Legal Memorandum on reduction of share capital.

Mr. Z

Address….

Dear Sir,

RE:     Legal Memorandum on reduction of share capital.

We refer to your email dated August 26, 2007 on the above subject.

From perusal of your email it appears that, Company 1(“COMPANY 1”) requires our legal opinion regarding the following issues:

1. Possibility of decreasing the authorised and the paid-up capital of COMPANY 1.

A company may reduce its share capital in accordance with sections 59-70 of the Companies Act 1994.

2. If yes, under what conditions or circumstances will a reduction in capital be allowed? What are the steps in effecting a reduction in capital?

According to Section 59 of the Companies Act 1994, a company limited by shares and having a share capital may reduce its share capital in any way if:

i)        there is authority in the Articles of Association for such reduction of share capital,

ii)       a special resolution is passed reducing its share capital; and

iii)     such reduction is confirmed by the High Court Division of the Supreme Court of Bangladesh.

Where a company has passed a resolution for reducing share capital, it shall, according to Section 60 of the Companies Act, have to apply by petition to the High Court Division of the Supreme Court of Bangladesh for an order confirming the reduction.

In considering the reduction of the share capital, the High Court Division of the Supreme Court of Bangladesh shall consider the interest of the creditors of the Company and also shall consider the reason for such reduction. The Honourable Court may refuse to confirm the reduction if the reason for such reduction is not fair and reasonable.

According to Section 64 of the Companies Act, the Honourable Court if satisfied with respect to every creditor of the company who under the Companies Act is entitled to object to the reduction, that either consent to the reduction has been obtained or his debt or claim has been discharged or has been determined or has been secured may make an order confirming the reduction on such terms and conditions as it thinks fit.

According to Section 61, the Honourable Court  may add to the name of the Company, until such date as the Honourable Court may fix, the words “and reduced” as the last words in the name of the Company and those words shall until that date be deemed to be part of the name of the Company.

Moreover, according to Section 69 of the Companies Act, the Honourable Court may require the Company to publish, as the Honourable Court directs, the reasons for reduction or such other information in regard thereto as the Honourable Court may think expedient with a view to giving proper information to the public, and, if the Honourable Court think fit, also causes which led to the reduction.

The special resolution reducing the share capital of a Company as confirmed by an order of the Honourable Court shall take effect after the Registrar of the Joint Stock Companies and Firm (“RJSC”) registers the following documents in accordance with Section 65 of the Companies Act:

(a)    the certified copy of the order of the Court confirming the reduction of the share capital of a company.

(b)   a copy of the minutes approved by the Court, showing the following :

(i)                  the amount of the reduced share capital;

(ii)                the number of shares into which it is to be divided;

(iii)               the nominal value of each such share;.

We have perused the Articles of Association of COMPANY 1, Article 21 of which states, “The Company may, from time to time, by Special Resolution, reduce its capital …. in any manner with and subject to any authorization and consent required by law.” Therefore, COMPANY 1 has the power to reduce its capital. In order to make the reduction effective, the procedures stated above shall have to be followed.

3. What are the governmental charges, fees and taxes in effecting a capital reduction?

Minimal court fees shall be required to file the application under section 60 of the Companies Act 1994 in the High Court Division of the Supreme Court.

Minimal fees shall be required to register the certified copy of the order of the Court with RJSC along with a copy of the minutes approved by the Court.

In addition there will be legal charge in the range of Tk.350,000.00 till conclusion of the legal  matter.

If you have any further query, please do not hesitate to contact the undersigned.

Thanking you,

Yours truly,

………………….

For: “The Lawyers & Jurists”

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