Banishing par value

PUBLISHED : Friday, 02 May, 1997, 12:00am
UPDATED : Friday, 02 May, 1997, 12:00am

A flexible capital structure would improve management's ability to raise capital and restructure more efficiently, the report states.

It recommends sweeping changes to cumbersome procedures and recommends the scrapping of par value - a means of measuring liquidity - and partially paid shares.

The report states: 'The importance of eliminating the concept of par value cannot be over-emphasised if simplification of capital structure rules is to be achieved.

'The difficulties associated with issuing shares at a discount or splitting overvalued shares fall away. 'A share is simply a proportionate interest in the net worth of a business,' in the words of one famous company law report.' The report calls for the replacement of complicated capital maintenance tests - which have been largely inherited from Continental European law - with simpler solvency tests.

It states: 'Distributions - that is, payments of dividends and other transfers of corporate assets - would only be permitted if the company would remain solvent on a balance sheet and cash flow basis after the payment. 'This is a key recommendation which will do much to simplify the new ordinance.'