Vedanta’s reserves transfer proposal receives the support of the proxy consultancy

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The move essentially frees up cash reserves and allows companies to reward shareholders.

New Delhi:

The proposal by the metals and oil conglomerate Vedanta Ltd to reorganize capital and transfer Rs 12,587 crore from general reserves to retained earnings has won the support of US-based proxy consultancy Glass Lewis.

Vedanta has convened a shareholders’ meeting on October 11 to approve a settlement.

In a message to shareholders, Vedanta reasoned that the company had built up “significant reserves through profit transfer” over the years.

“The company believes that the funds represented by the general reserves will exceed the expected operational and business needs of the company for the foreseeable future, so these excess funds can be used to create further shareholder value,” the company said.

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The transfer, he said, was in “the interest of all company stakeholders”.

The move essentially frees up cash reserves and allows companies to reward shareholders.

In his recommendation on the matter, Glass Lewis said, he believes that the company’s management and decisions related to operations are best left to management and the board of directors, but for any blatant or illegal conduct that could threaten shareholder value.

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“We believe that board members can be held accountable for these issues when they are re-elected,” it said.

It further stated that the proposal will not have any economic effect on the company’s shareholders. “We therefore believe that shareholders should support the proposed transaction.” It is not the first time such a transfer has taken place. HUL had done the same in 2018 when it transferred the entire balance that was in its general reserves on April 1, 2015 (approximately Rs 2,187 crore) to its Profit and Loss Account (P&L).

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The transfer of the balance of the general reserves to the profit and loss account was made possible by amendments introduced by the Companies Act, 2013. Previously, the companies had to transfer a certain percentage of the profit to their general reserves before the payment of dividends.

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