What are the other amendments made?
- Reforms in the capital maintenance regime.
- Liberalise the amalgamation process for companies.
What do you mean? I share the same reaction as you. Allow me to present my understanding of these lesser known rules as compared to those discussed in Part 1, my earlier posting.
What is that?
The regime ensures that the shareholders cannot happily deplete capital from the entity without due consideration to the creditors’ interest and the working capital needs of its daily operations.
Under the old regime, the following are prohibited:-
- financial assistance to 3rd parties to buy its shares;
- reduce share capital (unless you got permission from High Court) and;
- share buybacks.
Under the new regime, the following are now in force.
- Company can now give financial assistance to buy its shares. How much? Up to 10% of share capital or if all shareholders are offered the same assistance.
- Now a company can do a capital reduction through a special resolution subject to 2 conditions. The company must perform a solvency test and do the necessary publicity ie. an advert in a national newspaper.
- Why do the publicity? If you, a creditor of the company, saw the Notice in the newspaper and are unhappy with the proposal, you may seek legal redress.
- The directors must sign a “Solvency Statement” ie. to confirm that the company can meet its obligations and that assets > liabilities. So if the coffee aunty’s salary is not paid when due, the directors who signed that Solvency Statement may to pay her salary personally!
These changes further escalate the directors’ responsibilities in managing the affairs of companies. They are earning their fees. 🙂