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Companies Act 1993

Shares and debentures - Distributions to shareholders

57: Reduction of shareholder liability a distribution

You could also call this:

“Rules for reducing what shareholders owe for their shares”

When a company wants to change its rules, buy back its own shares, or redeem shares in a way that reduces what you owe the company for your shares, this is treated like giving out money to shareholders. The company needs to follow the same rules as when it gives out money.

If the company has already changed its rules, bought back shares, or redeemed shares in a way that reduced what you owed for your shares, this reduction is treated as if the company gave you money equal to how much less you now owe.

When companies join together (called amalgamation), if you end up owing less for your shares in the new company than you did in the old one, or if your shares are cancelled, this reduction in what you owe is treated as if the new company gave you money. This applies even if you don’t become a shareholder in the new company.

In all these cases, the company must follow the rules about giving money to shareholders, as explained in other parts of this law.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM320177.

Topics:
Business > Industry rules
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Part 6 Shares and debentures
Distributions to shareholders

57Reduction of shareholder liability a distribution

  1. If a company proposes to alter its constitution, or to acquire shares issued by it, or redeem shares under section 69, as the case may be, in a manner which would cancel or reduce the liability of a shareholder to the company in relation to a share held prior to that alteration, acquisition, or redemption, the proposed cancellation or reduction of liability is to be treated,—

  2. for the purposes of section 52, as if it were a distribution; and
    1. for the purposes of subsections (2) and (3) of section 53, as if it were a dividend.

      1. If a company has altered its constitution, or acquired shares, or redeemed shares under section 69, as the case may be, in a manner which cancels or reduces the liability of a shareholder to the company in relation to a share held prior to that alteration, acquisition, or redemption, that cancellation or reduction of liability is to be treated for the purposes of section 56 as a distribution of the amount by which that liability was reduced.

      2. If the liability of a shareholder of an amalgamating company to that company in relation to a share held before the amalgamation is—

      3. greater than the liability of that shareholder to the amalgamated company in relation to a share or shares into which that share is converted; or
        1. cancelled by the cancellation of that share in the amalgamation,—
            1. the reduction of liability effected by the amalgamation is to be treated for the purposes of section 56(1) and (5) as a distribution by the amalgamated company to that shareholder, whether or not that shareholder becomes a shareholder of the amalgamated company of the amount by which that liability was reduced.