Protection of creditors - function of the court, Business Law and Ethics

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PROTECTION OF CREDITORS:

Where the reduction of capital involves diminution of unpaid capital or repayment to shareholders of paid-up capital, creditors have a statutory right under S.69(2) to object to the proposed reduction and, upon objection, a list of creditors must be given to the court. The court will then confirm the reduction if satisfied that the creditors:

i) have consented thereto; or,

ii) have been secured (i.e. given alternative security so that they will no longer rely on the reduced capital as their security), or

iii) have been discharged or paid off (S.70 (1).

b) PROTECTION OF MEMBERS

1.  A majority of the company's members are protected by the requirement that a special resolution must be passed by the company's members in order to initiate the reduction process. It is most unlikely that a three-fourths majority of members could freely pass a resolution for reducing capital if the resolution is detrimental to their interests.

2. A minority of the company's members are protected by their judicially acknowledged right to seek the court's protection where they are of the view that the resolution passed by the majority is not "fair and equitable": British and American Trustee and Finance Corporation Ltd, and Reduced V Couper (53) and Re: Thomas de la Rue and Co. Ltd and Reduced (55),


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