss, with no cash returned to shareholders. Which statement is correct?
The company must still follow the statutory reduction procedure. A reduction of capital includes writing off capital lost or unrepresented by assets, not only repaying shareholders, because it changes the capital figure on which creditors rely, so formal approval requirements apply.
- ANo procedure is required, because no money leaves the company
- BIt is still a reduction of capital and must follow the statutory procedure, even though no cash is repaidCorrect
- CIt is only a reduction if shareholders receive some payment
Explanation
A reduction of share capital includes cancelling capital that is lost or unrepresented by assets, as well as repaying capital. It alters the capital that creditors rely upon on paper, so the formal procedure still applies even without any cash being returned.
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