Winpar Holdings Limited v Ransomes Plc

On an application to confirm a reduction of capital, the court must be satisfied that creditors are protected and that the reduction is fair to affected shareholders. The company must give full and frank disclosure and explain at least the general purpose of the proposal. The court should consider the substantive effect of the wider transaction, not merely the formal reduction. Subsequent changes of plan do not necessarily invalidate an order where the reduction retains practical utility and later events do not increase the risk of prejudice.

Ransomes plc obtained an order from Lloyd J confirming the cancellation of its share premium account under section 137 of the Companies Act 1985. Winpar Holdings Ltd, a preference shareholder, argued that the proposal unfairly removed protection for preference shareholders and had been inadequately explained. The company’s intended distribution of shares in a subsidiary later changed, and the company instead retained the reserve created by the cancellation. Winpar appealed, seeking a condition requiring a special reserve. The central issues were whether the reduction remained fair and useful after the change of plan, and whether the court should impose that condition.

1. Appeal dismissed. The Court of Appeal upheld Lloyd J’s confirmation of the cancellation of the share premium account. The respondent was awarded its costs, including the costs of adducing further evidence.
2. Section 137 of the Companies Act 1985 gives the court a discretion to confirm a reduction once the statutory protection of creditors is satisfied. The court must consider fairness, the protection of affected shareholders and adequate explanation of the proposal. The application is not ordinary adversarial litigation: even if unopposed, the court must decide whether approval is right on the evidence as a whole.
3. The applicant company must make full and frank disclosure. The court must know at least the general purpose of the proposed reduction and may consider the wider transaction which it is intended to facilitate. The requirement of a discernible purpose is not merely a protection for the court’s resources.
4. On the evidence, the cancellation did not materially increase the risk that preference shareholders would fail to receive future dividends or capital in a winding up. The original distribution in specie did not occur, but the subsequent disposal of the subsidiary produced a substantial credit and the cancellation retained practical utility. The later events therefore diminished, rather than increased, the risk of prejudice.
5. There was no justification for imposing an unusual condition of potentially unlimited duration requiring a special reserve.

• Court of Appeal (Civil Division): appeal from the order of Lloyd J dated 17 December 1998 dismissed. The order confirming cancellation of the share premium account was upheld.