UK capital maintenance regime for companies

Hand-in Assignment_7:

Capital maintenance through profit distribution restrictions is a controversial issue in academic discussion. One inflammatory statement not in favour of a capital maintenance regime stated:

We believe, that certain interest groups with more influence in Europe than in the United States benefit significantly from the legal capital rules, despite their inefficiency. Two other interest groups that clearly benefit are accountants and lawyers (who must guide through the labyrinth of needlessly complicated legal capital rules). Furthermore, most European corporate lawyers have invested significant human capital in becoming familiar with the legal capital rules. Repealing these rules would destroy the value of that human capital.

Enriques, Luca and Macey, Jonathan R., (2001) Creditors versus Capital Formation: The Case Against the European Legal Capital Rules, Cornell Law Review, 86 (6), p. 1202.

Describe and explain the main provisions of the current UK capital maintenance regime for companies. What are the principal objectives of the capital maintenance rules creditor protection by providing a capital buffer zone, or company and shareholder protection by preventing asset stripping, or other? Are these objectives mutually exclusive or do they support each other? Do the current rules provide adequate protection for creditors or shareholder? As part of your analysis, consider the advantages and disadvantages of adopting a solvency declaration as a support to such rules (or a solvency test, as in New Zealand, as a replacement for such rules).

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