Altitude Scaffolding Ltd, Re Companies Act 1985

This is a single judgment in two unrelated applications which raise the same issue. Does the attendance in person or by proxy of only one member of a class of creditors at the time and place fixed for a meeting convened to consider a scheme of arrangement under section 425 of the Companies Act 1985 constitute a meeting of the class for the purposes of the section.

The application of Altitude Scaffolding Limited (ASL) was for the sanction of the court to a scheme of arrangement. ASL is a subsidiary of Cape plc. Cape and a number of its subsidiaries proposed a scheme with creditors who have made, or may in the future make, claims resulting directly or indirectly from past exposure to asbestos dust. For these purposes the relevant creditors were divided into two classes, those whose claims are or may be covered by insurance taken out by the companies (recourse scheme creditors) and those whose claims are not covered by insurance (general scheme creditors). As the existence and extent of insurance cover is uncertain in the case of recourse scheme creditors, they were also members of the class of general scheme creditors and entitled to vote at the meetings of that class. In the case of eleven subsidiaries, either both or one of the meetings were not attended by any creditor. The scheme could not therefore be sanctioned as regards those companies. None of those companies was key to the operation of the scheme and, in accordance with an express provision of the scheme, they were excluded. The scheme was approved by overwhelming majorities at the meetings of creditors of Cape and twelve subsidiaries and I have sanctioned the scheme as regards those companies. In the case of ASL, one creditor with a claim valued at £31,000 attended each meeting.

The applications in the case of T&N Limited and a large number of associated companies, made by their administrators, are to convene meetings of their creditors who have or may in future have rights to claim under employers’ liability policies which were taken out by the companies and were in place between October 1969 and April 1995, such claims resulting directly or indirectly from past exposure to asbestos dust. A number of issues of jurisdiction or principle were raised for decision. My decisions on those issues will enable orders to be made to convene the meetings. The administrators are concerned that in the case of one or more companies, there will be a small turn-out at the meetings and that it is possible that only one creditor will attend. Accordingly, they seek a direction that the attendance of one creditor shall constitute a meeting. This raises the same issue of principle as ASL’s application.

On 7 June 2006, I heard submissions from Sir Thomas Stockdale on behalf of ASL on this issue, as part of the applications of Cape and its subsidiaries for sanction of the scheme. Before giving judgment I became aware that T&N’s application raising this issue would be heard by me on 9 June 2006. I therefore directed that ASL’s application should be re-listed at the same time, so that both matters could be considered together.

The requirement that a meeting of creditors or members, or of each class of creditors or members, with whom a scheme of arrangement is proposed to be made must be summoned by order of the court, and that the scheme must be approved by a majority in number representing three-fourths in value of the creditors or members present and voting in person or by proxy at the meeting, are set out in section 425. Unless those conditions are satisfied, there is no jurisdiction to sanction the scheme so as to be binding on the class in question. Section 425 (1) and (2) provide:

“(1)

Where a compromise or arrangement is proposed between a company and its creditors, or any class of them, or between the company and its members, or any class of them, the court may on the application of the company or any creditor or member of it or, in the case of a company being wound up, or in administration, of the liquidator or administrator, order a meeting of the creditors or class of creditors, or of the members of the company or class of members (as the case may be), to be summoned in such manner as the court directs.

(2)

If a majority in number representing three-fourths in value of the creditors or class of creditors or members or class of members (as the case may be), present and voting either in person or by proxy at the meeting, agree to any compromise or arrangement, the compromise or arrangement, if sanctioned by the court, is binding on all creditors or the class of creditors or on the members or class of members (as the case may be), and also on the company or, in the case of a company in the course of being wound up, on the liquidator and contributories of the company.”

The three stage process involved in section 425 has been emphasised in the authorities. In In re Hawk Insurance Co Ltd [2001] 2 BCLC 480, Chadwick LJ said at [11] and [12]:

“[11] There are, as I sought to point out in Re BTR plc [2000] 1 BCLC 740 at 742, when this court refused permission to appeal from the order made by Parker J, three stages in the process by which a compromise or arrangement becomes binding on the company and all its creditors (or all those creditors within the class of creditors with which the compromise or arrangement is made). First, there must be an application to the court under s 425(1) of the 1985 Act for an order that a meeting or meetings be summoned. It is at that stage that a decision needs to be taken as to whether or not to summon more than one meeting; and, if so, who should be summoned to which meeting. Second, the scheme proposals are put to the meeting or meetings held in accordance with the order that has been made; and are approved (or not) by the requisite majority in number and value of those present and voting in person or by proxy. Third, if approved at the meeting or meetings, there must be a further application to the court under s 425(2) of the 1985 Act to obtain the court’s sanction to the compromise or arrangement.

[12] It can be seen that each of those stages serves a distinct purpose. At the first stage the court directs how the meeting or meetings are to be summoned. It is concerned, at that stage, to ensure that those who are to be affected by the compromise or arrangement proposed have a proper opportunity of being present (in person or by proxy) at the meeting or meetings at which the proposals are acceptable to at least a majority in number, representing three-fourths in value, of those who take the opportunity of being present (in person or by proxy) at the meeting or meetings. At the third stage the court is concerned (i) to ensure that the meeting or meetings have been summoned and held in accordance with its previous order, (ii) to ensure that the proposals have been approved by the requisite majority of those present at the meeting or meetings and (iii) to ensure that the views and interests of those who have not approved the proposals at the meeting or meetings (either because they were not present or, being present, did not vote in favour of the proposals) receive impartial consideration.”

Each of these stages represents an essential element in the protection provided by the section for the creditors or members to be bound by the proposed scheme.

Section 425 requires approval by the stated majorities to be given at a meeting, rather than for example in writing. The purpose would seem to be to enable each class to debate the merits of the scheme among themselves and, if given the opportunity, to question the scheme’s proponents. It is to be noted that in the classic definition of a class given by Bowen LJ in Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583, the fact that a meeting of each class was to be called was a central consideration:

“The word “class” is vague, and to find out what is meant by it we must look at the scope of the section, which is a section enabling the Court to order a meeting of a class of creditors to be called. It seems plain that we must give such a meaning to the term “class” as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest.”

Speaking more generally, Sir Nicolas Browne-Wilkinson V-C said in Byng v London Life Association Ltd [1990] Ch 170 at 183:

“The rationale behind the requirement for meetings in the Companies Act 1985 is that the members shall be able to attend in person so as to debate and vote on matters affecting the company.”

The conventional legal meaning of meeting in the context of creditors and shareholders of companies is an assembly or the coming together of two or more such persons. This is clearly established by the decision of the Court of Appeal in Sharp v Dawes (1876) 2 QBD 26, and later applied in a number of cases: In re Sanitary Carbon Co [1877] WN 223, James Prain & Sons, Petitioners 1947 SC 325, In re London Flats Ltd [1969] 1 WLR 711 and In re MJ Shanley Contracting Ltd (1980) 124 Sol Jo 239.

Sharp v Dawes was an action to enforce a call on shareholders of a cost-book company under the Stannaries Act 1869. Lord Coleridge CJ said at pp 28-29:

“Of course it cannot be enforced unless it was duly made within the Act. Now, the Act says that a call may be made at a meeting of a company with special notice, and we must ascertain what within the meaning of the Act is a meeting, and whether one person alone can constitute such a meeting. It is said that the requirements of the Act are satisfied by a single shareholder going to the place appointed and professing to pass resolutions. The 6^th and 7^th sections of the Act show conclusively that there must be more than one person present; and the word “meeting” prima facie means a coming together of more than one person. It is, of course, possible to show that the word “meeting” has a meaning different from the ordinary meaning, but there is nothing here to show this to be the case.”

Lord Coleridge referred to sections 6 and 7 of the Stannaries Act, which did not in terms require any particular number of persons to be present but provided for special resolutions in term similar to those then contained in the Companies Act:

“6.

A resolution passed by a company shall be deemed a special resolution within this Act when it has been passed at a meeting with special notice, and has been confirmed at a subsequent meeting with special notice; the last-mentioned meeting being held not less than fourteen days and not more than one month after the meeting at which the resolution was first passed.

7.

A company may, by special resolution passed by not less than three fourths in value of the shareholders present in person or represented by proxy at the meeting held for the purpose of confirming the resolution to be made special, from time to time alter the rules and regulations [of the company]....”

Lord Coleridge’s statement that it was possible to show that the word “meeting” did not in a particular context carry its ordinary meaning has been subsequently relied on and applied in cases where there is only one member of the class or group of which a meeting is required and where in its context that possibility was or must have been contemplated.

East v Bennett Brothers Ltd [1911] 1 Ch 163 concerned the requirement in the memorandum and articles of association of a company for approval to an issue of new shares to be given by a resolution passed at a separate meeting of the preference shareholders, of whom at the time there was only one. At p.168 Warrington J identified the relevant question:

“On the construction of this particular memorandum and the particular part of it, can there be such a thing as a meeting of one shareholder? It is not a question of there being several shareholders, and one shareholder only attending the so-called meeting, but where there is only one shareholder, so that a meeting in the sense of an assembly of persons is impossible. The object of the provisions in the memorandum is quite plain. It is to obtain, before the issue of new shares, the assent in a binding and formal manner of the person or persons whose rights are affected.”

He went on to state, referring to Sharp v Dawes and In re Sanitary Carbon Co:

“In an ordinary case I think it is quite clear that a meeting must consist of more than one person.”

However, in circumstances where there was only one member of the class, he held that “meeting” included the case of a single shareholder. He said at pp 169-170:

“But now what I have to consider is whether this is not one of the cases referred to by Lord Coleridge C.J as one in which it may be possible to show that the word “meeting” has a meaning different from the ordinary meaning. For that purpose I think I am entitled to see what is the object of the provision in the memorandum of association. Plainly, as I have already said, that object is that before affecting the rights of the preference shareholders it shall be necessary to obtain and record in a formal manner the assent of the preference shareholders to that course. I think I may take it also that the persons who framed this document may have had, and must be taken to have had, in their minds the possibility at all events that this particular class of shares might fall into the hands of one person. There is nothing to prevent it in the constitution of the company. One must regard the memorandum as far as possible as providing for circumstances which in the ordinary course may arise. That being so, I think I may very fairly say that where one person only is the holder of all the shares of a particular class, and as that person cannot meet himself, or form a meeting with himself in the ordinary sense, the persons who framed this memorandum having such a position in contemplation must be taken to have used the word “meeting,” not in the strict sense in which it is usually used, but as including the case of one single shareholder. There is, of course, no difficulty in treating the formally expressed assent of Bennett as a resolution. The only question is the purely technical difficulty arising from the use of the word “meeting” in the memorandum.

I think on the whole that I may give effect to obvious common sense by holding that in this particular case, where there is only one shareholder of the class, on the true construction of the memorandum, the expression “meeting” may be held to include that case. ”

This approach has since been adopted in analogous contexts. In particular, in In re RMCA Reinsurance Ltd [1994] BCC 378 Morritt J held, on an application under section 425(1) to convene meetings of creditors to consider a scheme of arrangement, that where one class comprised only one creditor, a meeting attended by the creditor would satisfy the statutory requirements for a meeting. He followed East v Bennett Brothers Ltd and a decision of the Supreme Court in New South Wales, Re Hastings Deering Pty Ltd (1985) 3 ACLC 474, on the equivalent provision in New South Wales. In that case Kearney J referred to the “general rule that a plurality of persons is required to constitute a meeting” but, after referring to East v Bennett Brothers Ltd said at p475:

“In the present case, by reason of the difference in interests between the single individual shareholders and the general body of shareholders, such individual shareholder is, in my view, properly regarded as constituting a class of the members of the company. It follows that in order to fulfil the requirements of subsection (4) a meeting of such class must be convened.”

It is inevitable from the need where appropriate to divide members or creditors into different classes for the purposes of a scheme that a class may in some cases comprise only one person. It may be noted in passing that in such a case it is not essential to convene a meeting of that class, because it is well established that a member or creditor may by his individual consent agree to be bound by a scheme.

In the case of ASL and the T&N companies, there is no evidence that there is only one creditor in any particular class. The limited qualification to the ordinary meaning of meeting applied in East v Bennett Brothers Ltd and In re RMCA Reinsurance Ltd does not therefore apply.

Sir Thomas Stockdale for ASL submitted that once it is accepted that, when used in section 425, the word “meeting” is capable in one situation of meaning a meeting constituted by a single person, that becomes the meaning of meeting in all situations. It is then a question for the discretion of the court on the application to sanction the scheme to decide the weight to be given to the fact that only one person was present at the meeting. He drew attention to the fact that section 425 does not impose a requirement for a quorum. He submitted that his approach was supported by the structure of the section which made the decision of the meeting only a threshold to the exercise by the court of its discretion, which includes a consideration of whether the class was fairly represented at the meeting (see In re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213).

Miss Bryant for T&N submitted that the word “meeting” in section 425 should be construed in the light of the purpose of the meeting which was, as she submitted, to obtain and record in a formal manner the assent of the class in question. In support, she relied on East v Bennett Brothers Ltd. She pointed out that in that case a meeting of the preference shareholder was not convened nor was one purportedly held. The single preference shareholder simply signed a resolution set out in the minute book. The company acted on this “express formal consent of Bennett contained in the document signed by him” (p 166). The submission of Mr Gore-Browne KC for the company was that this consent “was equivalent to a resolution of a meeting of preference shareholders”, anticipating the development of the Duomatic principle (In re Duomatic Ltd [1969] 2 Ch 365). Warrington J appears to have regarded a “meeting” in some sense as necessary but in arriving at his conclusion he stated the purpose of the requirement of a meeting in the passage at p 168 cited above:

“The object of the provisions in the memorandum is quite plain. It is to obtain, before the issue of new shares, the assent in a binding and formal manner of the person or persons whose rights are affected.”

Miss Bryant submitted that a resolution passed at a meeting of which proper notice was given and which could have been attended by other members of the class, but was in fact attended by only one, was also an assent obtained and recorded in a formal manner. It is enough to constitute it a meeting within the meaning of section 425 that a meeting was convened on proper notice, thereby giving all members of the class the opportunity to consult together, and it was held in the sense that the resolution was put to a vote at the time and place specified in the notice.

Miss Bryant pointed out that the ideal of Athenian democracy suggested by Bowen LJ’s formulation in Sovereign Life Assurance v Dodd is frequently not borne out in practice. Many meetings convened under section 425 are attended by very small numbers and most of the votes are cast by proxy. Usually the chairman is the appointed proxy, and the standard form of appointment of proxy normally approved by the court directs the proxy how to vote and does not allow him discretion. (This is not invariably the case: in the case of ASL and the other Cape group companies, the proxy form enabled a creditor to give discretion to any proxy except the chairman and I am aware of other cases in which the proxy could be given discretion as to voting). Votes cast by proxy cannot therefore usually be swayed by any discussion at the meeting.

Attractively as these submissions were developed, I am unable to accept them. Section 425 expressly requires there to be summoned and held a “meeting”. The ordinary meaning of the word as a coming together of two or more persons is well-established in the context of companies. It has been so established since 1876 at the latest, and the statutory provisions for schemes of arrangement, first enacted in 1870, have been re-enacted with the same requirement on numerous subsequent occasions. The case of the single member of the class has been treated in the authorities as exceptional, resulting in what the legislature or other framers of the document in question must have intended to be an extended meaning to cover that case. The submissions of counsel involve not an exception to the ordinary meaning, but its complete replacement. Parliament used the word “meeting” and I see no real basis for concluding that it was intended to have any but its ordinary legal meaning, save for the exceptional case of the single member or perhaps (but I am not deciding it or expressing a view on it) the case where it is established that it was impossible for any other member of the class to attend in person or by proxy. I also consider that a meeting was stipulated, rather than some other means whereby formal assent could be obtained, for the reason identified by Bowen LJ. The fact that in many cases the members of the class do not in any real sense consult together does not mean that the word is to be given a quite different meaning. I should add that the coming together required for the ordinary meaning of meeting may be achieved by the use of technology: see Byng v London Life Association Ltd [1990] Ch 170 at 182-183.

The application of the ordinary meaning of meeting to its use in the Companies Act is indicated by the express provision made in particular circumstances for meetings to be attended by only one person. Section 371(1) confers on the court power to order a general meeting of a company to be called, held and conducted in any manner it thinks fit and section 371(2) provides that the court may make “a direction that one member of the company present in person or by proxy be deemed to constitute a meeting” (emphasis added).A similar power is conferred on the secretary of state by section 367. Section 125 makes provision for the variation of rights attached to classes of shares, by the written consent of the holders of three-quarters of the shares in the class or by an extraordinary resolution passed at a separate class meeting. Section 125(6) sets out quorum requirements and provides that “at an adjourned meeting one person holding shares of the class in question or his proxy” is a quorum. A requirement for a quorum of three at meetings of creditors held under the Insolvency Act 1986 or the Insolvency Rules 1986 was replaced with effect from January 1988 with a requirement for at least one creditor: rule 12.4A of the Insolvency Rules.

Accordingly, I conclude that the court has no jurisdiction to sanction the scheme in the case of ASL and that the direction sought by the administrators of T&N should not be made.