Explanatory statement - mergers and winding up:

It is also necessary that the members or creditors who are to vote on the scheme should be able to understand its full effects.  Accordingly when notices are issued to convene the meetings ordered by the court an explanatory statement must also be issued: CA, s.208.  The statement:

(a)     explain the effect of the scheme ie. puts the proposal forward in terms which a non-expert can understand;

(b)     disclose any material interests in the scheme of the directors, whether as directors, members, creditors or otherwise and the effect of the scheme on the directors' interests if different from like interests of other persons;

(c)     if the scheme affects the rights of debenture holders the statement discloses any interest of a trustee for debenture holders in the scheme.

As an example a statement has been held to be deficient under (a) because it stated that assets had been valued but did not disclose the amount of the revaluation.  If the statement is defective on technical points the court cannot approve the scheme.  The whole operation must be repeated using a satisfactory explanatory statement.