Company Reconstruction and Capital Alteration Overview
Company reconstruction involves internal and external methods to reorganize the financial structure without liquidation or by forming a new company after liquidating the existing one. Objectives include writing off losses, adjusting share values, ensuring fair returns, and enhancing goodwill. Capital alteration methods can change the composition of share capital, such as issuing new shares, consolidation, or sub-division. Court approval may be required for certain alterations.
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Internal reconstruction: neither liquidation nor formation of a new company. External reconstruction: the existing company has to be liquidated for the purpose of forming another new company. i. ii.
Reorganisation of the existing financial structure of a company.
To write off past accumulated losses. To reduce their face value of shares to real value. To present true and fair value of the firm. To assure fair return on investment. To enhance goodwill. To ascertain real value of net assets
Internal reconstruction Capital alteration Capital reduction
Changing the composition of share capital of a company. Does not require approval of the court. - Methods: Increase share capital by issue of new shares. b. Consolidation of shares Sub-division of shares Convert shares to stock or stock to shares Cancel the unissued shares a. c. d. e.
Cancellation of any paid up share capital to write off the past accumulated losses and intangible assets of the company. Require approval of the court.
Basis INTERNAL RECONSTRUCTIO N Reorganisation of the existing financial structure of a company. EXTERNAL RECONSTRUCTIO N When one company goes into liquidation and a new company is formed in that place. Meaning Liquidation No liquidation Liquidation of one company A new company is formed To increase the competitive strength Court approval is not required Formation No new company is formed To write off the accumulated losses Court approval is required Objective Approval of the court
