In which scenario can creditors object to capital cancellation?

Creditors can object to capital cancellation when there is a return of capital surplus to company needs because this scenario implies that the company is redistributing excess capital back to shareholders while still having ongoing financial obligations. Such actions can limit the resources available to meet creditor claims, which raises concerns for creditors, who may perceive a higher risk of default in recovering what they are owed.

In contrast, when capital has been permanently lost, this indicates a loss that has already been realized by the company, and creditors typically cannot object since the capital is effectively not available for their claims. Similarly, when the total share capital is fully paid, creditors generally do not have grounds to object, as the company is considered to have fulfilled its obligations regarding share capital raised. Lastly, when shares are classified as debentures, creditors in this context would not necessarily have the same concerns regarding capital cancellation as with equity shares, since debentures involve secured loans rather than equity ownership.