It is in the area of the regulation of a company's share capital and distributions to
shareholders that the inherent conflict between creditors and shareholders, and
the fragile balance among shareholders internally, intersect. The share capital of
a company underlies its corporate structure and represents not only its initial own
funds from which creditors can be paid, but also the relative equity interests of
the shareholders.
The balance between shareholders can be disturbed by capital
reorganisations through increase, reduction or variation of share capital or
through disproportionate contributions by, or distributions to, shareholders. Share
repurchases are particularly risky in this regard. Creditor interests are affected
when their prior right to payment is endangered by distributions to shareholders.
This study analyses the South African Law relating to share capital and
distributions against the background of a comparative study of the laws of
England, New Zealand, Delaware and California, as well as the provisions of the
American Model Business Corporations Act.
Two main approaches to creditor protection are evident. The capital
maintenance doctrine, which is followed in England and Delaware, protects
creditors by emphasising the notional share capital of the company as a limit on
distributions. In contrast, the solvency and liquidity approach focuses on the net
assets of the company and on its ability to pay its debts. New Zealand, California
and the Model Business Corporations Act represent this approach.
Regulatory responses to shareholder protection range from insistence on
compliance with procedural requirements to minimal statutory intervention in the
internal affairs of companies, instead relying on general principles of fairness and
good faith. There is little correlation between a particular system's approach to
creditor protection on the one hand, and to shareholder protection on the other.
England, New Zealand and South Africa prescribe specific formalities, while the
American approach is more relaxed.
South Africa is a hybrid system. Its transition from capital maintenance to
solvency and liquidity has been incomplete and its protection of equity interests is
relatively unsophisticated. A number of recommendations are made for an
effective and coherent approach that will safeguard the interests of creditors and
shareholders alike. / School: Law / LL.D.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:unisa/oai:umkn-dsp01.int.unisa.ac.za:10500/2543 |
| Date | 30 June 2008 |
| Creators | Van der Linde, Kathleen |
| Contributors | Luiz, S. M. |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
| Format | 1 online resource (xix, 608 leaves) |
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