As accountant, we often heard term like Company XYZ is under company reconstruction. So whats really does it mean?

This article gives a basic understanding of what’s company reconstruction:

Firstly,let’s look at this term called:

Company Reconstruction:-

• it is used to describe the drastic formal changes in a company’s capital structure as a result of certain circumstances.

There are two major type of company reconstruction namely:

• Internal reconstruction and

• 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 )

Return to Content Page for all articles on company capital reduction/reconstruction/reorganization

If you found this post useful, keep updated with future posts by subscribing to FMAccounting (for free) through RSS or email.

Related Entries

• Reasons For Capital Reduction And Its Accounting Treatment
• A Basic Understanding Of Capital Reconstruction & Reorganization
• Content Page On Capital Reduction/Reconstruction/Reorganization
• Internal Company Reconstruction:Capital Reduction By The Return Of Surplus Capital To Shareholders(Part2)
• Illustrated Example Of Capital Reduction-Pan Malaysia Industries