Companies - application by the representor for approval of a scheme of
arrangement.
[2012]JRC059
Royal Court
(Samedi)
16
March 2012
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Before :
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M. C. St. J. Birt, Esq., Bailiff, and Jurats
Morgan and Milner.
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IN THE MATTER OF A REPRESENTATION BY
GEORGE TOPCO LIMITED
AND IN THE MATTER OF ARTICLES 63 AND
125 OF THE COMPANIES (JERSEY) LAW 1991
Advocate R. J. McRae for the Representor.
Advocate M. H. Temple for Redtop Acquisitions
Limited.
judgment
the bailiff:
1.
This is an
application by George Topco Limited which is incorporated in Jersey. It seeks approval of a scheme of
arrangement between the company and certain of its shareholders pursuant to
Article 125(2) of the Companies (Jersey)
Law 1991.
2.
The
details of the scheme are quite complicated but for our purposes they can be
perhaps simplified as follows. The
company is the ultimate parent company of Computer Patent Annuities Holdings
Limited which, together with its subsidiaries, carries on a substantial business
related to the computerised renewal of patents and other related matters. The company acquired its ownership of
Computer Patent Annuities Holdings Limited by a scheme of arrangement in
January 2010. The Board of the
company has agreed the terms of a recommended proposal whereby Redtop
Acquisitions Limited, another Jersey company,
will acquire the entire issued share capital of the company. The scheme will in fact only apply to
some 79.9% of these shares, and we will refer to these as the “scheme shares”. These are the shares held by investors
in the company and the scheme will involve a cash consideration of just under
£334 million. The balance of
the share capital, referred to as the “SPA
shares”, is held by persons concerned with the management and the
intention is that they will receive part of their consideration in the form of
shares in the purchaser, no doubt to incentivise them for the future. That aspect is proceeding by way of a
direct sale of the SPA shares to
the purchaser outside the scheme.
Although the scheme shares comprise A1 ordinary shares, A2 ordinary
shares and B ordinary shares there is no difference between these shares so far
as their economic interest in the company is concerned and accordingly, at the
convening hearing, the court ruled that there could simply be one meeting of
all scheme shareholders; there was no need for separate class meetings.
3.
In essence
the scheme is simple. All of the
scheme shares will be cancelled by way of a reduction of share capital; the
company will then immediately issue an equivalent number of fully paid shares
to the purchaser; the purchaser will, within five days of the scheme becoming
effective, pay the holders of the scheme shares a total of £83.45 pence
per share, of which £1 will be retained in escrow for a while, to cover
certain potential liabilities to third parties.
4.
Article
125 of the Law envisages three stages in approval of a scheme: first there is
the convening by the court of a meeting of shareholders (or creditors if it is
that type of scheme), at which the shareholders will consider the scheme. Secondly, there has to be a meeting of
shareholders where the scheme must be approved by 75% of the voting rights of
those voting. Finally, the scheme
is considered by the court which has to decide whether to approve it. In this case the court convened the
necessary meeting by an order dated 26th January, 2012, and that meeting was held
on 22nd February. So we
are now at the third stage.
5.
When
considering whether to approve a scheme of arrangement under Article 125 the
court’s role is well established.
The court must consider three issues:-
(i)
whether
the provisions of the 1991 Law have been complied with;
(ii) whether the class of shareholders to be
affected by the proposed scheme was fairly represented by those who attended
the meeting; and whether the statutory majority are acting bona fide and not coercing the minority in order to promote
interest adverse to those of the class whom they purport to represent; and
(iii) whether the arrangement is such that an
intelligent and honest man, a member of the class concerned and acting in
respect of his interest, might reasonably approve.
We will take each of these in turn.
6.
We have
received affidavits satisfying us that the scheme circular, which sets the
matter out very fully, was sent to all the scheme shareholders; at the relevant
meeting the holders of 95.94% of all scheme shares were present or represented
by proxy; and the vote in favour of the scheme was unanimous. It follows that the provisions of
Article 125 have been comfortably complied with.
7.
As to the
second issue there is only one class of shares, as we have mentioned, for these
purposes and the vote was unanimous.
Accordingly we are satisfied on the second aspect that there is no
question of coercion of a minority.
8.
That
leaves the third issue. The
circular explained the scheme very fully and fairly and it made clear that the
Board had been seeking an exit for investors and the offer from the purchaser
was the preferred one. The circular
reports that the independent members of the Board have been advised by DC
Advisory Partners that the price offered is fair and reasonable. The fact that the scheme was approved
unanimously by over 90% of the scheme shares is also relevant. Having considered the matter in the
round we are satisfied on this third issue.
9.
We should
however mention two matters which have been brought to our attention this
morning and have required two minor changes to the scheme. There is provision in the scheme in the
form in which it was sent to scheme shareholders which enables the company and
the purchaser to consent to any modification or addition to the scheme or to
any condition which the court may think fit to approve or impose.
10. The changes relate to two matters. The first is a minor error. There were some warrants which had been
issued which enable members to subscribe for shares prior to the scheme
becoming effective. There was a
minor miscalculation of the number of warrants which meant that warrants had
been issued for ten more shares than were authorised. This has been dealt with by the
purchaser paying an additional £834 outside the scheme but it means that
the aggregate figures in the scheme circular are reduced by £834.
11. The second change is that, as part of the
overall deal, various preference shares are to be redeemed and in the circular
it states that the foreign exchange price from euros to sterling which will
form the basis of that redemption will be the exchange rate on the completion
date. That was an error; it turns out
to be impractical because the exchange rate will not be known in time for the
payments to be made. Accordingly a
change has been made so that the exchange rate will now be on the business day
immediately prior to the completion date.
12. We have been referred by Mr McRae to the
approach the court should take where there is a change to the scheme after the
matter has been considered at the meeting of shareholders. He has referred us to a passage from Tolley’s
Company Law Service where, at section S 1002, it is stated as follows:-
“Where a member or creditor
receives full information about the scheme and is given sufficient time to
consider his position, the court will not generally interfere, except where a dishonest
motive is apparent (Re English, Scottish and Australian Chartered bank [1893] 3
Ch 385), or where class interests are not fairly represented. Full information must be made available,
and the contents of the explanatory statement which must be issued are crucial
in this respect. If a matter is not
disclosed, then even in the absence of bad faith, if the court considers that
shareholders’ views in voting might have been affected had they known of
it, the scheme is unlikely to be sanctioned (Re Jessel Trust Ltd [1985] BCLC
119; Re MB Group Ltd [1989] BCLC 672).
In contrast however, non-disclosure of changes subsequent to the
explanatory statement is not necessarily fatal. The role of the court is to be satisfied
that no reasonable shareholder (or creditor) would change his decision as to
how to act on the scheme if the changes had been disclosed and, if the court is
so satisfied, then the scheme can still be sanctioned.”
13. We are quite satisfied that the two changes we
have just described are extremely minor and that, if they had been known about
in advance and disclosed to shareholders, no shareholder could possibly have
wanted to change his vote as a result of those changes. Accordingly we see no reason to change
our view in relation to approval of the scheme by reason of those two
matters.
14. Turning finally to the associated reduction in
share capital, this is a very technical reduction. All the existing scheme shares will be
cancelled but they will be immediately replaced by new shares; there will be no
reduction in the assets of the company as a result. Accordingly we approve the reduction. The court in January ordered that the
requirements under paragraph (3) – (5) of Article 62 to convene creditors
be waived.
15. Finally we have been assured that all the
conditions in relation to the scheme have been complied with; accordingly we
are content to approve the scheme.
Authorities
Companies (Jersey)
Law 1991.
Tolley’s Company Law Service.