CHAPTER 14: CAPITAL MAINTANANCE AND DIVIDEND LAW

1. Capital maintanance
Capital maintenance is a fundamental principle of company law that limited companies
should not be allowed to make payments out of capital to the detriment of company
creditors. Therefore, the Companies Act contains many examples of control upon
capital payments. These include provisions restricting dividend payments, and capital
reduction schemes.
(Bảo toàn vốn là một nguyên tắc cơ bản của luật công ty mà các công ty trách nhiệm
hữu hạn phải tuân theo. Theo đó, công ty không được phép thực hiện thanh toán
bằng vốn điều lệ vì điều này có thể gây phương hại cho các chủ nợ của công
ty. Do đó, Đạo luật Công ty có nhiều ví dụ về kiểm soát các khoản thanh toán vốn.
Chúng bao gồm các điều khoản hạn chế chi trả cổ tức và các chương trình giảm vốn.)
2. Reduction of share capital
- Reasons for reduction of share capital
+ The company has suffered a loss in the value of its assets and it reduces its
capital to reflect that fact.
+ The company wishes to extinguish the interests of some members entirely.
( loại bỏ hoàn toàn tiền lãi của 1 số thành viên)
+ The capital reduction is part of a complicated arrangement of capital which may
involve, for instance, replacing share capital with loan capital.
- Three basic methods of reducing share capital
 - Role of court in reduction of share capital
+ first concern is the effect of the reduction on the company's ability to pay its debts;
+ The second concern of the court, where there is more than one class of share, is
whether the reduction is fair in its effect on different classes of shareholder
3. Distributing dividends
3.1. Power to declare dividends
- The company in general meeting may declare dividends.
- No dividend may exceed the amount recommended by the directors, who
have an implied power in their discretion to set aside profits as reserves.
- The directors may declare such interim dividends as they consider justified.
- Dividends are normally declared payable on the paid up amount of share
capital.
- A dividend may be paid otherwise than in cash.
- Dividends may be paid by cheque or warrant sent through the post to the
shareholder at their registered address. If shares are held jointly, payment of
dividend is made to the first-named joint holder on the register.
3.2. Distributable profit
Distributable profit = accumulated realised profits - accumulated realised losses
3.3. Dividend of public company
A public company may only make a distribution if its net assets are, at the time, not less
than the aggregate of its called-up share capital and undistributable reserves. It may
only pay a dividend which will leave its net assets at not less than that aggregate
amount.
Undistributable reserves are defined as:

- Tài khoản thặng dư vốn cổ phần (Share premium account)

- Quỹ dự trữ hoàn vốn (Capital redemption reserve)
- Khoản dự phòng đánh giá lại (revaluation reserve)
- Bất kỳ khoản dự trữ nào bị cấm phân phối theo luật hoặc các điều lệ của công ty
(Any reserve which the company is prohibited from distributing by statute, its
constitution or law)
3.4. Infringement of dividend rules

The directors are held responsible since they either recommend to members in general
meeting that a dividend should be declared or they declare interim dividends.
(a) The directors are liable if they declare a dividend which they know is paid out of
capital.
(b) The directors are liable if, without preparing any accounts, they declare or
recommend a dividend which proves to be paid out of capital. It is their duty to satisfy
themselves that profits are available.
(c) The directors are liable if they make some mistake of law or interpretation of the
constitution which leads them to recommend or declare an unlawful dividend. However,
in such cases the directors may well be entitled to relief as their acts were performed
'honestly and reasonably'.