Capital Maintenance for Price Smoothing - MyAssignmenthelp.com

Question: Discuss about theCapital Maintenance for Price Smoothing. Answer: The history of the doctrine of capital maintenance can be traced from the year 1887. During this period a famous judgment had been ruled by the court in the famous case of Trevor v Whitworth. The case ruled that a company is not entitled to return the capital gained by it to its shareholder. The directors of in this case were alleged to distribute dividends in an unethical manner. The shareholders had the knowledge that the company had not made enough profit which could entitle them to dividends still they opted for dividends. The primary purpose of the doctrine was to provided security to the creditors of the company[1]. The doctrine provided that a company is not entitled to reduce its capital by providing financial assistance, issuing shares without just consideration and paying dividends without profit[2]. However as the doctrine was complex and did not allow the organizations to properly execute their functions it was modified numerous time until a nearly perfect doctrine was achieved which could not only save the interest of the creditors but also ensure smooth functioning of the businesses. Most of the common wealth countries have included the doctrine in either common law or statues enacted by the parliament towards governing corporations The doctrine of capital maintenance has been included in the Australian law but not without changes to it. The corporation act is the main source of law which governs corporations in Australia along with common law. The legislation however allows a company to reduce its shares in certain circumstances such as issue of bonus shares, dividends, and providing financial assistance. Bonus shares are allowed to be issued by the corporation act through Section 254 A. however the legislation provides that the bonus shares can only be provided when a company makes profits[3]. In the same way the legislation has provisions for the issue of dividends through Section 254T where dividends can also be issued when a company has made profits[4]. Section 588G of the Act prevents the directors of the company to involve in trading when the company is insolvent or even when the directors have the knowledge that the company would not become insolvent if it Indulges in the act. The legislations also provi de powers to minority shareholders to exercise their powers in the annual general meetings. The directors duties which have been given through Section 180-184 of the Act makes the directors accountable for their actions. Thus the doctrine is still operating in Australia subjected to changes. References Authority, Queensland Competition. "Financial Capital Maintenance and Price Smoothing: Information Paper." (2014). Bradbury, Michael E. "Capital maintenance in a contemporary context."Browser Download This Paper(2015). Corporation Act 2001 Islam, Md Saidul. "The Doctrine of Capital Maintenance and its Statutory Developments: An Analysis."Northern University Journal of Law4 (2015): 47-55.