Scheme of arrangement

Held: None of the stakeholders, shareholders of petitioner companies or other interested parties raised any objection to the Scheme

Subject to the conditions contained in NOCs issued by secured creditors, the Scheme would take effect in accordance with S. 282 of Companies Act, 2017

With the requisite majority of shareholders what is in favour of merger cannot be withheld unless it is shown that the same is unfair and unreasonable or against the national interest

Before granting sanction, the Court's role is not to reassess commercial merits but to ensure that the scheme is fair, reasonable, lawful, and consistent with public policy

Any arrangement that is illegal, unconscionable, or unfair cannot be sanctioned

Court's jurisdiction is supervisory and protective, rather than appellate

Court's task while sanctioning a scheme of arrangement is limited to watching over the regulatory and legal compliances being properly carried out for which SECP takes lead in its assistance to the Court

All statutory benchmarks and formalities were accomplished as required under Companies Act, 2017 and enabling rules

Scheme was reinforced by requisite majority and Chairman's report confirmed its compliance with statutory obligations

Proposed Scheme was fair, reasonable and commercially sound

There was no material to suggest that the Scheme was against public interest or any law

High Court sanctioned the Scheme of Arrangement between the petitioner companies

Petition was allowed in circumstances.

Petitioners were minor share-holders of respondent company, who were aggrieved of sanctioning of Scheme of Arrangement by High Court

Plea raised by petitioners was that Scheme of Arrangement catered only for interest of secured creditors while ignoring interest of minority creditors and share-holders

Validity

All codal formalities were complied with

Objectors before High Court were minor share-holders and unsecured creditors, who could not point out any illegality or violation of the provisions of Companies Ordinance, 1984, in the 'Scheme of Arrangement' between respondent company and its creditors, nor could refer to any legal defect or procedural irregularity in order passed by High Court while sanctioning the 'Scheme of Arrangement'

Pursuant to the order of High Court, meeting of all stakeholders including creditors and members was held, wherein, 100% share-holders of respondent company and 95.09% in value of secured creditors pursuant to vote at the meeting, consented to and also passed a resolution approving 'Scheme of Arrangement', which fact alone was sufficient to reflect upon the will of majority creditors/share-holders while considering Scheme of Arrangement as in the best interest of respondent company and its share-holders

Secured creditors, who were majority share-holders, did not suffer from any legal infirmity or procedural defect

Supreme Court declined to interfere in judgment passed by High Court as petitioners failed to raise any substantial question of law

Petition for leave to appeal was dismissed and leave to appeal was refused.

Petitioners were minor share-holders of respondent company, who were aggrieved of sanctioning of Scheme of Arrangement by High Court

Plea raised by petitioners was that Scheme of Arrangement catered only for interest of secured creditors while ignoring interest of minority creditors and share-holders

Validity

All codal formalities were complied with

Objectors before High Court were minor share-holders and unsecured creditors, who could not point out any illegality or violation of the provisions of Companies Ordinance, 1984, in the 'Scheme of Arrangement' between respondent company and its creditors, nor could refer to any legal defect or procedural irregularity in order passed by High Court while sanctioning the 'Scheme of Arrangement'

Pursuant to the order of High Court, meeting of all stakeholders including creditors and members was held, wherein, 100% share-holders of respondent company and 95.09% in value of secured creditors pursuant to vote at the meeting, consented to and also passed a resolution approving 'Scheme of Arrangement', which fact alone was sufficient to reflect upon the will of majority creditors/share-holders while considering Scheme of Arrangement as in the best interest of respondent company and its share-holders

Secured creditors, who were majority share-holders, did not suffer from any legal infirmity or procedural defect

Supreme Court declined to interfere in judgment passed by High Court as petitioners failed to raise any substantial question of law

Petition for leave to appeal was dismissed and leave to appeal was refused.

Official Assignee sought permission to release sale proceeds of pledged goods to the agent, in accordance with the Scheme of Arrangement

Bank objected to release of sale consideration under Scheme of Arrangement earlier approved by High Court on the plea that it had filed suit for recovery of finance

Validity

While hearing Reference filed by Official Assignee, High Court could not delve into the Scheme of Arrangement as the same was sanctioned by High Court in its company jurisdiction under Companies Act, 2017

Leave to defend application was neither heard nor decided

Bank, subject to decree passed in its favor, could file for execution under S. 19 of Financial Institutions (Recovery of Finances) Ordinance, 2001

Neither the decree nor entire exercise would be in vain

It was open for bank to have assailed the Scheme under S. 6(14) of Companies Act, 2017

Omission of bank to assail Scheme of Arrangement in such regard was fatal

High Court directed the Official Assignee to release the amount lying with him to the "Agent" after deduction and adjustment of the amount referred by Official Assignee

Reference was allowed accordingly.

Official Assignee sought permission to release sale proceeds of pledged goods to the agent, in accordance with the Scheme of Arrangement

Bank objected to release of sale consideration under Scheme of Arrangement earlier approved by High Court on the plea that it had filed suit for recovery of finance

Validity

While hearing Reference filed by Official Assignee, High Court could not delve into the Scheme of Arrangement as the same was sanctioned by High Court in its company jurisdiction under Companies Act, 2017

Leave to defend application was neither heard nor decided

Bank, subject to decree passed in its favour, could file for execution under S. 19 of Financial Institutions (Recovery of Finances) Ordinance, 2001

Neither the decree nor entire exercise would be in vain

It was open for bank to have assailed the Scheme under S. 6(14) of Companies Act, 2017

Omission of bank to assail Scheme of Arrangement in such regard was fatal

High Court directed the Official Assignee to release the amount lying with him to the "Agent" after deduction and adjustment of the amount referred by Official Assignee

Reference was allowed accordingly.

High Court could not sit as Court of appeal over and above wisdom disclosed by borrower and creditors while agreeing to certain terms of repayment, provided it was within the frame of company law and within the contours of Financial Institutions (Recovery of Finances) Ordinance, 2001

To such extent High Court was bound to watch and commercial wisdom of participant of the Scheme could not be pierced by a Bench who might have its own opinion

Company jurisdiction of High Court in such matters was peripheral and supervisory and not of an appellate authority

By taking into confidence all stakeholders, a policy was devised to settle and pay liabilities of all secured creditors in a befitting manner

To achieve such goal, charged assets of petitioner company were put to sale through Assets Sale Committee consisting of representatives of banks

High Court set aside all objections and approved the Scheme of Arrangement

Petition was allowed, in circumstances.

Petitioners requested the Court's approval of Scheme of Arrangement, which involved merging company No. 3 into company No. 2 through the management of company No. 1

Scheme of Arrangement provided for the transfer, vesting, and assumption of the entire undertaking and business of company No. 3, including its assets, rights, properties, benefits, powers, privileges, contracts, liabilities, encumbrances, obligations and dues by company No. 2

Consequently, company No. 2 would operate under its name, while company No. 3 would stand dissolved without being wound up

Scheme of Arrangement safeguarded the rights and interests of members, creditors, employees and certificate holders

No objection certificate was secured from Securities and Exchange Commission of Pakistan (SECP) and secured creditors

Petitioners completed all necessary legal formalities, including holding separate meetings of certificate holders and board of directors and publishing and issuing notices to the SECP

No certificate holder of any of the companies objected to the scheme

As there were no obstacles to granting the petition, it was allowed.

Petitioners requested for Court's approval of a Scheme of Arrangement, which involved specific portions of undertakings of companies Nos. 1 and 2 vesting in company No. 3, while the companies Nos. 1 and 2 would continue to operate as going concerns, as well as company No. 3 with their existing names, without any of them being dissolved

Cumulative effect of this arrangement would be a reduction in shareholders' equity of companies Nos. 1 and 2, particularly in their issued and paid-up share capital

Consequently, the shares of company No. 3 would be allotted to those transferring shareholders whose shares in companies Nos. 1 and 2 were cancelled owing to reduction in issued and paid-up share capital

Petitioners had completed all necessary legal formalities, including holding separate meetings of shareholders and creditors and publishing and issuing notices to the Securities and Exchange Commission of Pakistan

As there no obstacles to granting the petition, same is allowed.

Petitioners sought approval of Scheme of Arrangement, which involved the demerger of four portions of an undertaking from the transferor company and their merger into four transferee companies, while the remaining undertaking was to stay with the transferor company

Validity

Separate meetings were held for the members of the transferor and transferee companies, and 100% of the members had approved the Scheme of Arrangement

Secured creditors had not raised any objections and certificates to that effect were placed on record

Scheme of Arrangement was arrived at by a majority and no objections were raised by the entire body of shareholders, ensuring the protection of their interests

Scheme of Arrangement and demerger of the undertaking was found to be in compliance with the requirements of the law

As a result, the petition was allowed.

Under the Scheme of Arrangement, the entire undertaking and business of the two companies, including their assets, rights, properties, benefits, powers, privileges, contracts, liabilities, encumbrances, obligations, and dues, would be transferred, vested, and assumed by the third company

Additionally, the Scheme of Arrangement would result in the cancellation of the share capital of the transferor companies, causing them to cease to exist or be dissolved without winding up

Scheme of Arrangement had taken care of the members, creditors, employees, and shareholders of the transferor companies, ensuring the security of their rights and interests

If the business of the transferor companies were to continue, the merged entity would need to amend its memorandum and articles of association to accommodate such activities

Petitioner Companies had fulfilled all the necessary legal formalities, including holding separate meetings of shareholders and board of directors, and publishing and issuing notices to the SECP

As the High Court could not challenge the judgment of the petitioners in approving the Scheme of Arrangement, therefore, the petition was allowed.

Petitioner company was aggrieved of demand of transfer fee raised by authorities with regard to properties received as a result of Scheme of Arrangement from "Transferor Company"

Validity

Form 21 of Companies (Court) Rules, 1997 provided that all liabilities and duties of transferor company were to be transferred without further act or deed to transferee company

Such was pursuant to S. 287(2) of Companies Ordinance, 1984 transferred to and became liabilities and duties of transferee company

Such was not a conveyance or sale deed under Transfer of Property Act, 1882, which required registration and stamping under Registration Act, 1908 and Stamp Act, 1899, before Sub-Registrar

Scheme of Arrangement was not required to be registered under enactments of Registration Act, 1908 and Stamp Act, 1899, before Sub-Registrar

Such was approved by a Court of law as an instrument confirming scheme and forwarded to any authority concern in the format as defined in Form "A"

Transfer under Scheme of Arrangement was not in pursuance of Land Grant Policy, therefore, charges as were claimed for transfer of plot were not applicable on such count also

High Court directed the Authority that claim of transfer fee from merged entity in respect of plot was unjustified and unlawful

Application was allowed in circumstances.

Objection of insignificant number of shares, under S. 465(4) of Companies Act, 2017 and Regln. 14 of Companies (General Provision of Forms) Rules, 2018, for demerging undertaking was insignificant and the same could be reconciled in next year

Scheme of Arrangement/Demerger undertaking in view of understanding of directors was to promote business avenues and apparently not against public interest or violation of law

High Court declined to sit over the wisdom of directors to conduct business in accordance with law as the scheme of Arrangement/Demerger undertaking was at par with requirement of law

Petition was allowed in circumstance.

To question merger it was to be seen from perception that a wise group of businessmen had taken a decision considering all its pros and cons

While taking such decision there were chances of success and failure but then while questioning such decision bona fide was the real litmus test

Businessmen could take decision foreseeing future aspect

Court could only see that all legal formalities were fulfilled and that the scheme was neither unjust nor unfair or against national interest

Wisdom of decision of businessmen could not be challenged as by doing that Court would be overriding such wisdom which was their prerogative

Report of Chartered Accounts was very material who were engaged for calculating swap ratio in respect of envisaged scheme of arrangement

High Court declined to interfere in scheme of arrangement filed by petitioner companies

Petition was allowed accordingly.

Petitioner public and private limited companies sought sanction for scheme of arrangement whereby specific portions of an undertaking by one petitioner would stand transferred/demerged to and vested in the other petitioner company

Validity

Indispensable statutory benchmarks and formalities had been accomplished and adhered to by the petitioners as envisioned under the Companies Act, 2017 and the enabling Rules and requisite majority of shareholders was also obtained

Proposed scheme looked evenhanded and serviceable from point of view of a commercial decision

Once requirements for a scheme for getting sanction of court were found to have been met, then court would have no further jurisdiction to sit over the commercial wisdom of majority of the class of persons who had approved said scheme

No material on record revealed that the said scheme was either against public interest or in violation of law

Scheme was sanctioned, accordingly.

Petitioner public and private companies sought sanction of the court for a scheme of arrangement whereby undertakings of some petitioner companies would be demerged and vested in the other petitioner companies and additionally sought confirmation for reduction in issued and paid-up share capital of one of the petitioner companies

Validity

Securities and Exchange Commission of Pakistan (SECP) made only formal observations in the matter which were not against said scheme and were inconsequential

Indispensable statutory benchmarks and formalities had been accomplished and adhered to by petitioners as envisioned under Companies Act, 2017 and the enabling Rules and requisite majority of shareholders was also obtained

Report of Chairman conveyed that all essential and fundamental characteristics and attributes of proposed scheme were placed before voters in separate meetings to live up to statutory obligations

Proposed scheme looked evenhanded and serviceable from point of view of a commercial decision

Once requirements for a scheme for getting sanction of court were found to have been met, then court would have no further jurisdiction to sit over the commercial wisdom of majority of the class of persons who had approved said scheme

No material on record revealed that the said scheme was either against public interest or in violation of law

Scheme was sanctioned, accordingly.

Petitioner public limited companies sought sanction for scheme of arrangement whereby specific portions of an undertaking by one petitioner would stand transferred/demerged to and vested in the other petitioner public limited company

Contention of SECP, inter alia, was that various objections arose from such demerger/scheme

Petitioner's contention, inter alia, was that objections by the SECP were of a formal nature and inconsequential to purpose of merger and demerger and that such arrangement had been approved by the shareholders

Validity

High Court observed that no material on record suggested that said scheme was unjust, unfair, against public interest, or in violation of any law

High Court further observed that all formalities under the law had been completed therefore objections of the SECP were liable to be overruled and scheme of arrangement sought was sanctioned

Petition was allowed, accordingly.

Law required that if majority in number representing three-fourths in value of creditors or class of creditors, present and voting, either in person or through proxies, agree to any compromise or arrangement, then same shall be sanctioned by Court

In construing whether a resolution was passed by "three-fourths" majority or not, it was number of secured creditors present in meeting and participating in voting in favour or against which was relevant and on basis of same a scheme was to be approved or disapproved

Any party present in meeting for approval of scheme of arrangement, if same choses to abstain from voting, then such abstention would be of no relevance and it would be as if that such party did not participate in voting

Once a scheme of arrangement or a compromise was agreed upon by a class of creditors and a resolution to such effect was passed by them, then such scheme was binding on all including non-consenting creditors.

Held, it was not sense of duty or province of Court to supplement or substitute its judgment against collective wisdom and intellect of shareholders of companies involved; it was the duty of Court to find out and perceive whether all provisions of law and directions of Court had been complied with

When the scheme seemed like in the interest of the company as well as in that of its creditors, it should be given effect to

Court would not question commercial wisdom of the scheme

Where scheme was patently fraudulent, Court should not respond or function as mere rubber stamp or post office but reject the scheme

Petitioners, in the present case, had complied with all statutory touchstones and the scheme was exhilarated and fortified by indispensable majority

Report/minutes of meetings discernably communicated that the manuscript of scheme was tabled to voters at meetings for approval

High Court sanctioned the scheme of arrangement as the scheme was not violative of any provision of law

Petition was allowed in circumstances.

Question of viability of scheme was to be judged subject to the condition that scheme sanctioned by majority was also to remain binding on dissenting minority of creditors or members, even though they did not consent to such scheme and to such extent absence of their consent had no effect on the scheme

Even in case of such a scheme of compromise and arrangement put up for sanction before Company Judge, it was to be seen whether proposed scheme was lawful, just and fair to the whole class of creditors or members, including dissenting minority to whom it was offered for approval and which had been approved by such class of persons with requisite majority vote

Company Judge while dealing with issue of such nature was not to act as a court of appeal and sit in judgment over the informed view of concerned parties to the compromise as the same would be in the realm of corporate and commercial wisdom of concerned parties

Court was not required to unnecessarily disapprove considered opinion and commercial wisdom of majority shareholders or creditors of company unless it was in violation of law and public policy

Jurisdiction of Company Judge in such matters was peripheral and supervisory and not appellate

Division Bench of High Court struck down the clarification as the same was violative of the scheme and scope of S. 284(2) of Companies Ordinance, 1984

Intra-court appeal was allowed in circumstances.

Before sanctioning such scheme even though approved by majority of concerned creditors or members, the Court has to be satisfied that the company or any other person moving such application for sanction has disclosed all relevant matters mentioned in proviso to S. 284(2) of Companies Ordinance, 1984.

Objection to any compromise or arrangement, if any, based on classification, jurisdiction or otherwise must be raised at the earliest opportunity.

All indispensable statutory benchmarks and formalities were accomplished and adhered to by petitioners as envisaged under Companies Ordinance, 1984 and enabling rules

Schemes set up for sanction were reinforced and fortified by requisite majority which decision was just and fair

Reports/minutes of meeting unequivocally conveyed that all essential and fundamental characteristics and attributes of schemes were placed before voters in separate meetings to live up to statutory obligations including

Swap ratio was determined by Chartered Accountants and their reports were placed on record

Effect

Proposed scheme as a whole looked like even handed and serviceable from the point of view of prudent men of business taking a commercial decision

Once requirements of a scheme for getting sanction of the Court were found to have been met, Court had no jurisdiction to sit in appeal over commercial wisdom of majority of the class of persons who with their open eyes had given their approval to the scheme

Scheme of arrangement was sanctioned in circumstances.

In compliance of S. 284(2) of Companies Ordinance, 1984, both the petitioners (companies) disclosed to Court all material facts relating to them including their latest financial position and the latest audited accounts

Scheme of Arrangement was unanimously approved by members of both the petitioners in their respective meetings held with permission of High Court

All legal and formal requirements for sanction of Scheme of Arrangement were duly complied with by petitioners

Object of Scheme of Arrangement was lawful and it was not against public interest/policy or in violation of any law

No investigation or like proceedings were pending in relation to any of the petitioners under S. 263 of Companies Ordinance, 1984, or under any other provision of Companies Ordinance 1984, or any other law for the time being in force

High Court sanctioned Scheme of Arrangement as prepared by both the petitioners

Petition was allowed in circumstances.

While exercising powers of Company Judge, correct approach was to ascertain whether statutory requirements had been complied with and to determine whether scheme of arrangement as a whole had been arrived at by majority shareholders and in actual fact it was for the benefit and in the interest of whole body of shareholders

Company Judge was to see whether scheme as such was fair and reasonable and shareholders had considered the scheme for benefit of companies and for themselves

Scheme of arrangement was manifestly reasonable and none of the creditors and/or members of petitioner companies had opposed the petition

Scheme of arrangement was apparently in the interest of members and seemed without prejudice to the rights of creditors

Filing/delivering of certified copy of order of sanctioning of the scheme before Registrar of Companies in terms of S.287(3) of Companies Ordinance, 1984, rendered requirement of notice in terms of S.94 of Companies Ordinance, 1984, irrelevant and unnecessary as filing of certified copy of the order sanctioning the scheme itself was notice

Court, under S.287 of Companies Ordinance, 1984, was invested with power to sanction/approve not only scheme of arrangements but also direct increase/enhancement in authorized share capital of a company

Petition was allowed accordingly.