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Ma'am how come SH will accept cancellation of paidup capital without paying back amount to them. It's not fair in shareholders point of view..
Answers (2)
This happens in case of a company which is undergoing internal reconstruction. If the company does not have enough money to pay outside liabilities, creditors and shareholders may agree to give a part of the claim to ensure that the company continues. You will understand this in more detail in Advanced Accounting - Internal Reconstruction.