Company Reconstruction-Type (Part 1)

Company Reconstruction:-
· A term used to describe the drastic formal changes in a company’s capital structure as a result of certain circumstances.
Type of Reconstruction:-
· Divided into two(2) types namely:

· Internal reconstruction

· External reconstruction

Internal Reconstruction:-
· Undertaken by companies that have surplus capital or companies whose capital has been eroded by trading losses
· In this type of internal reconstruction, companies who wish to reduce their capital need to comply with certain requirements of their local Companies Act. This normally involves the following:

· The capital reduction scheme must be confirmed by the court

· The articles of association of the company must provide for such reduction of capital and

· A special resolution must be passed by the company.

Three(3) situations where the Companies Act ( in this case

Malaysia) permits such capital reduction:-

· To reduce or write off uncalled capital on any of its shares;

· To cancel paid up capital not represented by assets; or

· To refund any surplus capital ie. Capital in excess of the needs of the company ( a company which has par value of $1 applies to reduce to 50 cent per share so as to refund 50 cent per share to the shareholders )

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