Redemption of preference capital

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This discussion addresses whether a company can redeem its preference shares using its general reserve. Based on the provided balance sheet, the general reserve is insufficient for this purpose, especially after accounting for the P&L debit balance. The company would likely need to issue fresh shares or use profits to redeem preference shares. Redemption directly from general reserves in this scenario is not feasible and could negatively impact creditors and members.

Abinash Panda

Abinash Panda (Querist)
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23 April 2023 A company's balance sheet

ESC 100 BANK 400
PSC 50
P&L (300)
G/R 50
LOAN 500

Can the company redeem it's preference share by using general reserve and kindly tell me , is it bad for creditor and members.
Kindly explain it . No one gave me
Answer .

Manish

Manish (Expert)
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25 April 2023 GR minus debit balance of P&L = -250. Not sufficient to create CRR.
The company cannot redeem pref. shares out of reserves here. It needs to issue fresh shares.