ACCA Applied Skills · Corporate and Business Law (Global) · Loan capital
Tamsin Ltd wants to buy back some of its own shares from a member. It also wants to repay a debenture holder early, using the redemption terms in the debenture deed. Which statement is correct?
Repaying a debenture is simply the discharge of a debt to a creditor and is not subject to capital maintenance rules. A share buyback returns capital to a member, so it must comply with strict statutory restrictions.
- ABoth transactions are subject to the same capital maintenance restrictions, because each reduces the company's assets
- BRepaying the debenture is the repayment of a debt and is not restricted by capital maintenance rules, whereas the share buyback must comply with themCorrect
- CThe share buyback is unrestricted, but repaying the debenture must be funded only from distributable profits
Explanation
Capital maintenance rules protect the share capital fund for creditors, so share buybacks and redemptions are tightly controlled. Redeeming a debenture merely discharges a debt owed to a creditor and needs no such restriction. The other options wrongly apply restrictions to debentures or ignore them for shares.
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