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CORPORATIONS ACT 2001 - SECT 256B
Company may make reduction not otherwise authorised
(1) A company may reduce its share capital in a way that is not otherwise
authorised by law if the reduction:
- is fair and reasonable to the
company's shareholders as a whole; and
- does not materially prejudice the company's ability to pay its creditors;
- 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.
(2) The reduction is either an equal reduction or a selective reduction. The
reduction is an equal reduction if:
- it relates only to ordinary shares;
- it applies to each holder of ordinary shares in proportion to the number
of ordinary shares they hold; and
- the terms of the reduction are the same for each holder of ordinary
Otherwise, the reduction is a selective reduction .
(3) In applying subsection (2), ignore differences in the terms of the
reduction that are:
- attributable to the fact that shares have different
accrued dividend entitlements; or
- attributable to the fact that shares have different amounts unpaid on
- introduced solely to ensure that each shareholder is left with a whole
number of shares.
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