1945 (2) TMI 13 - HC - Companies Law

Shares of shareholders dissenting from scheme or contract approved by majority Power and duty to acquire

Summary

Issues:
Application under section 159 of the Companies Act, 1929 regarding the acquisition of shares by a transferee company from dissenting shareholders.

Analysis:
The judgment by Vaisey, J. concerns an application under section 159 of the Companies Act, 1929, involving the transfer of shares from one company (transferor) to another (transferee). The section allows the transferee company to acquire shares of dissenting shareholders if approved by the majority. The Court's intervention is not clearly defined in the section, but a previous case provides guidance. In the case of Hoare & Co., In re [1933] 150 L.T. 374, it was held that unless it is proven that the scheme is unfair, the Court will not prevent the acquisition of shares from dissenting shareholders when the majority has approved the scheme. The burden of proof lies on the dissenting shareholders to show why their shares should not be acquired. In the present case, the dissenting shareholder objects not to the offer's fairness but to the lack of information provided to make an informed decision.

The dissenting shareholder argues that he lacked sufficient information about the transferor company's asset, Nuts and Bolts (Darlaston), Ltd., which affected his decision-making process. However, the judge notes that demanding extensive disclosure could lead to endless inquiries. The judge emphasizes the need for dissenting shareholders to prove unfairness rather than solely relying on inadequate information as a reason to oppose the acquisition. Following the precedent set by the Hoare & Co. case, the judge concludes that the dissenting shareholder's lack of complete information does not justify preventing the acquisition of his shares.

The judge expresses sympathy for small shareholders overpowered by the majority but emphasizes the importance of upholding the decision supported by the majority shareholders. Allowing one shareholder to oppose a decision supported by 699 out of 700 shareholders due to perceived lack of information would create intolerable uncertainty. Ultimately, the judge refuses the relief sought by the applicant, citing the lack of grounds to prevent the acquisition of shares by the transferee company. Regarding costs, the judge decides not to order the transferee company to pay the applicant's costs but dismisses the application without costs.

In conclusion, the judgment clarifies the requirements for dissenting shareholders to prevent the acquisition of their shares under section 159 of the Companies Act, emphasizing the need to prove unfairness rather than solely relying on inadequate information as a basis for opposition. The judge's decision upholds the principle that dissenting shareholders must demonstrate unfairness to prevent the acquisition of their shares by the transferee company.