Care for Kids Pty Ltd (CFK) operates four Day Care centres. The companys paid up capital is $750,000, comprising of 1,500,000 ordinary 50c shares. CFK proposes that members be repaid 25c on each 50c share, leaving the paid up capital at $375,000. CFK proposes to borrow $250,000 (interest only) from the bank to fund the repayment, with the loan secured by mortgage over one of the four child minding centres. The loan period is 15 years and interest rate is fixed at 7.5 % per annum.

CFKs major creditor is Educational Toys and Equipment Pty Ltd (ETE) who supplied $450,000 in equipment to CFK. CFK owes ETE $300,000. CFK is required to repay $7500.00 per month to ETE. ETE is concerned that if the repayment to CFKs members goes ahead, CFK will be unable to pay ETE.

A snapshot of CFKs accounts reveal: Current assets $310,000; Current liabilities $250,000; Non-current assets $920,000; Non-current liabilities: $670,000 (which includes the $300,000 owing to ETE )

Advise ETE whether the proposed share capital reduction would be a breach of section 256B(1)(b)?