78G. Reduction by special resolution subject to Court approval Flashcards
78G. Reduction by special resolution subject to Court approval
General overview
[78G.01] Sections 78G, 78H and 78I govern the reduction of share capital by the courts. A special resolution is required to be passed by the company that has to be approved by court order.
Special resolution by court
[78G.02] Where the reduction involves the issue of 70,000l nominal capital in exchange for the reduction of deferred shares without any consideration to the company, it is illegal: Re Development Co of Central and West Africa [1902] 1 Ch 547, Ch D ; cf Re Imperial Chemical Industries Ltd [1936] Ch 587, CA . See also Re Calgary and Edmonton Land Co [1906] 1 Ch 141, Ch D . It is not necessary to get the consent of all the bearer debenture holders when there was a special resolution obtained
Reduction under a scheme of arrangement
[78G.03] A judicial manager must apply for court sanction under both ss 78G and 210 if the scheme involved a reduction of capital
Different classes of shares
[78G.04] Where there are different classes of shares, the loss on a reduction ought to fall on those who would bear it in a winding up: Bannatyne v Direct Spanish Telegraph Co (1886) 34 Ch D 287 at 300 ; considered in Re Mackenzie & Co Ltd [1916] 2 Ch 450, Ch D . A scheme is not necessarily one that the court will not sanction if the loss, for good reasons, is made not to fall rateably upon the different sets of shares: British and American Trustee Corp v Couper [1894] AC 399 ; Re Credit Assurance and Guarantee Corp [1902] 2 Ch 601 . The court will not confirm a reduction of capital unless satisfied that it will not work unjustly or inequitably against the preference shareholders
Fair and reasonable
[78G.05] Where there has been a loss of capital and there are first preference, second preference, and ordinary shares, the loss should be made to fall upon that class of shares which according to the constitution of the company is the proper class to bear it so as to be fair and reasonable: Re Floating Dock Co of St Thomas Ltd [1895] 1 Ch 691, Ch D . For reduction of capital under a trust deed and binding on all debenture holders, see Re Hydraulic Power and Smelting Co [1914] 2 Ch 187, Ch D . The court’s jurisdiction in approving a reduction of capital is to ensure that creditors’ claims or debts are secured and there can be no doubt that any scheme which does not provide for uniform treatment of shareholders whose rights are similar would be most narrowly scrutinised by the court, and that no such scheme ought to be confirmed unless the court be satisfied that it will not work unjustly or inequitably: Poole & Ors v National Bank of China Ltd [1907] 1 AC 229, HL. Where the reduction would benefit the ordinary shareholders at the expense of the preference shareholders, it was not approved by the court: Re Barrow Haematite Steel Co [1900] 2 Ch 846, Ch D . The court has to consider the interests of the creditors, the shareholders and the public at large. Where these interests are protected, the court would sanction the reduction of capital
