Underlined sentence

At the time of winding up, outsiders are paid first out of the asset proceeds. It's only then the remaining amount is distributed to shareholders. Example, at the lime of lending, outsider saw, okay this company has 10 lakh of assets and 5 lakh of equity and 5 lakh of preference share capital, so I will lend 3 lakh, as even if losses are made, I will get the amount as there is sufficient buffer. Now if say preference shares are redeemed, pool of funds gets reduced, security cover for lender will also fall.

Sahibdeep Singh

CA Inter

★ 14K+

21-May-21 13:33

From the creditor point of view, the redemption of preference shares must be replaced either by capital redemption reserve or by issuing fresh shares. In such situation, interest of outsiders is not affected. Simply, share capital must not be disturbed.

Yoga Vishnu

CA Final

★ 11K+

21-May-21 09:16

Ok sir. But what will be the impact on impact if the share capital gets disturbed.Why will they feel unsecured

Thread Starter

Gauri Shete

CA Final

★ 4K+

21-May-21 11:46

It acts as security for their amount

Sahibdeep Singh

CA Inter

★ 14K+

21-May-21 11:57

How??

Thread Starter

Gauri Shete

CA Final

★ 4K+

21-May-21 11:59