Jersey Unreported Judgments

Companies - application to the court to sanction scheme of arrangement and application to reduce capital.

[2016]JRC109

Royal Court

(Samedi)

24 June 2016

Before     :

T. J. Le Cocq, Esq., Deputy Bailiff, and Jurats Marett-Crosby and Grime

IN THE MATTER OF REPRESENTATION BY BEAZLEY PLC

AND IN THE MATTER OF ARTICLES 63 AND 125 OF THE COMPANIES (JERSEY) LAW 1991

Advocate J. Harvey-Hills for the Representor.

judgment

the deputy bailiff:

1.        This is an application brought by Beazley Plc ("Beazley") to sanction a Scheme of Arrangement dated 25^th February, 2016, ("the Scheme") between Beazley and the holders of the Scheme shares pursuant to Article 125 of the Companies (Jersey) Law 1991 ("the Law").  There is also a linked application to reduce capital. 

2.        The matter was first before the Court for directions on 22^nd February, 2016, at which time the Court ordered that Beazley be at liberty to convene a Court meeting pursuant to Article 125(1) of the Law for the purposes of considering and if thought fit approving the Scheme ("the Court Meeting").  Further orders were made concerning the timing and location of that meeting, relating to the notification of shareholders, proxies, and the reporting back to the Court of the results of the meeting. 

3.        The Court Meeting has now been held and the matter returns before us to consider whether or not the Scheme should be sanctioned and the associated reduction of capital of Beazley confirmed. 

4.        Essentially the purpose of the Scheme is to restructure a group of companies currently held under the umbrella of Beazley as holding company, by creating a new holding company (New Beazley) incorporated in England and Wales and resident for tax purposes in the United Kingdom to hold that group.  New Beazley was incorporated and registered in England and Wales on 4^th September, 2015, pursuant to the Companies Act 2006 and if the Scheme is sanctioned the ultimate result would be that New Beazley will become the holding company, the shares in Beazley will be cancelled, and all shareholders in Beazley will receive in place of the cancelled Beazley shares an equivalent number of shares in New Beazley.  Beazley will thereafter be a wholly owned subsidiary of New Beazley. 

5.        There are three stages in the process by which a Scheme of Arrangement under Article 125 of the Law becomes binding upon its shareholders.  The stages are usefully summarised in the matter of Representation of CPA [2010] JRC 011 in the following terms:-

"(i) First there is an application under Article 125(1) for an order that a meeting of shareholders or creditors if necessary be called.  It is at this stage that the Court should consider whether or not to summon separate class meetings and if so, who should be summoned to each meeting.  The Court will not look at the merits at this stage (See Re Telewest Communications Plc [2004] EWHC 92).

(ii) Second, the scheme proposals are put to the court-convened meeting and are approved by a majority by number representing 3/4ths of the voting rights of members present and voting in person or by proxy. 

(iii) Third, and assuming the requisite approval at such meeting is given, the Court exercises its discretion as to whether to sanction the arrangement:  see Re National Bank Ltd [1966] 1 All ER 1006 at 1012 approved by the Royal Court in Re Telewest Finance (Jersey) Limited [2004] JRC 109."

6.        The Court further stated in connection with the facts of that case:-

"There is also in effect a fourth stage to this scheme.  As there is an associated reduction of capital, which the scheme is conditional upon, the Court will be requested to make an order sanctioning the reduction of capital."

7.        At the hearing on 25^th February, 2016, the Court made the order pursuant to Article 125(1) and specified that there need be a single meeting of the holders of Beazley shares for the purpose of considering and, if appropriate, approving the Scheme. 

8.        That meeting has taken place and the Court has before it the affidavit evidence of Dennis Holt, Chairman of the Board of Directors of Beazley, dated 24^th March, 2016, in which Mr Holt reports to the Court both as to the service of appropriate documentation including forms of proxy and the Scheme circular containing appropriate information in accordance with the Court order, and further confirming that the Court Meeting was held and that the Scheme had been approved by the statutory majority at that meeting. 

9.        Accordingly the matter is now before us for determination as to whether the Scheme and associated reduction in share capital should be sanctioned.  The test which the Court applies on such occasions is well established.  It is a three-fold test and the Court must consider:-

(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 is acting bona fide and not coercing the minority in order to promote interests adverse to those of the class who they may 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 (see in the matter of Representation of Informa Plc [2014] JRC 120C at paragraph 3). 

10.      As we have stated above we have had before us affidavit evidence and we are satisfied that part (i) of the test set out above has been met. 

11.      As to part (ii) of the test there is only one class of shareholders of Beazley and we have evidence that at the Court Meeting, 373 out of a total of 1453 registered shareholders entitled to attend and vote at the Court Meeting did attend that meeting in person or by proxy and voted, and that the shareholders who attended the Court Meeting in person or by proxy and voted together represented 76.05% of the aggregate issued share capital of the company.  Some 98.39% of the shareholders by number who attended the Court Meeting and voted in person or by proxy voted in favour of the Scheme (six shareholders by number voting against).  Those shareholders voting in favour of the Scheme represented 99.99% by value of all Beazley shares voted at the meeting.  It is clear that the Scheme will affect all Beazley shareholders equally and no shareholders who voted to approve the Scheme stood to benefit in some manner which was not available to those who did not vote. 

12.      Nobody attended before us to oppose the relief and orders sought by Beazley. 

13.      We are accordingly satisfied that there was fair representation of shareholders at the Court Meeting and that a very substantial majority voted in favour of the Scheme. 

14.      As to (iii), the reasons for the Scheme are set out above and the Board of Directors of Beazley have unanimously recommended that the shareholders vote in favour of the Scheme.  There is accordingly no evidence to suggest that the statutory majority are not acting intelligently and honestly or that they are considering their own interests in coming to the conclusion to vote in favour of the Scheme. 

15.      As stated above, the Court is also asked to sanction a reduction in capital which is a prerequisite to the Scheme coming into effect. 

16.      In Representation of Henderson Far East Income Limited [2007] JRC 015 the Court noted at paragraph 11:-

"In considering its decision the Court must consider the interests of both the shareholders and the creditors of the company.  In relation to the former the Court will need to satisfy itself that (a) the shareholders, particularly if there are different classes, have been treated equitably, (b) that the proposals for reduction have been properly explained to the shareholders; and (c) that the reduction has a discernible purpose."

17.      At the general meeting that followed immediately after the Court Meeting shareholders were asked to vote on a special resolution to approve matters which included both the Scheme and the associated reduction of capital.  The necessary special resolution was duly passed.  Upon the reduction of capital becoming effective the reserve arising in the books of Beazley will be capitalised and used to issue fully paid ordinary shares in the company to New Beazley.  The matter has been fully explained to shareholders and there is no prejudice to creditors of the company.  We are satisfied that those tests are met. 

18.      We were further advised that Beazley and New Beazley intend to rely upon the exemption contained in Section 3(a)(10) of the United States Securities Act 1933 which permits New Beazley to issue New Beazley shares to holders of the Scheme shares in exchange for their shares in Beazley without the need to register those shares under that Act.  This is not a matter on which this Court is required or indeed should make any findings.  However in terms of the statutory tests that we are to apply in discharging our functions we consider that the Scheme and reduction of capital meet the test of fairness. 

19.      Accordingly we make the order approving the Scheme and confirming the reduction in capital as requested. 

Authorities

Companies (Jersey) Law 1991.

Companies Act 2006.

Representation of CPA [2010] JRC 011.

Representation of Informa Plc [2014] JRC 120C.

Representation of Henderson Far East Income Limited [2007] JRC 015.

United States Securities Act 1933.