n South African Law Journal - Issues relating to the regulation of 'distributions' by the 2008 Companies Act : notes

Volume 126, Issue 4
  • ISSN : 0258-2503
  • E-ISSN: 1996-2177



The distribution by a company of its assets to its shareholders, whether they be in the form of cash or otherwise, ought to be carefully regulated by any legal system intent on protecting the interests of creditors and minority shareholders of the company. Until 1999 such protection was largely provided for by the maintenance of capital principle. This principle manifested itself in various ways, the most significant being that it was unlawful for a company to acquire its own shares or shares in its holding company, and the distribution of funds to shareholders other than those representing legally distributable profits usually required a court order. In 1999 this all changed with far-reaching amendments to the Companies Act 61 of 1973 (see the Companies Amendment Act 37 of 1999). The maintenance of capital principle was effectively abolished; companies were permitted to acquire their own shares and shares in their holding companies; and the distinction between profits and other funds of a company was removed. The distribution of funds entailed was allowed provided, inter alia, the company's solvency and liquidity was not placed in jeopardy and, in the case of a buy-back or a purchase of shares in the holding company, a special resolution had been adopted to approve the transaction.

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