Doctrine of Capital Maintenance for Corporation Law- MyAssignmenthelp

Question: Discuss about theDoctrine of Capital Maintenancefor Australian Corporation Law. Answer: Under the aspect of Australian Corporation Law, Doctrine of Capital Maintenance plays an integral role. On analyzing the basis of formulation of Doctrine of Capital Maintenance it can be identified that, due to the limited liability of the stakeholders, safeguarding the interest of the creditors have been a major concern. In order to manage the issue, doctrine of capital maintenance has been developed, that is a collection of laws formulated for the purpose of ascertaining that the company receives the capital supposed to raise and another factor resulted in the formulation of the doctrine is maintenance of the capital that is necessity of the business, in order to provide protection an benefit the organizations creditors (Tomasic, 2015). Thus, the main rationale of origin of Doctrine of Capital Maintenance have two major edifice firstly, to safeguard the creditors interest and secondly, to ascertain lawful dissipation of the companys assets. In this context the case of Trevor v Whitworth [1887] 12 App Cas 409 is mentionable. In the particular case it was stated by the House of Lords, the loss of the paid up capital in the course of trading of a company cannot be prevented (swarb.co.uk, 2017). However, the company or the members of the company are liable to the creditors in regards to the remaining capital and companys coffers, wherein they are required to ascertain that not part of the creditors are paid out on their part, other than legitimate demand of the business. On analyzing the above made discussion the benefits associated with Doctrine of Capital Maintenance can be clearly observed. One of the major benefit associated with the implementation of the Doctrine of Capital Maintenance is it safeguards the interest of the interest of creditors of the company. In addition to the above made discussion, with the help of implementation of Doctrine of Capital Maintenance it can be further ascertained that the existing compulsory share capital of a company is used for the benefit of the creditors and hence provides the creditors safety net and guarantee in regards to creditworthiness of the company (Islam, 2015).. The other mentionable benefit associated with the implementation of Doctrine of Capital Maintenance is the fact that with the implementation of the doctrine lawful dissipation of the companys assets can also be ensured. However, there are certain exceptions associated with the Doctrine of Capital Maintenance. Under Corporations Act 2001 [256B], a company is entitled to reduce the share capital in a manner which is legitimate in nature. Similarly, under Corporations Act 2001 [257B] buy back procedure have been provided which helps in ascertaining lawful dissipation of the companys assets and shares. Under Corporations Act 2001 [260A], aspects associated with financial assistance on the part for a company are provided in regards to acquiring shares in the company or holding company (Austlii.edu.au, 2017). Corporations Act 2001 [259A] provides with legal considerations associated with directly acquiring own shares (Austlii.edu.au, 2017). These are certain exceptions associated with Doctrine of Capital Maintenance which are required to be taken into consideration on the part of the organizations particularly the creditors. References Austlii.edu.au. (2017). CORPORATIONS ACT 2001 - SECT 259A. [online] Available at: https://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s259a.html [Accessed 23 May 2017]. Austlii.edu.au. (2017). CORPORATIONS ACT 2001 - SECT 260A. [online] Available at: https://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s260a.html [Accessed 23 May 2017]. Islam, M. S. (2015). The Doctrine of Capital Maintenance and its Statutory Developments: An Analysis. Northern University Journal of Law, 4, 47-55. swarb.co.uk. (2017). Trevor v Whitworth: 1887. [online] Available at: https://swarb.co.uk/trevor-v-whitworth-1887/ [Accessed 23 May 2017]. Tomasic, R. (2015). The Rise and Fall of the Capital Maintenance Doctrine in Australian Corporate Law.