ACCA Applied Skills · Corporate and Business Law (Global) · Share capital

Zephyr Ltd, a company incorporated under a Global-variant company law regime, has issued share capital of $500,000. Its directors propose to return $100,000 of that capital to shareholders without any formal procedure, because the company has plenty of cash. Which statement best describes the legal position?

The return is unlawful unless the company follows the statutory reduction procedure. Share capital is protected for creditors under the capital maintenance doctrine, so cash availability, board approval or later notice to shareholders cannot make an informal return of capital valid.

1. AThe return is lawful because the company holds sufficient cash
2. BThe return is lawful if the directors unanimously approve it in a board meeting
3. CThe return is unlawful unless the company follows the prescribed statutory procedure for reducing share capitalCorrect
4. DThe return is lawful provided the shareholders are told afterwards