chapter  7
32 Pages


Even in the context of a ‘quasi-partnership’ company, without more, a shareholder is unable to unilaterally withdraw from the company by requiring either the company or the other shareholders to buy him out (O’Neill v Phillips [1999] 2 BCLC 1). The permanency of the capital contribution made by a shareholder, or, put another way, the retention of share capital by the company vis-à-vis the shareholder, is a fundamental principle of company law. Not only can an individual shareholder not demand his share of the company’s wealth from the company (which can be seen as protecting the majority of shareholders from individual shareholders who could otherwise jeopardise the finances of the company) but, under the rationale of creditor protection, the courts established the principle that the company is prohibited from returning share capital to shareholders: a prohibition that operates regardless of the wishes of the majority of shareholders. In support of this ‘capital maintenance’ principle, elaborate statutory procedures have been enacted in an effort to ensure that various mechanisms used by companies for legitimate purposes cannot be misused to remove share capital from the company when it is not in the creditors’ interest for this to be done. Sealy has described the statutory provisions as ‘byzantine obfuscation’. Moreover, evidence exists that creditors do not place great reliance on the share capital of a company when deciding the creditworthiness of a company. Although the 2006 Act has taken steps to deregulate this area in relation to private companies, the second European Company Law Directive prevents significant deregulation in relation to public companies. Consequently, the capital maintenance laws, which are considered in the next chapter, remain complex.