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are also at their most vulnerable position and to allow company to purchase its own
shares will further worsen their position, hence the requirement of company solvency
to be declared. In addition, directors are required to make declaration that the
purchase is in good faith and in the interests of company. 93
The provision in section 67A seems to balance the interests of creditors on one hand
and the shareholders on the other. Creditors‟ rights are duly protected when directors
are required to consider the solvency of the company before a decision is made.
Shareholders‟ rights are also protected when directors have to state in their
declaration that the act is done in good faith and in the interests of the company
because of the courts‟ tendency to equate interests of the company and that of
shareholders.
Another aspect of the doctrine of capital maintenance concerns payment for shares at
their nominal value, this must be paid in full and the company is not allowed to make
a gratuitous allotment or at a discount. 94 This is to ensure that the initial share capital
funds stated in the Memorandum of Association is truly reflected and provided as a
cushion of solvency. 95 However, it does not grant any protection to creditors against
insolvency because there is usually no link between initial share capital and capital
employed by company. 96 Consideration for share capital can be in money or money‟s
worth or both, though the latter cannot be less in value than the value of a nominal
share or else it will constitute a discount. Likewise, payment made in non-monetary
consideration may also infringe creditors‟ interests, since the amounts are not
represented with cash reserve. 97
93 See section 67A(2)- A company shall not purchase its own shares unless-
(c ) the purchase is in good faith and in the interests of the company.
94 Farrar and Hannigan above n2 at 172.
95 Law Commission Company Law Reform and Restatement (NZLC R9, 1989) at [376].
96 Ibid, at [378]. In addition, the concept also provided confusion to accounting practice.
97 Ross above n 64 at 9.
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