Sem 4 Assignment 2
Assignment 2
Question 1 1. The maintenance of capital doctrine is developed to prohibit a company from reducing its share capital because a reduction in capital would reduce the pool of funds available to the company to pay its creditors. Section 254T provides that dividends are only payable out of profits. This provision ensures that capital is not return to shareholders in the form of dividend. The term “profit” is not defined in the Corporation Act. In Re Spanish Prospecting Co Ltd (1911), it was stated “profits” implies a comparison between the states of a business at 2 specific dates usually by an interval of a year which means the gain made by the business during the year. Section 259A prohibits a company directly acquiring its own shares. However, there are exceptions where: (a) The buy-back of a share is in accordance with s 257A; (b) The buy-back is under a court order; (c) A company takes security over its shares under approved employee share scheme.
2. The dividend on ordinary shares is uncertain and variable (high when the company does well, poor or non-existent when it does badly). Preference shareholders get a fixed dividend which, if not paid, usually accrues until it can be. Each ordinary share usually carries a voting right. Preference shares do not usually carry a voting right unless dividends fall into arrears. In the event of a winding up, preference shares are usually repayable at par value, and rank above the claims of ordinary shareholders (but behind bank and trade creditors). Preference shares may be issued with the right of conversion into ordinary shares. These are called convertibles. Two advantages of equity finance over debt finance: (a) The company only pays dividends if it has profits available and the amount distributed can be divided by the directors. (b) The company does not have to pay interest and low gearing which enables the company to operate without the fear of inability to meet its debt obligations.
3. A fixed charge
Question 1 1. The maintenance of capital doctrine is developed to prohibit a company from reducing its share capital because a reduction in capital would reduce the pool of funds available to the company to pay its creditors. Section 254T provides that dividends are only payable out of profits. This provision ensures that capital is not return to shareholders in the form of dividend. The term “profit” is not defined in the Corporation Act. In Re Spanish Prospecting Co Ltd (1911), it was stated “profits” implies a comparison between the states of a business at 2 specific dates usually by an interval of a year which means the gain made by the business during the year. Section 259A prohibits a company directly acquiring its own shares. However, there are exceptions where: (a) The buy-back of a share is in accordance with s 257A; (b) The buy-back is under a court order; (c) A company takes security over its shares under approved employee share scheme.
2. The dividend on ordinary shares is uncertain and variable (high when the company does well, poor or non-existent when it does badly). Preference shareholders get a fixed dividend which, if not paid, usually accrues until it can be. Each ordinary share usually carries a voting right. Preference shares do not usually carry a voting right unless dividends fall into arrears. In the event of a winding up, preference shares are usually repayable at par value, and rank above the claims of ordinary shareholders (but behind bank and trade creditors). Preference shares may be issued with the right of conversion into ordinary shares. These are called convertibles. Two advantages of equity finance over debt finance: (a) The company only pays dividends if it has profits available and the amount distributed can be divided by the directors. (b) The company does not have to pay interest and low gearing which enables the company to operate without the fear of inability to meet its debt obligations.
3. A fixed charge
References: 1. Corporate Governance Principles and Recommendations, http://www.asx.com.au/about/ corporate_governance/index.htm 2. Corporate Governance Statement, Annual Report - How ANZ applies the ASX Governance Principles, Non-Executive Directors and Employees Code of Conduct and Ethics, http:// www.anz.com.au/about%2Dus/our%2Dcompany/corporate%2Dgovernance/. 3. Lipton and Herzberg. 2008. Understanding Company Law. Australia: Lawbook Co. Pages 302, 303, 316, 317, 332-335, 342, 404.