LIPTON (PAKISTAN) LTD.: IN RE Versus LIPTON (PAKISTAN) LTD.: IN RE

1. This is a petition under section 284 read with section 287, Companies Ordinance, 1984 (hereinafter referred to as the Ordinance) for amalgamating two companies. The petitioner No.l is Lipton (Pakistan) Limited and the petitioner No.2 is Lever Brothers Pakistan Limited. The object of this petition is to obtain the sanction of this Court to a scheme of arrangement for amalgamation between the petitioner No. l and its members and the petitioner No. 2 and its members. The petitioners have sought orders under section 28 facilitating the amalgamation of the petitioner No.l with the petitioner No.2 in accordance with the Scheme of arrangement including inter alia orders providing for the transfer to and vesting in the petitioner No.2 of the whole undertaking of the petitioner No.l together with all the property assets, rights, liabilities and obligations of every description of the petitioner No.l, the allotment of ordinary shares of the petitioner No.2 to the registered holders of the ordinary shares of the petitioner No.l in lieu of those shares held by them, the continuation by or against the petitioner No.2 of legal proceedings instituted by or against the petitioner No.l that may be pending, and the eventual dissolution without winding up of the petitioner No.l. A copy of scheme of arrangement dated 8‑3‑1987 as modified on 8‑12‑1987 and on 25‑8‑1988 is annexed to the petition as Annexure 'A'. On 25‑8‑1988, Alan Marshall was the Chairman of the petitioner Nos. 1 and 2. In paragraph 1 of the affidavit dated 16‑10‑1988, he has given the background in which the Scheme of amalgamation for which sanction is asked for in the present petition was formulated and approved by the directors of the two companies. The resolution of the board of directors of the two companies are annexed to the petition as Annexures 'B' and 'C'. Each of the petitioner is an 'existing company' within the meaning of section 2(1)(15) of the Ordinance, having been incorporated under the Companies Act, 1913, and is registered at Karachi in the Province of Sind as s public Company as defined in section 2(1)(30) of the Ordinance. The Scheme of arrangement consists of 20 clauses. Broadly speaking, under the scheme, Lever Brothers Pakistan Limited acquires the entire estate, right, title and interest of Lipton (Pakistan) Limited and takes over all its existing assets, debts and liabilities. The Scheme shall come into operation in accordance with clause 20 of the Scheme. The authorised and issued capital of Lipton (Pakistan) Limited is Rs.100,000 divided into 10,000 ordinary shares of Rs.10 each of which 7,500,000 ordinary shares are issued and fully paid. The Lever Rrothers Pakistan Limited will allot to each shareholder of Lipton (Pakistan) Limited, for every five shares of Lipton (Pakistan) Limited, one share of Lever Brothers Pakistan Limited under the Scheme. Accordingly, the above Scheme of amalgamation of the twc‑0 companies was drawn up. C.M.A. No.1299 of 1988 was filed before this Court for permission to convene meetings of the members, shareholders for the purpose of considering and, if thought fit, to approve, adopt and agree to the Scheme of arrangement as set forth in Annexure 'A' to the petition. This application was disposed of by me by order dated 14‑11‑1988. 1 directed that meetings of the members of the petitioners Nos. 1 and 2 should be held within ten weeks from the date of the order and shall be held at such place in Karachi and on such date and at such time as the board of directors of the petitioners may decide. I appointed Mr. Alan Marshall, the Chairman. Chief Executive and Director of the petitioner No.l and of the petitioner No‑2, or failing him Mr. Abedin Marvi, Director of the petitioner No.1 and of the petitioner No.2 shall be the Chairman of the meeting of the members .of each of the petitioners. with the directions that the Chairman should report to the Court about the proceedings of the meetings. Pursuant to the order of this Court dated November 14, 1988, meetings of the members of the petitioner No.l was held on 15th January, 1989 at 2‑30 p.m. The meeting was attended by 75 members either in person or through proxy. The value of the shares held by number of members who attended the meeting came to Rs.65,617,740. Out of 75 members, 75 members holding shares of the value of Rs.65,617,740 voted in favour of the proposed scheme of amalgamation being adopted and carried into effect. The members of the petitioner No.l thus voting in favour of resolution represented 100 per cent in value of the members present in person or by proxy at the meeting A meeting of the members of the petitioner No.2 was held on 15‑1‑1989 at 11 a.m. The meeting was attended by 48 members other in person or by proxy. The value of the shares held by the number of members who attended the meeting came to Rs.112,447.350. Out of 48 members, 45 members holding shares of the value of Rs.112,442,350 voted in favour of the proposed scheme of amalgamation being adopted and carried into effect. None of the members wanted against the Scheme. The members of petitioner No.2 thus voting in favour of the resolution represented 99.99 per cent in value of the members present in person or by proxy at the meeting. The Chairman. Mr. Alan Marshall, has filed a report regarding the proceedings the two meetings referred to above.

2. Consequently. the above petition has now been placed for sanction being accorded to the said Scheme of arrangement and amalgamation. Under the proposed Scheme of amalgamation the assets and liabilities of the petitioner No.l will be transferred to the petitioner No‑2 in exchange for fully paid up ordinary shares in the petition No. 2 Members of the petitioner No.l will be allotted shares in the petitioner No.2. Every member of the petitioner holding fully paid up shares, for every five ordinary shares of Rs.10 each in Lipton (Pakistan) Ltd. shall be allotted one ordinary share of Rs.50 of Lever Brothers Pakistan Ltd. and all entitlements of the registered shareholders of the ordinary shares of Lipton to the ordinary shares of Lever shall be determined in the proportion aforesaid. It is stated that the debts, liabilities and obligations of the petitioner No.l present or contingent, shall be transferred to and undertaken by the petitioner No. 2. It is stated that the assets of the petitioner No.l and the petitioner No.2 are more than sufficient to meet their liabilities and the proposed scheme of amalgamation will not in any way affect the rights or interests of the creditors of either of the two companies and that the scheme would not result in any personal gain to the directors of any of the companies. It is averred that the financial position of the petitioner No.l and the financial position of petitioner No.2 has not materially changed since 31st December, 1987 or since the end of the second quarter of 1988. It is further averred that there are no investigation proceedings or the like pending in relation to the petitioner No.l or the petitioner No.2 under sections 263 to 282 or any other provision of the Ordinance or under any repealed Companies Act, 1913.

3. The question for consideration is whether the necessary sanction of the Court should be accorded to the proposed Scheme of amalgamation. It is settled law that before the Court sanctions a Scheme under section 284 of the Ordinance, it should normally by satisfied of three matters:

(i) The Court should be satisfied that the resolutions are passed by the statutory majority in value and in number in accordance with section 284(2) of the Ordinance at a meeting or meetings duly convened and held. The factor is jurisdictional in the matter of confirmation of the Scheme. The Court should not usurp the right of the members or creditors to decide they approved the scheme or not. Therefore, if a class whose interests are affected by a scheme does not assent to the scheme or approve it at a meeting convened in accordance with the provisions of Section 284, the Court will have no jurisdiction to confirm the scheme, even if it considers that the class concerned is being fairly dealt with or that it would approve the scheme

(ii) The Court should satisfy itself that those who took part in the meeting are fairly representative of the class and that the statutory meeting did not coerce the minority in order to promote the adverse interest of _those of the class whom. they purport to represent.

4. (iii)‑ Lastly, in exercising its discretion under sections 284 and 287, the Court is not merely acting as a rubber stamp. It is the function of the Court to see the background and object of the scheme, is a reasonable one and if the Court so finds, it is not for the Court to interfere with the collective wisdom of the members of the company. When once the Court finds l that the scheme is fair one, then it is for the objector to convincingly show that the scheme is unfair and that, therefore, the Court should exercise the discretion to reject the scheme, notwithstanding the views of a very large majority of the members/ shareholders that the scheme is a fair one. If the Court is of the opinion that there is such an objection to it as any reasonable man would say that he would not approve , then the Court may refuse to confirm the scheme.

5. However, if the scheme as a whole is fair and reasonable, it is the duty of the Court not to launch on an investigation upon the commercial merit or demerits of the scheme which is the function of those who re interested in the arrangement.

(iv) There should not be any lack of good faith or the part of the majority.

6. The position has been succinctly stated by Lindley L.1. in re Alabama. New Orleans, Texas and Pacific Junction Railway Company (1891) 1 Chancery Division 213 at 238, 239 (CA) thus;‑

7. " ..What the Court has to do is to see, first of all, that the provisions of that statute have been complied with and, secondly, that the majority has been acting bona fide. The Court also has to see that the minority is not being overridden by a majority having interests of its own clashing with those of the minority whom they seed to coerce. Further than that, the Court has to look at the scheme and see whether it is one as to which persons acting honestly, and viewing the scheme laid before them in the interests of those whom they represent, take a view which can be reasonably taken by businessmen." In the present case, from the figures already given, which gave the analysis of the members present and actually voting, it is seen that the proposed scheme of amalgamation has been approved by an over‑whelming majority, both in number and value of the members of both the companies. Thus, the statutory requirement has been fully satisfied. There is no averment that there has been no fair representation of the members at the meetings of both the companies. There is no allegation of any undue influence or coercion exercised by the majority on the minority members. Further, the petition has been widely advertised. In spite of the notices published in Daily Pakistan Times Lahore on 5‑11‑1988, Daily Nawa‑i‑Waqt dated 6‑11‑1988, Daily Dawn dated 10‑11‑1988, Daily Jang dated 5‑11‑1988, Business Recorder dated 5‑11‑1988. The Sind Gazette Part II dated 10‑11‑1988 and the Gazette of Pakistan Part VI dated 16‑11‑1988. It is significant that even the minority of the members, who did not vote either in favour or against the acceptance of amalgamation at the meetings held under the orders of this Court, did not appear before me and put forward their Objections. The Joint Registrar of Companies filed written statement wherein he stated that "he has nothing to urge in the matter and the Hon'ble Court may pass such order as it may, deem fit, provided the interest of shareholders and creditors is secured and safeguarded" It is in this background of the above facts, the approval of the scheme has to be considered. Under the scheme every shareholder in the petitioner No.l holding five ordinary shares of Rs.10 each will be given one ordinary share of Rs.50 of petitioner No.2. Admittedly, the exchange ratio adopted in the scheme has been arrived at on the basis of the valuation of the Chartered Accountants, A.F. Ferguson and Company of the petitioner No.l and petitioner No.2. The proportion in which shares of the petitioner No.2 are to be allotted under the scheme of arrangement in lieu of shares of the petitioner No.l held by the registered holders thereof has been recommended by Messrs A.F. Furguson & Company, on the basis of financial studies carried out by them and their recommendation has been accepted b% the directors of both the petitioners. The proposition so recommended and accepted has been approved by the Controller of Capital Issues by Letter No.R.51CCI(Il)/87‑11‑R79 dated 13‑7‑1988. in this context. it is necessary to refer to the decision of Denning L.J. in Dean v. Prince and others (1954) 1 Ch. 409. In that case, the auditor, in making the valuation of the shares of a company, certified that for the purposes of his valuation he had not regarded the company as a going concern, "Jut that he had valued on a break‑up basis, because in his opinion, the shares have no value on any other basis, having regard to the losses made by the Company. Denning L.J. observed at page 426:‑

8. "The task of the auditor here was to act as an expert and not as an arbitrator; and, as an expert, he was to certify what, in his opinion, was the fair value of the shares ..... The reason is because it is so much a matter of opinion that it is very difficult to say it was wrong. But difficult as it is, nevertheless if the Courts are satisfied that the valuation was made under a mistake, they will hold it not to be binding on the parties. For instance, if the expert added up his figures wrongly; or took something into account which ought not to have taken into account, or conversely; or interpreted the agreement wrongly; or proceeded on some. erroneous principle. In all these cases the Court will interfere On matters of opinion, the Courts will not interfere; for mistake of jurisdiction or of principle, and for mistake of law, including interpretation of documents, and for miscarriage of justice, the Courts will interfere.

9. I am, therefore, satisfied that the exchange ratio adopted in the scheme is fair and reasonable. To sum up, the scheme has been approved and accepted by an overwhelming majority of the members, present in number and in value, of the two petitioners, at the two meetings held separately under orders of this Court. The exchange ratio in the scheme of amalgamation has been found to be fair and reasonable on a consideration of the various factors which are necessary to be taken into consideration by the chartered accountants of both the companies. There is no allegation that the books of accounts are not reliable. No grounds have been suggested why the report of the chartered accountants should not be accepted. There is no allegation of lack of B bona fides on the part of the majority of the members, or the minority has been overridden and coerced into accepting the scheme of arrangement. In the result, the petition succeeds and sanction is acceded to the proposed scheme of amalgamation. . As per the scheme of amalgamation, the amalgamation was to come into effect before 31st December, 1989. In the result, I pass the following orders under section 287 of the Ordinance so as to take effect at the same time as the order sanctioning the scheme of arrangement takes effect in accordance with section 284(3) of the Ordinance namely:

(i) The whole undertaking of the Petitioner N4_1 together with all its property assets, rights, liabilities and obligations of every description including those described in paragraph 2 of the scheme of arrangement as set forth in "Annexure A" to the petition shall stand transferred to and vested in the petitioner No.2.

(ii) The petitioner No.2 is hereby directed to allot one ordinary share of the nominal value of Rs.50 credited as fully paid up in the Petitioner No.2 for every five ordinary shares of the nominal value of Rs.10 each credited as fully paid up in the petitioner No.l to the registered holders of those shares in the petitioner No .l. The determination of the registered holders of shares in the petitioner No.l and their respective entitlement to such ordinary shares of petitioner No.2, the treatment of 1 :7 fractional entitlements, and the allotment of such shares and delivery of share certificates by the petitioner No.2 shall be in accordance with paragraphs 4, 5 and 6 of the scheme of arrangement as set forth in "Annexure A" to the petition. For this purpose the Register of Members of the petitioner No.l shall be closed for a period of seven days prior to and inclusive of the date fixed by the directors of the petitioner No.2 by reference to which the registered holders of the ordinary shares of the petitioner No.l are to be determined for entitlement to ordinary shares of the petitioner No.l. Notice of such closure shall be published not less than seven days prior to the date of such closure in at least one issue each of a daily newspaper in the English language and a daily newspaper in the Urdu language having circulation in the Provinces of Sind and Punjab.

(iii) All legal proceedings instituted by or against the petitioner No.l which may be pending shall be continued by or against the petitioner No.2.

(iv) The petitioner No.l shall stand dissolved' without winding up on the date on which the ordinary shares of the petitioner No.2 are allotted to the holders of the ordinary shares of the petitioner No.l in accordance with the scheme of arrangement as set forth in "Annexure A" to the petition. .

10. A.A./L‑27/K Sanction granted‑