Plastic Co Pte Ltd ('Plastico') is a Fiji company. The company has issued and paid up capital of $250,000 held in equal parts by two brothers. The company's business involves making plastic products for the local market.

The brothers are planning to emigrate to New Zealand and wish to sell the company. An agreement in principle is reached for X to buy the company for $1 million. This is a cash sale.

Presume that you are wealthy and a longtime friend of X.

X comes to see you. She explains that she has in hand $800,000 (from her own savings and bank financing) and is short $200,000 to close the deal. X wants you to loan her $200,000. X has two specific proposals as follows.

Proposal Two

X proposes that you lend her $200,000. This will be a longer term loan of say 6 years to be paid down incrementally over the life of the loan. Plastico will retain its present factory premises. As security for the loan, Plastico's new directors, X and her husband, will have Plastico grant you a first mortgage over the current factory premises. Given the valuation placed on the premises the loan will be almost risk free.

Further details of both proposals provide an attractive return for you on the financing.

Required;

Does the proposal offend any of the capital maintenance rules?