This suggests the court must look at the creditors as

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This suggests the court must look at the creditors as a whole when determining the effect of the transaction Remember this would be how creditors would challenge a reduction in share capital transaction B.3 Approval by shareholders { s 256B(1)(c) and 256C} The approval required by shareholders will depend on the type of capital reduction taking place {s 256B(2) Corporations Act} Either way you must disclose full information to shareholders {s 256C Corporations Act} and also lodge a copy of the resolution with ASIC within 14 days (1) Equal Reductions Where the reduction only involves ordinary shares {s 256B(2)(a) Corporations Act } Reduces shares proportionately for all shareholders {s 256B(2)(b) Corporations Act} Terms are the same for all shareholders {s 256B(2)(c) Corporations Act} Then you must have a ordinary resolution under [s 256C(1) Corporations Act} o May be approved by resolution that’s carried by more than 50% of the shareholders who vote { s 256C Corporations Act} (2) Selective Reductions If you violate any of the above criteria then its ‘selective reduction Selective reductions require the approval either of a special resolution (which requires the assent of 75% of shareholders who vote but excluding for these purposes the shareholders who stand to benefit from the vot B.4 Consequences of Breach If a company reduces its capital without complying with s 256B(1) there are a range of possible consequences that come into play under {s 256D Corporations Act} Despite the breach the transaction can still remain valid {s 256D(2)(a) Corporations Act] However the fact that there’s been a contravention brings in {s 1324 Corporations Act] which in general terms gives the court a discretion to award an injunction or damages to the application o Standing to seek such orders is expressly given to creditors who claim that the reduction materially prejudices the company’s ability to pay creditors and to shareholders who claim its not fair and reasonable Discretion of the court is broad – may also order that a person ‘do any act or thing’ {s 1324(1) Corporations Act} There may be consequences for the person involved in the contravention – the contravention does not constitute an offence by the company [s 256D(3) Corporations Act} but will be an offence by a person involved if the involvement is dishonest {s 256D(3) Corporations Act} May bring into play insolvent trading provisions – directors would be personally liable if the reduction of capital occurs while the company is (or as a result of the transaction will be) insolvent C. Share Buy-Backs Another way a company may reduce its share capital is by buying back its shares issued to shareholders Reasons for share buy-backs o Self purchases as a takeover defence may create a more competitive pricing environment o Self purchase may represent the best investment by a company who thinks shares are undervalued.
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