Creditors conversion to shareholders

In case some of the creditors approch a Public Limited Company to issue equity shares or debentures to them against their due libilities, then can the company issue such shares/debentures? what are the provisions to be followed?

 

To my knowledge following are to be complied with:

(1) Board Approval

(2) special resolution under section 81(1A) of Co. Act 56

 

But Section 391 will not apply as the creditor get the shares for a value equal to their due (its not a compromise/arrangement).

 

My main query in this is, as only some of the creditor approched,  whether the consent of all the creditors will be required.

 

Please provide your suggestions.

 

 

Replies (1)

Your understanding is correct.  Issue of shares is prerogative of the shareholders.  Consent of creditors is not required for the same.  Section 391 will come into picture only if there is an arrangement with creditors with the approval of High Court. 

 

 

 

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