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CS Professional · Corporate Restructuring, Valuation and Insolvency · Types of Corporate Restructuring

The scheme of Narmada Foods Ltd, sanctioned by the Tribunal under Section 230, proposes conversion of preference shares into equity shares. Which provision must the Tribunal's order make for the preference shareholders?

The order must give preference shareholders an option: either obtain arrears of dividend in cash or accept equity shares equal to the value of the dividend payable. The choice rests with the shareholders, and neither forced payment nor forfeiture is allowed.

  1. AThey must be given the option to obtain arrears of dividend in cash or accept equity shares equal to the value of the dividend payableCorrect
  2. BThey must receive arrears of dividend only in cash
  3. CThey must accept equity shares equal to arrears with no option
  4. DThey forfeit arrears of dividend upon conversion

Explanation

Section 230(7)(a) says that where the compromise or arrangement provides for conversion of preference shares into equity shares, the preference shareholders must be given an option to either obtain arrears of dividend in cash or accept equity shares equal to the value of the dividend payable. Cash-only or shares-only treatments deny that option.

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