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

Orchid Co has passed a special resolution to reduce its share capital by repaying $1 per share to members on 100,000 shares. Which of the following is a typical safeguard required before the reduction takes effect?

Before a reduction returning capital takes effect, the directors must usually give a solvency statement or the court must confirm it, having regard to creditors. Unanimous shareholder consent is not required, and converting shares into redeemable shares is not a precondition.

  1. AThe company must obtain the consent of every individual shareholder, including those who voted for the resolution
  2. BDirectors must make a solvency statement, or the court must confirm the reduction, after considering creditor interestsCorrect
  3. CThe company must first convert all its shares into redeemable shares

Explanation

Where capital is returned to members, creditors are at risk of losing their cushion. Company law therefore typically requires a solvency statement by the directors or court confirmation that takes creditors' interests into account. Unanimous consent is not required for a special resolution, and conversion to redeemable shares is not a condition of reduction.

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