CORPORATIONS ACT 2001 Company may make reduction not otherwise authorised (2024)

Commonwealth Consolidated Acts

CORPORATIONS ACT 2001 - SECT 256B

(1) A company may reduce its share capital in a way that is nototherwise authorised by law if the reduction:

(a) is fair and reasonable to the company's shareholders asa whole; and

(b) does not materially prejudice the company's ability topay its creditors; and

(c) is approved by shareholders under section 256C.

A cancellation of a share for no consideration is a reduction of sharecapital, but paragraph (b) does not apply to this kind of reduction.

Note 1: One of the ways in which a company might reduce its sharecapital is cancelling uncalled capital.

Note 2: Sections 258A - 258F deal with some of the othersituations in which reductions of share capital are authorised. Subsection 254K(2) authorises capital reductions involved in the redemption ofredeemable preference shares and subsection 257A(2) authorisesreductions involved in share buy - backs.

Note 3: For a director's duty to prevent insolvent trading onreductions of share capital, see section 588G.

Note 4: For the criminal liability of a person dishonestly involved ina contravention of subsection 256D(1) based on this subsection, seesubsection 256D(4). Section 79 defines involved .

Note 5: A company may reduce its share capital for the purposes of theconversion and write - off provisions determined by APRA despite this Division(see Subdivision B of Division 1A of Part II of theBanking Act 1959 , Division 2 of Part IIIA of theInsurance Act 1973 and Division 1A of Part 10A of theLife Insurance Act 1995 ).

(1A) To avoid doubt, a cancellation of a partly - paid share istaken to be for consideration.

(2) The reduction is either an equal reduction or aselective 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 proportionto the number of ordinary shares they hold; and

(c) the terms of the reduction are the same for each holder ofordinary shares.

Otherwise, the reduction is a selective reduction .

(3) In applying subsection (2), ignore differences in theterms of the reduction that are:

(a) attributable to the fact that shares have different accrueddividend entitlements; or

(b) attributable to the fact that shares have different amountsunpaid on them; or

(c) introduced solely to ensure that each shareholder is leftwith a whole number of shares.