The High Court was faced with the question of whether a scheme and the associated reduction of capital were compliant with the statutory requirements under Section 641 and following the Companies Act 2006 and if such a scheme could be sanctioned by the Court.
Background:
This case relates to a scheme of arrangement under Part 26 of the Companies Act 2006 as promoted by Lightsource BP Renewable Energy Investments Holdings Limited – a holding company of a group.
The scheme and the arrangements surrounding it are somewhat complex, yet the overall intention of the scheme was relatively simple – the demerger of certain US assets as a condition precedent to the completion of an acquisition by the largest shareholder, BP Alternative Energy Investments Limited, of the shares in the company that it does not already own.
The US assets are held by a wholly owned subsidiary of Lightsource Renewable Energy US, LLC. Following the implementation of the scheme, the demerged assets are to be held in a new joint venture company whereby the existing shareholders in the company, other than BP, will hold the same or very similar interest in the new joint company, and the company will indirectly hold the remaining shares.
There was an application to the Court for permission to convene a meeting of the class of members, excluding BP, to approve the scheme. BP had previously consented to the scheme and constituted a separate class of members. The application was thereafter approved by Edwin Johnson J. The company is now seeking an order to sanction the scheme and approve the associated reduction of capital.
Decision:
The High Court approved the scheme and the associated reduction of capital. The Judge started with the requirements for approval of a scheme as found in Re TDG plc [2009] which can be summarised as “Condition (A): the Court must be satisfied that the provisions of the statute have been complied with; Condition (B): the Court must be satisfied that the class of shareholders that is the subject of the Court meeting was fairly represented by those who attended the meeting, and the statutory majority was acting bona fide and not coercing the minority to promote interests adverse to those of the class they purport to represent; Condition (C): an intelligent and honest person, a member of the class concerned and acting in respect of their own interest, might reasonably approve the scheme; and Condition (D) there must be no blot on the scheme.”
The Court noted that Condition A is fulfilled as and when the requirements of Section 897 of the Companies Act 2006 are met, as was the case here. For Condition B to be met, the Court must be convinced that there is no material flaw in the voting arrangements. In this case, the failure to provide one shareholder with the requisite notice was insufficient to invalidate the meeting. Condition C was fulfilled as the terms of the scheme were set out fully in the Scheme Document and explanatory materials as to the commercial background of the scheme were available to shareholders. The condition that raised the most concerns was D, due to some drafting matters within the scheme and the delay in proceedings. The Court however ruled that such delay did not adversely affect the scheme.
Regarding the reduction of capital, as found in Section 641 and following the Companies Act 2006, the Court ruled that the resolution for reducing capital was validly passed and the shareholders were treated equitably.
Implications:
This decision highlights the importance of adhering to statutory procedures. It also summarises the conditions for approval of a scheme by courts. Such conditions are statutory compliance, fair representation of shareholders, reasonable approval by an intelligent and honest person, and the absence of any bolts. Statutory compliance is quite easy to achieve by distributing details scheme documents. Any delay in proceedings may have an adverse effect on a scheme although this will depend on the circumstances.
This judgement highlights the Court’s role in ensuring equitable and lawful treatment of shareholders while facilitating corporate transactions.