Aspects of the regulation of share capital and distributions to shareholders

摘要

It is in the area of the regulation of a company's share capital and distributions toshareholders that the inherent conflict between creditors and shareholders, andthe fragile balance among shareholders internally, intersect. The share capital ofa company underlies its corporate structure and represents not only its initial ownfunds from which creditors can be paid, but also the relative equity interests ofthe shareholders.The balance between shareholders can be disturbed by capitalreorganisations through increase, reduction or variation of share capital orthrough disproportionate contributions by, or distributions to, shareholders. Sharerepurchases are particularly risky in this regard. Creditor interests are affectedwhen their prior right to payment is endangered by distributions to shareholders.This study analyses the South African Law relating to share capital anddistributions against the background of a comparative study of the laws ofEngland, New Zealand, Delaware and California, as well as the provisions of theAmerican Model Business Corporations Act.Two main approaches to creditor protection are evident. The capitalmaintenance doctrine, which is followed in England and Delaware, protectscreditors by emphasising the notional share capital of the company as a limit ondistributions. In contrast, the solvency and liquidity approach focuses on the netassets of the company and on its ability to pay its debts. New Zealand, Californiaand the Model Business Corporations Act represent this approach.Regulatory responses to shareholder protection range from insistence oncompliance with procedural requirements to minimal statutory intervention in theinternal affairs of companies, instead relying on general principles of fairness andgood faith. There is little correlation between a particular system's approach tocreditor protection on the one hand, and to shareholder protection on the other.England, New Zealand and South Africa prescribe specific formalities, while theAmerican approach is more relaxed.South Africa is a hybrid system. Its transition from capital maintenance tosolvency and liquidity has been incomplete and its protection of equity interests isrelatively unsophisticated. A number of recommendations are made for aneffective and coherent approach that will safeguard the interests of creditors andshareholders alike.