This content is from: Macau SAR

Macau SAR: Making use of extraordinary measures

In the midst of a global economic crisis of proportions unseen for generations, the financial woes of many businesses have become such that today, the pursuit of survival has taken the place of the pursuit of profit. Come the time for yearly accounting, companies based in the Macau SAR may be faced with a situation where their net value has decreased to such a level that the law mandates immediate action. Such is the case of Article 206 of the Commercial Code, the terms and provisions of which stipulate that, should the board of directors verify through the annual accounts that the company’s net value is lower than half of its share capital, it is compelled under the penalty of criminal law to submit for approval by the shareholders a resolution which embraces one of the three solutions set forth by the legislator.

Under the banner of safeguarding share capital as the primary foundation upon which third-party trust rests, these include first and foremost the company’s dissolution, unarguably the least desirable alternative and one which, even when not entered into voluntarily, may nevertheless be imposed upon shareholders. The alternatives may be, as per the above-mentioned Article 206, either the nominal reduction of share capital or, with particular relevance, shareholders’ contributions (which the law refers to as cash contributions).

Unsurprisingly, a contribution of this nature cannot take place in the form of shareholder loans or a simple share capital increase, as it must be positively accounted for in the balance sheet in order to increase the company’s net value. To achieve this goal, the shareholders will theoretically have to make use of options that will adjust the company’s net value and equity. A number of these are available, and their adequacy is to be assessed on a case-by-case basis.

João Nuno
Riquito
Paulo Alves
Teixeira

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