Section 55 of CA 2013 : Section 55: Issue And Redemption Of Preference Shares

Explanation using Example

Let's consider a hypothetical scenario where "FutureTech Infrastructures Ltd." is a company limited by shares and is involved in large-scale infrastructure projects. The company decides to finance a new project by issuing preference shares. According to Section 55 of the Companies Act, 2013:

• FutureTech cannot issue preference shares that are irredeemable, meaning the shares must have a redemption date.
• The company's articles of association allow for the issuance of redeemable preference shares, and they plan to redeem these shares within 20 years. However, given the nature of their long-term infrastructure projects, they opt to issue shares with a redemption period exceeding 20 years, which is permissible under the Act for such projects.
• FutureTech ensures that the redemption of these shares will be financed either through profits available for dividends or through a fresh issue of shares, as required by the Act.
• The company fully pays up the preference shares before announcing any redemption.
• They also set aside a sum equal to the nominal amount of the shares to be redeemed into a Capital Redemption Reserve Account, following the Act's provisions.
• As FutureTech's financial statements comply with the prescribed accounting standards, any premium payable on redemption is provided for out of the company's profits before redemption occurs.

If FutureTech later finds itself unable to redeem the preference shares or pay dividends as per the terms, it can, with the consent of three-fourths of the preference shareholders and approval from the Tribunal, issue new redeemable preference shares to cover the unredeemed shares, including any dividends owed.