Company law : capital maintenance rules

Abstract

" ... there is reason for thinking that, at least historically, the capital maintenance rules have not aimed at reducing contracting costs but rather have reflected a more paternalist approach to the use of the law to regulate the affairs of companies." (Davies, Introduction to Company Law, Clarendon Law Series (2002). With the advent of limited liability, the courts' concern turned to the protection of creditors. To that end there developed the doctrine of capital maintenance which essentially is a collection of rules designed to ensure, first, that a company obtains the capital which it has purported to raise, and secondly, that the capital is maintained, subject to the exigencies of business, for the benefit and protection of the company's creditors. In particular, the doctrine of capital maintenance precludes the return of capital, directly or indirectly, to the shareholders ahead of a winding up of the company'.