CORPORATIONS ACT 2001
|CHAPTER 2J - TRANSACTIONS AFFECTING SHARE CAPITAL
|PART 2J.1 - SHARE CAPITAL REDUCTIONS AND SHARE BUY-BACKS
|Division 1 - Reductions in share capital not otherwise authorised by law
SECTION 256B COMPANY MAY MAKE REDUCTION NOT OTHERWISE AUTHORISED
A company may reduce its share capital in a way that is not otherwise authorised by law if the reduction:
(a) is fair and reasonable to the company's shareholders as a whole; and
(b) does not materially prejudice the company's ability to pay its creditors; and
(c) is approved by shareholders under section 256C.
A cancellation of a share for no consideration is a reduction of share capital, but paragraph (b) does not apply to this kind of reduction.
Note 1: One of the ways in which a company might reduce its share capital is cancelling uncalled capital.
Note 2: Sections 258A-258F deal with some of the other situations in which reductions of share capital are authorised. Subsection 254K(2) authorises capital reductions involved in the redemption of redeemable preference shares and subsection 257A(2) authorises reductions involved in share buy-backs.
Note 3: For a director's duty to prevent insolvent trading on reductions of share capital, see section 588G.
Note 4: For the criminal liability of a person dishonestly involved in a contravention of subsection 256D(1) based on this subsection, see subsection 256D(4). Section 79 defines involved.
S 256B(1) amended by No 180 of 2012, s 3, Sch 1 (effective 11 December 2012).
[CCH Note: Act No 180 of 2012, s 3, Sch 7 contained the following application provision (which was effective 11 December 2012):
Application of amendments made by this Act
The amendments made by this Act apply in relation to an act or omission by a body corporate occurring on or after the day this Act commences.
To avoid doubt, a cancellation of a partly-paid share is taken to be for consideration.
S 256B(1A) inserted by No 132 of 2007, s 3, Sch 5 (effective 31 December 2007).
The reduction is either an equal reduction or a selective reduction. The reduction is an equal reduction if:
(a) it relates only to ordinary shares; and
(b) it applies to each holder of ordinary shares in proportion to the number of ordinary shares they hold; and
(c) the terms of the reduction are the same for each holder of ordinary shares.
Otherwise, the reduction is a selective reduction.
In applying subsection (2), ignore differences in the terms of the reduction that are:
(a) attributable to the fact that shares have different accrued dividend entitlements; or
(b) attributable to the fact that shares have different amounts unpaid on them; or
(c) introduced solely to ensure that each shareholder is left with a whole number of shares.