Written consent can justify dispensation of shareholder meetings and capital reduction procedure in a scheme

Where all equity shareholders and unsecured creditors have furnished written consents, the court may dispense with convening their meetings for approval of a proposed scheme. The court also accepted that, where reduction of share capital is an integral part of the scheme and does not prejudice creditors or involve diminution of liability for unpaid share capital or payment to shareholders, the procedural requirements for capital reduction may be dispensed with. On that factual basis, the scheme was permitted to proceed with both the meeting requirement and the related reduction-of-capital procedure dispensed with.

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Issues: (i) Whether the meetings of the equity shareholders and unsecured creditors could be dispensed with on the basis of written consents. (ii) Whether dispensation could be granted from the procedure for reduction of share capital forming part of the proposed scheme.

Issue (i): Whether the meetings of the equity shareholders and unsecured creditors could be dispensed with on the basis of written consents.

Analysis: The application showed that all equity shareholders and unsecured creditors had furnished written consent letters approving the scheme. It was also stated that there were no secured creditors. On that factual foundation, the requirement of convening meetings was not necessary.

Conclusion: Dispensation of the meetings of the equity shareholders and unsecured creditors was granted.

Issue (ii): Whether dispensation could be granted from the procedure for reduction of share capital forming part of the proposed scheme.

Analysis: The scheme contemplated utilisation of the securities premium reserve and reduction of existing equity share capital as an integral part of the arrangement. It was asserted that the reduction did not involve diminution of liability in respect of unpaid share capital or payment to shareholders, and that shareholder consent would operate as the special resolution required for reduction of capital. The Court accepted that the creditors' interests were not affected.

Conclusion: Dispensation from the procedure under the Companies Act, 1956 and the Companies (Court) Rules, 1959 for the capital reduction component was granted.

Final Conclusion: The application was allowed and the proposed scheme was permitted to proceed with dispensation from the convening requirements and the related reduction-of-capital procedure.

Ratio Decidendi: Where all affected shareholders and unsecured creditors have given written consent and the proposed capital reduction forms an integral part of a scheme without prejudice to creditors, the court may dispense with the convening and procedural requirements.

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