The Board of directors of Bright Electronics Ltd. (BEL) has decided to amalgamate with Comfort Electricals Ltd. (CEL) which is the holding company of BEL. In order to fasten their amalgamation process, they approached th
CS Professional · Corporate Restructuring, Valuation and Insolvency · PYQS · December 2015
The Board of directors of Bright Electronics Ltd. (BEL) has decided to amalgamate with Comfort Electricals Ltd. (CEL) which is the holding company of BEL. In order to fasten their amalgamation process, they approached their secured and unsecured creditors to seek their written consent to the proposed scheme of amalgamation. All the secured creditors of CEL have given their consent in writing but unsecured creditors have raised their doubt on the scheme and they refused to give their consent. The Board of directors of CEL requested the court to grant exemption or waiver from calling the meeting of secured and unsecured creditors of CEL on the ground that the proposed amalgamation would help them to pay off the entire outstanding dues of unsecured creditors. Offer your comments as to whether CEL can get exemption from convening the meeting of secured and unsecured creditors.
Answer & Explanation:
Section 391 deals with the rights of a company to enter into a compromise or arrangement (i) between itself and its creditors or any class of them; and (ii) between itself and its members or any class of them. In the given case the proposed scheme is not acceptable to unsecured creditors of the holding company. In order to safeguard the interest of the unsecured creditors of the holding company, it is necessary to convene the meeting the unsecured creditors and waiver may not be allowed. Further, a subsidiary company being a creditor cannot be included along with other unsecured creditors; their interest in supporting a scheme proposed by the holding company would not be the same as the interest of the other unsecured creditors [Hindustan Development Corporation Ltd. v. Shaw Wallace & Co. Ltd. (supra)]. Secured creditors should not be clubbed together with the unsecured creditors. Their interest would not be the same. Since secured creditors of CEL have given their consent in writing, hence CEL can be exempted from calling the meeting of secured creditors but not from calling the meeting of unsecured creditors.
Topics: Corporate Restructuring
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