One of the leading decisions in England which approves a selective reduction of capital is the decision of the House of Lords in British and American Trustee and Finance Corporation Ltd. and Reduced V. John Couper 1894 AC 399 (HL). In that case, the shares of the company were divided into ordinary shares partly paid up, and founder’s share partly paid up. The company carried on business both in England and in the U.S., but it being found impossible to do so in both countries with advantage, it was determined that the company should cease to carry on business in the U.S. This was carried out by a special resolution which provided that the capital should be reduced by paying off the shares (i.e. both ordinary and founder) held by American shareholders only since the capital represented thereby was in excess of the wants of the Company. Such shares and all liability thereon were to stand wholly extinguished. The House of Lords held that the prescribed majority of the shareholders of a company is entitled to decide whether there should be a reduction of capital, and if so, in what manner and to what extend it should be carried into effect. In a concurring judgment Lord Machaghten held thus: If the parties to the transaction come to the conclusion that the bargain is a fair one, why should the Court say that there is a preference on the one side and on the other? If there is nothing unfair or inequitable in the transaction, I cannot see that there is any objection to allowing a company limited by shares to extinguish some of its shares without dealing in the same manner with all other shares of the same class. There may be no inequality in the treatment of a class of shareholders, although they are not all paid in the same coin, or in coin of the same denomination. In a separate judgment, Lord Herschelle held as follows: If all the shareholders of a company were of opinion that its capital should be reduced, and that this reduction would best be effected by paying off one shareholder and cancelling the shares held by him, I cannot see anything in the Acts of 1867 and 1877 which would render it incumbent on the Court to refuse to confirm such a resolution, or which shows that it would be ultra vires to do so….. There can be no doubt that any scheme which does not provide for uniform treatment of shareholders whose rights are similar, would be most narrowly scrutinized by the Court, and that no such scheme ought to be confirmed unless the Court has satisfied that it, will not work
