By Anika Mardiah Chowdhury
Shares are defined as a share capital of a company or part of securities and include stock as under section 2(84) of the companies Act, 1994 Bangladesh. Share issued by companies for the purpose of development and growth of the business. Also, for expansion of business or to increase its capital a company borrows money from different creditors. A company in certain circumstances may decide to reduce its share capital if reduction diminishes a company’s ability to satisfy its liabilities. Reduction of share capital includes subscribed Paid up capital not the authorized capital. The term capital from the share capital may mean many things among them Paid up capital is the amount of money actually paid by the subscribers. This article will discuss the approach of reduction of paid up capital under the Company Laws of Bangladesh.
The reduction of Paid up capital may require in many circumstances, for example trade losses, substantial losses of assets, to adjust the capital and assets and others. In Tamil Nadu Newsprint and Papers Ltd. vs. Registrar of Companies (1995), the Madras High Court permitted the company to reduce its capital which was found to be more than its needs by allowing it to pay the same partly in cash and partly in the form of non-convertible debentures.
The conditions for reduction of paid-up capital have stated under section 59 of the Companies Act, they are-
- If the authority of reduction is given in the Article of Association.
- A special resolution passed for reducing the capital.
- If the reduction permitted by the High Court Division of the Supreme Court of Bangladesh.
At the beginning the company must have authority given under its Articles of Association regarding reduction of its capital. If it does not contain such provisions, then that must be altered and added.
In addition for the consideration of capital reduction a general meeting must be held for passing a resolution by convening a twenty one days prior notice. Notice will be sent to all the Directors, Members, Auditors of the Company, Secretarial Auditor and to others who are entitled to receive the notice of the General Meeting. The resolution must be passed by three-fourths of the majority members. In a case the court sanctioned that the reduction must approved by majority of the equity shareholders including majority of non-promoter shareholders in [(2009) 151 Com Cases 251].
Next if the company has passed a resolution for reducing share capital, then it shall apply through a petition to the High Court of the Supreme Court of Bangladesh for an order of confirming the reduction capital as according to Section 60 of the Companies Act. It is legal obligation that the petitioners will disclose all the facts and show evidence that reduction is necessary for public interest or public policy.
Though a company has the right to determine the incidence of the capital reduction along mode of reduction but the court will always see the interest of the minority shareholders and the right of the creditors if adequately protected or not. Also, in considering the reduction of capital the court will consider the reason for such and if the reduction is fair and equitable or not.
The court if found the bona fida intention for the capital reduction and for the protection of creditors then under Section 64 of the Companies Act states that the court will order for such reduction, if satisfied that every creditor of the company who under the Companies Act is entitled to object to the reduction has given consent.
In addition, the court may require or order the company to publish regarding such reduction also if the court deems fit the causes behind such reduction as under section 69 of the Companies Act.
After the order of the court the company shall submit documents as under section 65 of the Companies Act before the Register of the Joint Stock Companies and Firm. The documents are-
- The copy of the order of the Court confirming the reduction of the share capital of a company and the copy must be certified,
- A copy of the minutes approved by the Court regarding the amount of the reduced share capital.
- Then the number of shares into which it is to be divided,
- The nominal value of each such share.
The reduction will take effect after the confirmation order from the Register of the Joint Stock Companies and Firm. The RJSC will register the same and issue a certificate of such reduction. It is to be mentioned that the certificate shall be the conclusive evidence in respect to reduction of the capital.
In conclusion it is to notify that if the reduction of share capital involves any contradict with the payment to any shareholder of any paid-up share capital then every creditor shall be entitled to bring objection to the court against such reduction as in the case of Manzurul Islam (Md) v ATN News Limited and others  HCD  65 DLR 350 states that the persons having shares equivalent to not less than one-tenth of paid up capital in the company can present an application against action of the company.