Composite scheme of arrangement can include capital reduction where informed shareholder assent and substantial compliance are established.
A composite scheme of arrangement combining demerger with reduction of share premium and capital may be sanctioned where the articles permit such reduction and the members and creditors have been duly informed and approved the scheme with the requisite consent. The Court applied the Duomatic principle to hold that, in a composite restructuring, the substance of a special resolution can be satisfied by unanimous or overwhelming informed shareholder assent even if the reduction is not separately worded. It further treated substantial compliance with the capital reduction procedure as sufficient and noted that the scheme was fair, reasonable, and not prejudicial to members or creditors. The reduction of share premium and capital was therefore confirmed as part of the sanctioned arrangement.
Issues: Whether the proposed scheme of arrangement, which included demerger along with reduction of share premium account and reduction and reconstruction of capital, could be sanctioned despite the absence of a separately worded special resolution for reduction.
Analysis: The scheme was approved by the shareholders and creditors after notice, the requisite majority of unsecured creditors and share applicants consented, and the companies' articles authorized reduction of capital and share premium. The Court held that where the reduction is an integral part of a composite scheme, the procedure under the Companies Act, 1956 governing reduction of capital must be substantially complied with. Applying the Duomatic principle, the Court found that unanimous or overwhelming informed shareholder assent to the scheme could satisfy the substance of the requirement for a special resolution, even if the reduction was not separately described in formal terms. The scheme was also found to be fair, reasonable, and not prejudicial to members or creditors.
Conclusion: The scheme of arrangement was sanctionable, and the reduction of share premium and capital was validly confirmed.
Final Conclusion: The composite restructuring scheme was approved, and the reductions in share premium and capital were confirmed as part of the sanctioned arrangement.
Ratio Decidendi: A scheme of arrangement that necessarily includes reduction of capital or share premium may be sanctioned under the company court's jurisdiction when the articles permit such reduction, the members and creditors have been duly informed and have approved it with the requisite majority or unanimous assent, and substantial compliance with the reduction procedure is established.
TaxTMI 
AI Drafter ✕
TaxTMI 
