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

Under a scheme before the Tribunal, Tarang Industries Ltd proposes to convert its preference shares into equity shares, with accounting treatment included in the scheme. Which statement is correct under Section 230?

Preference shareholders must be given the option of arrears of dividend in cash or equity shares equal to the dividend payable. The Tribunal also cannot sanction the scheme unless the company's auditor certifies that the accounting treatment conforms to the accounting standards prescribed under section 133.

  1. APreference shareholders must accept equity shares; no cash option is available
  2. BPreference shareholders get the option of arrears of dividend in cash or equity shares equal to the dividend value, and the auditor's certificate on accounting standards must be filed before sanctionCorrect
  3. CArrears of dividend are extinguished automatically on conversion, and the auditor's certificate is needed only for listed companies
  4. DOnly the Central Government can decide the treatment of arrears, and the auditor's certificate is optional

Explanation

Section 230(7)(a) gives preference shareholders an option between arrears of dividend in cash or equity shares equal to the dividend payable. The proviso bars sanction unless the auditor's certificate of conformity with section 133 accounting standards is filed. The other options deny the option or make the certificate optional or limited.

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