A scheme was proposed in a liquidation and a meeting of, inter alia, ordinary shareholders was proposed, who were to be given shares in the new company in place of their shares in the old, so to that extent they were affected by the scheme. The shareholders voted against the scheme; the other relevant participants voted in favour of it. On the hearing for sanction the scheme was held to stand. At first instance the amount of the company’s assets was the subject of an agreement and that amount negatived as a fact the notion that there could be any return to shareholders, so they had no financial interest.
Held: In those circumstances the vote of the shareholders could be disregarded.
Vaughan Williams LJ ‘In the present case the contributories were divided into two classes, preference shareholders and ordinary shareholders, and they voted in those classes, and the majority of the preference shareholders voted in favour of the scheme. It is said, however, that the scheme is rendered defective because the ordinary shareholders did not vote in favour of it. I think the right answer to this was given by Buckley J [the Judge at first instance]. You are to divide the shareholders into classes, and when you have done that you find that the preference shareholders have an interest in the assets. But when you come to the ordinary shareholders you find that they have no interest whatever in the assets, and Buckley J. was of opinion that, having regard to this fact, their dissent from the scheme was immaterial. I think that the learned judge was right in so holding. It seems to me that by the very terms of s. 24 you are to divide the contributories into classes and to call meetings of each class, and if you have the assent to the scheme of all those classes who have an interest in the matter, you ought not to consider the votes of those classes who have really no interest at all. It would be very unfortunate if a different view had to be taken, for if there were ordinary shareholders who had really no interest in the company’s assets, and a scheme had been approved by the creditors, and all those were really interested in the assets, the ordinary shareholders would be able to say that it should not be carried into effect unless some terms were made with them.’ Romer LJ ‘Having regard to the evidence and the admissions made in the court below, I think [the judge] was right in drawing the inference that the ordinary shareholders had no interest and I base my judgment solely on that ground. That being so, I can see no difficulty in holding that this scheme is only an arrangement as between the company and their creditors and as between the company and the preference shareholders and as such it is authorised by s 2 of the Act of 1870 combined with s 24 of the Companies Act 1900. It is true that by the scheme some shares in the new company are offered to the ordinary shareholders in the old company; but I think that must be regarded as a gift by the creditors and the preference shareholders to the ordinary shareholders, and not as showing that they had an interest in the assets which they were surrendering.’
Judges:
Vaughan Williams LJ, Romer LJ
Citations:
[1904] 1 Ch 12
Jurisdiction:
England and Wales
Cited by:
Cited – In re British and Commonwealth plc (No 3) ChD 1992
Bonds were subordinated in a winding up, and the company was in administration in which the administrators were proposing a scheme of arrangement. The judge was invited to apply the Tea Corporation principles in order to arrive at a conclusion that . .
Cited – Mytravel Group Plc, Re Companies Act 1985 ChD 24-Nov-2004
The company sought approval of a proposed reconstruction under the section.
Held: Approval could not be given. To count as a reconstruction two principal qualities were required. The business carried on should be the same or similar, and those . .
Lists of cited by and citing cases may be incomplete.
Company
Updated: 30 April 2022; Ref: scu.220255