ShareCapital Revision under companies Act Cap 110

Legal opinion on share capital revision of two companies with a view of doing away with one 1. Amalgamation under Ss 207 to 210 of the Companies Act 9 herein after referred to as the “Act” 2. By transferring all the assets and liabilities of the transferor companies to the surviving transferee company and winding up the other company voluntarily under Ss 276 (1) (b), 283 to 289 of the Act Cap. 110. With respect to the second option of transferring the assets and liabilities of the company to another company while winding up voluntarily the transferor company, we would draw your attention to S. 285 of the Act, which provides that where the transferor company is proposed to be, or is in the course of being wound up voluntarily, and the whole or any part of its business or property is proposed to be transferred or sold to the transferee company, the liquidator of the transferor company, may, with the sanction of a special resolution of the company, do the following :- (a) Receive, by way of compensation for the transfer or sale of the property of the transferor company, shares policies or other like interests in the transferee company, for distribution among the members of the transferor company or, (b) Enter into any other arrangement, whereby the members of the transferor company may in lieu of receiving cash shares etc, participate in the profits of the transferee company. This section gives the liquidator the power to sell the property of the company for money or shares, debentures or other interests, where the transferor company is proposed to be wound or is in the course of being wound up voluntarily, and it is also proposed that the company's property may be transferred or sold to another company. Such a sale or arrangement shall be binding on the members of the transferor company. The dissentient members who did not vote in favour of the special resolution giving sanction to the sale or arrangement, may give note of their dissent to the liquidator within seven days from the date of passing of the resolution. Where the dissentient shareholder and the liquidator do not come to any agreement as to the value of his/her interest, he/she may require the liquidator either to abstain from carrying the resolution into effect or to purchase his or her interest at a price to be determined by agreement or by arbitration under the provisions of the Arbitration and Conciliation Act. For winding up the company voluntarily as a members' voluntarily winding up, you shall have to follow the procedures laid down under Sections 276, 277, 283- 289 of the Act. In view of the above, the procedure for transferring the property of the transferor companies to the transferee company shall take place where the transferor company is proposed to be wound up or is in the course of winding up voluntarily. Then the defunct company after transferring assets and liabilities can be struck off the company register under S. 343 of the Act In case you opt for amalgamation, the transferor company is automatically dissolved without going through the procedures of winding up. However, there is a need shall to go through the court procedures as laid down under the provisions of section 207-210 of the Act. If you opt for the second option that is under S. 285 of the Act then you can transfer the property of the transferor companies to the transferee companies only where the transferor company is proposed to be wound up voluntarily, or is in the course of being wound up voluntarily. Transfer of shares The provision in regard to transfer of shares under S.210 of the Act contemplates another arrangement not amalgamation and does not require application to court. Transferee company to make an offer to the shareholders of transfer of company to purchase their shares in the transferor company at a stated price which is usually higher or more attractive than the prevailing marketing price and to fix a time within which the offer is to be accepted with a condition usually added to the effect that if a specified percentage of the shareholders do not accept the offer the offer is to be void. The offer is to buy the Transferor Company's share either for cash or in exchange for the shares of the said company. If the offer is accepted by all the transferor company shareholders, there is no problem. If the specified percentage ( that is by the holders not less than nine-tenths in value of the shares whose transfer is involved) of the transferor company's shareholders accept the offer, the Transferee Company will then purchase their shares and would acquire the shares in the manner provided under S.210 of the Act. The merit of this scheme is that without resort to tedious court procedures take over is effected. Only in the cases where the dissenting shareholders interest, the procedure described under S.210 (2) will have to be followed. Reduction of share capital by the transferor company. Under Sec. 68(1) of the Act, a company may by special resolution and subject to confirmation by the court reduce its share capital and it may, if so far as is necessary, alter its memorandum by reducing the amount of its share capital and of its shares accordingly. However, the company must be authorized by the articles of association to reduce capital A special resolution referred to is “a resolution for reducing share capital” (see Sec.68 (2) of the Act). After passing a resolution for reducing share capital, the company shall apply to court by petition for an order confirming the reduction. The procedure varies according to whether existing creditors of the company will be affected. All creditors have to be notified and given an opportunity to object. The difficulty of identifying everyone of a fluctuating body of creditors can be avoided by satisfying court that a sufficient sum has been deposited, or been guaranteed by a bank or insurance company, to meet the claims of all creditors. increase of share capital of a company Resolution to increase 1. Under the Sec.65 (1) of the Act the authorized capital of the company can be increased by passing an ordinary as well as special resolution authorizing the increase. 2. May alter the conditions of its memorandum by increasing its share capital by new shares of such amount as it thinks expedient. 3. The power to increase share capital must be exercised by the company in a general meeting. 4. If the company is governed by Table A of the companies Act, the increase is made by an ordinary resolution prescribing the amount of increase, and the shares into which it is divided. 5. In other cases the power depends on the articles which sometimes require the power to be exercised by a special or extraordinary resolution. 6. If there is no authority under the articles to increase the share capital, the articles of association may be altered by special resolution so as to give the power. This resolution can be done in the same meeting as that to increase capital. 7. The notice convening the meeting to pass the resolution for increase of share capital must specify the amount of the proposed increase (McConnell vs. E. Prill & Co. Ltd [1916]2 Ch. 57] Compliance with Articles of Association 8. Any provisions contained in the articles of association regulating the offer of the new shares must be complied with and the issue of shares in breach of such provisions will be restrained by the court. [e.g., all new shares should before issue be offered to such persons at the date of the offer were entitled to receive notices from the company general meetings in the proportions as the circumstances admit to the amount of the exiting shares to which they were entitled. 9. However, the alteration or increase of share capital does not affect the company’s issued capital, and existing share holders cannot be compelled to take the additional shares. The company simply takes power to issue new shares in excess of its former nominal capital and particulars of any new class of shares. Notices 10. Within thirty days after passing of the resolution authorizing increase of share capital beyond the registered capital shall give notice to the Registrar of Companies notice of the increase who shall then record it. 11. The notice to the registrar of companies must include such particulars as may be prescribed with respect to the classes of shares affected and the conditions subject to which the new shares have been or are to be issued. 12. There must be forwarded to the registrar together with the notice a printed copy of the resolution authorizing increase. 13. However, note should be taken that the passing of resolution to increase the authorized share capital does not operate as a grant of authority to the directors to proceed to allot those shares. Authority to allot is a separate matter and the directors will need authority from their shareholders in general meeting or in the company’s articles of association.