Re Dorman, Long & Company Ltd; Re South Durham Steel & Iron Company Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 1934 |
| Date | 1934 |
| Court | Chancery Division |
Company - Reduction of capital - Amalgamation - Schemes of Arrangement - Circulars - Proxies in form settled in Chambers - Meetings - Resolutions approving schemes - Dissentient debenture stockholders and shareholders - Rejection of proxies against resolutions not in form settled in Chambers - Right to vote by general form of proxy - Fresh meetings -
In 1933, Dorman, Long & Co., Ld., and South Durham Steel and Iron Company, Ld. (hereinafter respectively called “Dormans” and “South Durham”), provisionally agreed that Dormans should acquire South Durham's undertaking and assets. Two schemes of arrangement were prepared, one between Dormans, its 5½ per cent. debenture stockholders and its shareholders, and the other between South Durham and its debenture stockholders and shareholders, each scheme being conditional on the Court's sanctioning the other before the end of 1933.
On June 19, the Court ordered that Dormans and South Durham should convene separate meetings of their interested debenture stockholders and of their classes of shareholders, to consider and if thought fit approve the respective schemes, by letter enclosing a print of the scheme and a proxy in the form settled in Chambers. On June 30, a circular signed by South Durham's secretary, a notice of the meetings, and forms of proxy settled in Chambers, were sent to South Durham's debenture stockholders and shareholders. The circular stated (inter alia) that a revaluation of South Durham's assets had been made by its auditors and confirmed by two named gentlemen. The forms of proxy purported to appoint a certain person as proxy, leaving the donor of the proxy to write “for” or “against” before the words “the scheme.” The meetings were to be held on July 19, and a note at the foot of the proxy stated that the proxy must be lodged not later than noon on July 15. On July 3, a circular signed by Dormans' secretary, notices of the meetings ordered by the Court of its debenture stockholders and shareholders, proxies in the form settled in Chambers, and voting cards, were sent to Dormans' debenture stockholders and shareholders. The circular stated (inter alia) that the whole of Dormans' assets had been revalued upon the basis of their earning power and that the revaluation had been confirmed by two named gentlemen. These were the gentlemen who had confirmed the revaluation of South Durham's assets. The circular stated also that the trustees for the stockholders, after careful investigation, recommended the scheme for the stockholders' approval. It did not state the figures arrived at in the revaluation, nor did it state that, as was the fact, the trustees for the stockholders, who were a bank which had financed Dormans, stood to benefit by the scheme. The forms of proxy were substantially the same as those sent out with South Durham's circular, the date of the meetings being July 27, and the proxies being required to be lodged not later than 6 P.M. on July 25. Along the side of each voting card was written in red ink “If you are voting as proxy for other holder(s), please write the name of holder(s) on the back of this card.” On July 3 and July 10, H., a shareholder in South Durham, wrote to its shareholders criticizing the scheme and asking them not to sign proxies in favour of it but to sign proxies against it which he enclosed with his second letter.
At South Durham's meetings H.'s proxies were rejected as being in a form different from that settled in Chambers, and certain proxies also were rejected as having been lodged after the time fixed for lodging proxies. The chairman reported that, if H.'s proxies were excluded, the scheme would be carried by the requisite statutory majority, and that if they were admitted there would be a majority in number, but not the three-fourths' majority in value, in favour of the scheme.
On July 19, a committee of debenture stockholders in Dormans who opposed the scheme, among whom was L., sent a circular to about half the total number of holders of 200l. or more 5½ per cent. debenture stock, asking them to vote against it. Many replied that they wished to revoke the proxies they had lodged and vote against the scheme, but feared that it would be too late. At the meeting of Dormans' debenture stockholders, voting cards with the red ink side-note on them were handed to those attending, and the chairman asked that they would record their votes on them. At the meeting certain proxies were rejected on the ground that they had been lodged after the time fixed for lodging proxies. The chairman reported that at all of Dormans' meetings resolutions approving the scheme without modification were passed.
Petitions asking for the Court's sanction to the respective schemes came on for hearing on November 22, Dormans' petition being opposed by the debenture stockholders, of whose committee L. was a member, and South Durham's by H. On the hearing of Dormans' petition L. stated in an affidavit that he had no instructions with his voting card, that by request he (L.) took a vote by show of hands on the chairman's refusing to do so and declared the resolution approving the scheme lost, and that the chairman left the room. The chairman gave evidence denying that he left the meeting before the vote was taken and another witness denied that the statements in L.'s affidavit about the meeting were accurate.
The confirmation of the schemes by the Court was sought under ss. 153 and 154 of the Companies Act, 1929, sections giving power to compromise with creditors and members and providing for facilitating reconstruction and amalgamation of companies:—
Held, (1.) that, in determining whether a compromise or arrangement should be sanctioned, the Court must be satisfied that the resolutions in favour of it are passed by the statutory majority in value and number, in accordance with s. 153, sub-s. 2, of the Companies Act, 1929, and that the proposal is such as intelligent and honest members of the classes concerned, acting in respect of their own interests, would approve.
(2.) that s. 153 of the Companies Act, 1929, gives a general right to vote by proxy, using any proper form of proxy, and the proxies need not be sent to the company's offices before the meeting.
(3.) that directors who, pursuant to the Court's order, receive proxies for or against a scheme, must use them.
(4.) that it is the Court's duty carefully to scrutinize complicated schemes and that, in the circumstances, Dormans' circular was insufficient, and misleading in its reference to the approval of the scheme by the trustees for the stockholders, and should have stated the amount of the revaluation.
(5.) that the description in South Durham's circular of the auditors' report as if it were a valuation of South Durham's assets was justified only if the report was prepared solely in order to ascertain the relative values of the assets of Dormans and South Durham, that the opinions of South Durham's board were justified on an optimistic view, and that the board had acted reasonably and in the best interests of those concerned.
PETITIONS.
The first of these petitions was presented by Dorman, Long & Co., Ld. (hereinafter called “Dormans”), for the Court's confirmation of a reduction of Dormans' capital forming part of a scheme of arrangement under ss. 153 and 154 of the Companies Act, 1929 (giving power to compromise with creditors and members and providing for facilitating reconstruction and amalgamation), between Dormans and the holders of its 5½ per cent. first mortgage redeemable debenture stock, its preference shares, preferred ordinary shares and ordinary shares, and for the Court's sanction to the scheme, under s. 153, with appropriate consequential relief under s. 154, for carrying out the amalgamation of Dormans' undertaking with that of South Durham Steel and Iron Company, Ld. (hereinafter called “South Durham”), intended to be effected under the scheme.
The second petition was presented by South Durham for the Court's order or orders sanctioning an arrangement, involving the proposed amalgamation, between South Durham, its debenture stockholders, preference shareholders, ordinary shareholders and “B” ordinary shareholders and making provisions for all matters necessary for a full and effective carrying out of the amalgamation.
Dormans was incorporated on November 2, 1889, under the
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