“In considering an application for the reduction of capital of a company under the Companies Act, Cap 486, the Courts while affording adequate safeguards for the interests of creditors have ignored totally the interest of the shareholders and the public at large”. Do you agree?

On the one hand it is quite true to argue that whereas courts of law afford adequate safeguards for creditors, they have ignored the interests of shareholders and the public at large. This argument is premised on the following realities:

Primo, under section 69 (1) of the Act, once an application for the confirmation ofreduction of capital is made, the court settles the list of creditors and must satisfy itself that all creditors have either objected or consented to the reduction.

Secundo,if creditors have objected, the court must satisfy itself that such creditors‟claims have been secured, discharged or determined. However the court is empowered to dispense with the consent of a creditor.

Thirdly, under section 70 (1) of the Act a reduction of capital will only beconfirmed if the court is satisfied that objecting creditors claims have been secured, discharged or determined.

However, on the other hand it is arguable that the interests of shareholders and the public are also safeguarded. This assertion is justifiable on the following arguments:
 Primo, as a general rule a court of law will not confirm a reduction of capital if thesame is unfairly prejudicial to any class of members of the company.

Secundo,the court may when confirming the reduction, for any special reason, butfor a
specified duration order the company to add the words “and reduced” as the last words to its name and for the duration of the order, the words “and reduced”form part of the company‟s name. This compulsory change of name is intended to protect the public at large by putting it on inquiry when dealing with the company.

 Third, the court may order that notice of reduction of capital by a company be published for all and sundry.

Arguably therefore, though courts of law accord more attention to creditors, the interests of shareholders and the public at large are not totally ignored. In any event the interest of shareholders and the public are generally safeguarded by the provisions of the Companies Act relating to reduction of capital: e.g. members must by special resolution authorise the reduction and the same is registrable in accordance with the Provisions of Section 71 (1) of the Act, hence potential investors are deemed aware of that fact courtesy of the doctrine of the constructive notice.

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