Directors should be wary of the new flexible approach for returning money to investors, say Paul Christopher & Gemma Campbell
Probably the most significant change from previous practice in Guernsey law under the Companies (Guernsey) Law 2008 (the Company Law), which came into effect on 1 July 2008, was the consignment to history of the concept of capital maintenance, which was discarded in favour of a solvency model as the basis of a company’s ability to pay distributions and dividends.
To recap, the term “capital maintenance” meant that a company must raise the capital which it has stated it will raise in its memorandum and, broadly, a limited company could not return capital to its shareholders other than in compliance with and as authorised by explicit statutory provisions. Any unauthorised returns were illegal at common law. The rules were primarily intended for the protection of the creditors. However, experience has shown to be questionable the extent to which the capital maintenance rules provided such protection, especially since there were various
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