ACCA Applied Skills · Corporate and Business Law (Global) · Capital maintenance and dividend law
Orsen Ltd's articles permit a reduction of capital. The directors propose to cancel $400,000 of paid-up capital and repay it to shareholders, using the solvency statement route available in many jurisdictions instead of court approval. Which condition must be met for this route?
Under the solvency statement route the directors must declare that the company will be able to pay its debts for the next twelve months, and members must approve by special resolution. Court confirmation and unanimous consent are not required for this procedure.
- AThe directors must make a solvency statement that the company can pay its debts for the following twelve months, and a special resolution must be passedCorrect
- BThe company must prove to the court that no creditor objects
- CThe shareholders must unanimously agree and no solvency statement is needed
Explanation
The solvency statement procedure replaces court confirmation: directors state the company will be able to pay its debts as they fall due for the next twelve months, and members pass a special resolution. Court approval and unanimity are not the conditions of this route. Directors face liability for an unreasonable statement.
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