Company Law Review Act 1998 (61 of 1998)

Schedule 5

Corporations Law

18 Sections 256A to 256F (inclusive)

Repeal the sections, substitute:

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:

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

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

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:

(a) it relates only to ordinary shares; and

(b) it applies to each holder of ordinary shares in proportion to the number of ordinary shares they hold; and

Otherwise, the reduction is a selective reduction .

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

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

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

256C Shareholder approval

Ordinary resolution required for equal reduction

(1) If the reduction is an equal reduction, it must be approved by a resolution passed at a general meeting of the company.

Special shareholder approval for selective reduction

(2) If the reduction is a selective reduction, it must be approved by either:

(a) a special resolution passed at a general meeting of the company, with no votes being cast in favour of the resolution by any person who is to receive consideration as part of the reduction or whose liability to pay amounts unpaid on shares is to be reduced, or by their associates; or

(b) a resolution agreed to, at a general meeting, by all ordinary shareholders.

If the reduction involves the cancellation of shares, the reduction must also be approved by a special resolution passed at a meeting of the shareholders whose shares are to be cancelled.

(3) The company must lodge with the ASC a copy of any resolution under subsection (2) within 14 days after it is passed. The company must not make the reduction until 14 days after lodgment.

Information to accompany the notice of meeting

(4) The company must include with the notice of the meeting a statement setting out all information known to the company that is material to the decision on how to vote on the resolution. However, the company does not have to disclose information if it would be unreasonable to require the company to do so because the company had previously disclosed the information to its shareholders.

Documents to be lodged with the ASC

(5) Before the notice of the meeting is sent to shareholders, the company must lodge with the ASC a copy of:

(a) the notice of the meeting; and

(b) any document relating to the reduction that will accompany the notice of the meeting sent to shareholders.

256D Consequences of failing to comply with section 256B

(1) The company must not make the reduction unless it complies with subsection 256B(1).

(2) If the company contravenes subsection (1):

(a) the contravention does not affect the validity of the reduction or of any contract or transaction connected with it; and

(b) the company is not guilty of an offence.

(3) Any person who is involved in a company's contravention of subsection (1) contravenes this subsection.

Note: Subsection (3) is a civil penalty provision (see section 1317DA).

256E Signposts to other relevant provisions

The following table lists other provisions of this Law that are relevant to reductions in share capital.

Other provisions relevant to reductions in share capital
1	section 588G section 1317HA	liability of directors on insolvency Under the combined operation of these sections the directors may have to compensate the company if the company is, or becomes, insolvent when the company reduces its share capital.
2	section 1324	injunctions to restrain contravention Under this section the Court may grant an injunction against conduct that constitutes or would constitute a contravention of this Law.
3	section 733	ASC intervention (application to the Panel) Under this section the ASC may apply to the Corporations and Securities Panel for a declaration if it appears to the ASC that unacceptable circumstances have, or may have, occurred in relation to a reduction in share capital. If the Panel makes a declaration it may exercise a range of powers under section 734.
4	sections 1001A-1001D	continuous disclosure provisions Under these sections a disclosing entity is required to disclose information about its securities that is material and not generally available.
5	Chapter 2E	benefits to related parties to be disclosed Under this Chapter a financial benefit to a director or other related party that could adversely affect the interests of members of a public company, or diminish or endanger its resources, must be approved at a general meeting before it can be given.
6	section 125	provisions in constitution This section deals with the way in which a company's constitution may restrict the exercise of the company's powers and the consequences of a failure to observe these restrictions.
7	sections 246B-246G	variation of class rights These sections deal with the variation of rights attached to a class of shares. This variation may be governed by the provisions of the company's constitution.

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