Halcrow Holdings Ltd, Re V

This is an application by Halcrow Holdings Limited (“Halcrow” or “the Company”) first of all to sanction a scheme of arrangement under sections 895-899 of the Companies Act 2006 and, secondly, to confirm a reduction in capital. The purpose of the scheme is to enable CH2M Hill Europe Limited (“Bidco”) to acquire the entire issued share capital of the Company in consideration of what amounts to approximately 564 pence per share. Bidco is owned by CH2M Hill Companies Limited (“USCo”), a Delaware corporation. The scheme is to operate by reclassifying each scheme share in the Company as either an A share, in respect of which the holders will be paid a cash consideration of 564 pence per share, or as a B share, in respect of which the holders will elect to receive a certain number of shares in USCo, or as a C share, in respect of which the holders will elect to receive USCo loan notes.

Under the scheme, the reserve arising in the books of account of the Company will be capitalised and applied in paying up, in full, at par, the new ordinary shares created, which will be allotted and issued, credited as fully paid to Bidco or to its nominee. As described in the scheme document, Halcrow was founded in 1868 and is a “leading employee-owned consulting engineering firm, delivering planning, design and management services for developing infrastructure and buildings worldwide”. It has some 6,000 employees, working in some 100 countries. It appears that the main employers within the group are Halcrow Group Limited (“Group”) and Halcrow WS Limited (“WS”), both subsidiaries of Halcrow. Halcrow is presently funded by a £50 million revolving credit facility and a £4.7 million overdraft facility, of which some £36 million in total is drawn down. As I understand the position, the principal borrower is Group, whose debt is guaranteed by 14 other Group companies and secured by fixed and floating charges over Group’s assets. USCo has said that it intends to replace Group’s banking facilities with unsecured loans from outside the Halcrow Group. There are 1,175 shareholders in Halcrow. Only one shareholder owns more than 1 percent of the Company. That shareholder is the Halcrow Trust, which was established by a deed dated 5 November 1990. It is the major shareholder in the Company, owning 73.88 percent, or some 16 million shares, in the Company. It is in fact a discretionary trust holding the shares on trust, primarily, as I understand it, for present and former employees of the Company. Its directors are an existing non-executive director of the Company, Mr John Theakston, a retired director of the Company, Mr Lesley Buck, and a corporate director, Halcrow Staff and Services. The directors of Halcrow Staff and Services are a Miss Joanne McDonagh, who is chair of the staff council, a Mr Tony Van Emst, who is a senior employee of the Company, and Mr Peter Gammie, the Chief Executive Officer of Halcrow (“Mr Gammie”).

The Halcrow Group operates several defined benefit pension schemes, including the Halcrow Pension Scheme (“the HPS”). Group is the principal employer under the HPS and WS is a participating employer under it. Halcrow’s pension scheme has some 3,300 members. As at 31 December 2010 the HPS had a deficit of £149 million on an ongoing basis, or £82.5 million valued on an FRS basis. As at 22 July 2011 the HPS buy-out was estimated by the risk management company, Towers Watson, at £410 million. There is evidence before me that the deficit in the HPS has in recent years increased rather than decreased.

On 29 March 2010 Halcrow entered into a guarantee (“the Guarantee”) in favour of the trustees of the HPS to pay on demand any unpaid amounts owed by Group and WS to the HPS up to a maximum of 105 percent of the deficit that would be calculated if the HPS fell into the pension protection fund.

Dr Stephen Riciari-Columbi (“Dr Columbi”), an HPS pensioner, appeared before me to oppose the scheme. He did not have the formal support of any other pensioners, but was making points that had previously been made in correspondence with the Company, but were no longer pursued, by the trustees of the HPS and, in particular, by their chairman, Mr Derek Pollock (“Mr Pollock”). Dr Columbi has not been able to attend today, but has been replaced by a colleague who participated with him in preparing the oral submissions, Mr John Lawson.

Apart from the usual matters that need to be considered in relation to the sanctioning of a scheme of arrangement and the confirmation of a reduction of capital, this application has thrown up some quite distinct questions. First, some 306 shareholders were not sent the scheme documentation when they should have been, and the question arises as to whether this is an error that can be treated as an accidental omission either under the articles of association of the Company or under section 313 of the Companies Act 2006 (“the Accident Issue”). Secondly, Dr Columbi has complained that the takeover facilitated by the scheme will leave the HPS with less likelihood of recovering its deficit than would otherwise have been the case, and asks me to refuse to sanction the scheme for this primary reason (“the Pension Issue”). Thirdly, Mr Andrew Thornton, counsel for the Company, seeks to make an amendment to the scheme to cater for the fact that USCo does not issue share certificates (using online services instead), and that class B shareholders will be provided with a letter confirming the number of USCo’s shares that they will be allotted rather than with a share certificate (“the Amendment Issue”).

Having set out briefly the chronological background to the scheme and to the correspondence that has taken place between various parties, I shall return to these three issues and to the other matters that I need to consider.

On 6 September 2011 Miss Faith Dixon, a solicitor at Sackers, the firm of solicitors advising the HPS trustees in relation to the scheme, emailed Mr Gammie and others, expressing her concerns about the scheme. In brief, the points that she made included the following:

“Essentially, HPS is significantly underfunded and has been for many years. The current ongoing funding deficit is in the region of £150m and the buy-out deficit in the region of £400m. Due to the weak covenant of [Group]…the Trustees have been forced to agree significantly lower rates of ongoing funding…than would otherwise be appropriate for the scheme. The funding arrangements for HPS are very much at the margins of what the Pensions Regulator is prepared to accept as being within the requirements of the Pensions Act 2004. In return for this, the Company agreed to make additional payments to HPS if its performance was better than projected (‘sharing in success’)…

In view of the above, we are seeking a cash injection into HPS as part of the arrangements for the purchase to complete. We accept that there are technical issues with the Halcrow Trust as majority shareholder receiving proceeds from the sale and then being asked to distribute them in part to HPS. However, the current owners of HHL could together require part of the price to be paid directly to [Group] for payment on to HPS…

In the absence of meaningful and concrete proposals for improving the funding of HPS, the Trustees will need to report the proposed transaction to the Pensions Regulator…

In particular, we would request that urgent consideration be given to:

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provision of a legally binding guarantee from the ultimate parent company of [Bidco] to the trustees of HPS;

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a cash injection to HPS as part of the transaction;

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a commitment from [Bidco] to secure accelerated funding to HPS and a shorter recovery plan as part of the 2011 valuation;

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an undertaking from [Bidco] that, in the event of certain pre-defined events (e.g. payment of a dividend from the UK; failure to secure the release of secured debt in the Halcrow Group in the UK within a short timetable after completion) financial compensation be paid to HPS…”

On 11 September 2011 Mr Bob Scott, a partner in Lane Clark & Peacock, the HPS’s pension advisers, emailed much the same points to Mr Gammie. In particular, the email includes the trustees’ requests as follows:

“A lump sum payment into HPS, as part of the transaction. This would give the trustees some reassurance that [Bidco] really does mean to stand behind the scheme.

Accelerated recovery plan. If the covenant has improved, that means that the company can afford to pay more and to adopt a more conventional recovery plan, with level payments and a recovery period of no more than 10 years. The company effectively has to make ‘interest’ payments on the deficit and so the sooner the deficit is recovered and pension risk taken off the table, the better it is for all parties – [Bidco, USCo] and HPS.

Parent company guarantee. If the investment that [Bidco] is making pays off as expected, the pension scheme will receive extra money, the deficit will fall and a guarantee would not cost anything to give…”

On 13 September 2011 Mr Gammie responded to two questions posed by the trustees of the HPS, the second one being about the professional advice the board had taken to explore ways to make money available to the HPS. Mr Gammie said this:

“The Board took professional advice. In addition, the Company strove to improve the position for trustees through persuading [Bidco] not to inject acquisition finance into the Company, which would have had an impact on the covenant. You may recall that Mike Lucki, their CFO, mentioned the role of the Company in doing this.

At our meeting the trustees outlined a number of actions that they will take, ‘Trustees Next Steps’ in the email from Bob Scott dated 11 September. One of these steps is to issue records of trustee meetings during the course of this transaction to HPS members. During our various meetings you have raised a number of issues that the Company did not agree with, some of which were contentious. As many HPS members are still employees of the Company and I am concerned that the Company’s position may be misrepresented in these records. This potentially will be unsettling for employees and may lead to conflict between the company and its employees that will be damaging for the Company. I am sure that you would not wish to damage the Company and I would ask you to exercise great care in not doing so. I would also remind you of your obligations under the non-disclosure agreements that you have signed….”

On 15 September the Company issued its claim form in these proceedings. Also on 15 September 2011 Mr Pollock emailed Mr Gammie, which included the following:

“On the Trustees’ second question, what we really want to establish is whether at any time consideration was given to how HPS could be given additional funds in the context of the transaction (in acknowledgment of the poor ongoing funding position of the scheme), as it appears to the Trustees that you have chosen to concentrate on potential benefits post transaction which provide no certainty for the scheme at all.

Unfortunately for HPS, so far it appears that at all times [USCo], its shareholders and [Bidco] have approached the sale by targeting what you believe is the minimum necessary for the pension scheme to try and keep this below the Pension Regulator’s radar. This does not give the Trustees any confidence that the warm words from all sides will result in any concrete improvement of the scheme’s position.

We therefore repeat our request that urgent consideration be given to a proper recognition of the poor financial position the scheme is left in following years of underfunding, by ensuring that part of the funds from the sale are directed to the scheme (e.g. through a payment direct to [Group]). A sale that the [USCo] board has decided is in the interest of shareholders is not going to stop being so purely because a decision is taken to honour part of the Company’s ongoing debts as part of the transaction. This is particularly the case bearing in mind the assistance the Trustees have given the Company in its continued operations by agreeing a long, back end loaded, recovery plan. This is a proper obligation for the Company to meet in this context.

We acknowledge the obligations of confidentiality on the Trustees in this matter, but reserve our position regarding involving the Pensions Regulator and making representations to the Court regarding the scheme of arrangement…”

On 16 September Mr Gammie responded to Mr Pollock, rejecting his criticisms. In particular, he said this:

“So far as the company’s responsibilities towards HPS and its other pension schemes are concerned, I cannot agree with your assertion that it has only done the minimum needed. I’m sure I don’t need to remind you that at the last two negotiations on a funding agreement the trustees’ principal concern was with the company’s covenant. The transaction itself improves the covenant as the company’s new shareholder will have the financial strength to stand behind the company, whereas our current shareholders do not. In negotiation, we have:

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Persuaded [Bidco] not to structure the transaction in a way that affects the covenant.

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Encouraged them to replace Sharing in Success with guaranteed additional payments.

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Ensured that they fully understood that the improved company covenant will oblige them to shorten the recovery period.

All of these points have been recognised by [Bidco] and accepted in their letter to you of 14 September…”

The correspondence then continued, but I shall not read out all the emails, which amount to a restatement of the competing positions that have been made clear in the documents that I have already mentioned.

On 26 September 2011 the bid was announced publicly. On 27 September 2011 an article appeared in The Times newspaper concerning the bid, saying, inaccurately, that £75 million from Bidco would “go to square off £75 million of the [HPS]”.

On 28 September 2011 Mr Pollock wrote to the Pensions Regulator, which included the following:

“We have had sight of a covenant analysis report, prepared by Ernst & Young for [USCo], and on which our own covenant adviser, Lane Clark & Peacock LLP, has commented. The report looks at the covenant of [USCo] before and after the transaction and concludes that the overall impact on the covenant available to HPS is expected to be positive, particularly since, as part of the transaction, Halcrow’s secured debt is to be repaid [and replaced with inter-company loans].

Therefore, we understand that the transaction is not a ‘Type A’ event which would require immediate mitigation. Nevertheless, over recent weeks, the trustees have actively sought the following:

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A cash injection to HPS as part of the transaction;

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A ‘parent company’ guarantee from the ultimate parent, [USCo]; and

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Acceleration of the recovery plan agreed as part of the 2008 actuarial valuation…

[USCo] have indicated that, whereas they will stand behind the currently agreed recovery plan and schedule of contributions, they recognise that both the structure of the recovery plan and its extended length reflected the economic situation of [USCo] at the time the 2008 valuation negotiations took place. Therefore, they have acknowledged in meetings that the funding negotiations at the next valuation are likely to lead to a shorter recovery period; a more conventional contribution schedule and higher cash contributions as a direct result of the improvement in covenant. Our legal advisers are currently working with [USCo’s] advisers to turn these warm words into something more legally binding…

The main point of writing to you was to correct the misleading statement in the article in the Times but if you have any questions or comments on other actions that the trustees have taken do please let me know.”

On 29 September 2011 Mrs Registrar Derrett made directions allowing the Company to convene a court meeting of the holders of its scheme shares to consider and, if thought fit, approve the scheme. A single meeting was thought appropriate, as all shareholders were offered the same choices and the same deal, so that all of them had rights which were the same, so that it was possible for them to consult together with a view to their common interest (see Sovereign Life v Dodd (1892) 2 QB 573, and Re Hellenic & General Trust Limited [1975] 3 All ER 382). It was ordered that all scheme shareholders should be served with the scheme documents at least 14 clear days before the court meeting that was ordered. On 30 September 2011 the scheme documents were supposed to have been sent to all 1,175 scheme shareholders, in accordance with Mrs Registrar Derrett’s order. In fact, only 869 scheme shareholders were sent all the scheme documents. Unfortunately, as I have indicated, some 306 shareholders were not sent the scheme documents as a result of an error. Also on 30 September 2011 Mr Pollock apparently wrote again to Mr Gammie, asking for a cash injection for the HPS. He included the following, according to a draft which I have been shown, which I understand was in fact sent:

“Given the clear intention of the funding discussions following the 2008 valuation that when money was available in future it would be shared with HPS, and in order to deliver on benefits promised to members and help put relations with [USCo] on a firm footing at the outset, the Trustees are therefore pressing once again the issue of funding.

We ask that the Company recognises properly the position HPS is in and arranges for additional funding to be paid into HPS as part of the sale (whether this is directly under the sale and purchase agreement, through the Halcrow Trust, or otherwise).”

On 4 October 2011 Mr Gammie responded to Mr Pollock, including the following:

“I appreciate that I am just repeating what I’ve previously said but would like to spell out the benefits of the change of ownership from a pensions perspective.

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Halcrow will be owned by a company with significant financial resources at its disposal. Currently, Halcrow shareholders have no ability to invest in the business in a meaningful way or to support it financially.

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[USCo] will be eliminating Halcrow’s bank borrowings, replacing debt secured over the assets of the business with an unsecured inter-company loan.

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The Halcrow financial covenant will significantly improve, as demonstrated by the E & Y covenant report. I understand from your letter to the Pensions Regulator that trustees and their advisers have accepted that this is the case.

•

The improved financial covenant will allow a shorter deficit recovery period, something that [USCo] have undertaken to use their best endeavours to make happen. A shorter recovery period should reduce trustees’ anxiety caused by the 17-year recovery period now in place.

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[USCo] have undertaken to replace the ‘Sharing in Success’ payments, which have produced little in the way of additional contributions since agreed as part of the 2005 valuation, with additional fixed payments. Again, trustees can take comfort from an improved and certain flow of additional contributions.

I appreciate that there is concern that under foreign ownership the commitment to a UK pension scheme might be weakened as the business focus may be elsewhere but [USCo] have offered to notify trustees of issues that may impact on the financial covenant of [the Company], and of course the current disclosure arrangements between the company and trustees are still in place. As you know, [USCo] is an employee owned company, winner of awards in 2010 and 2011 as one of the world’s most ethical companies. They are investing close to £170 million in the acquisition and plan to grow and develop our business. This can give confidence that they are here for the long term.

As previously advised, it is not possible, nor equitable, for the proceeds due to shareholders to be channelled to HPS…”

It is to be noted at this point that no formal undertakings, as mentioned in the final two bullet points in Mr Gammie’s letter, have apparently been provided by Bidco or USCo.

On 10 October 2011 Mr Pollock put out a circular to members of the HPS in the form of questions and answers. The circular appears to represent some kind of change of heart on the part of the pension trustees, and so it is important that I set out a few of the questions and answers as follows:

“Q1 Is any part of the sale proceeds coming to HPS?

No. The HPS Trustees have pressed hard for some of the sale proceeds to be paid to HPS but Halcrow, the Halcrow Trust and [USCo] have said that no funds will be made available for HPS. The HPS Trustees are obviously disappointed by this.

Q2 If the Halcrow Trust owns over 70% of the Halcrow shares, why is none of this being passed on to HPS given its current funding deficit?

The HPS Trustees have made representations to the Trust and will continue to press for proceeds of the transaction to flow to HPS. The HPS Trustees consider that it should be recognised that retired members of staff, which is nominated as a category of beneficiary in the Halcrow Trust deed, made a major contribution to the wealth of the Trust itself…

Q4 I thought the HPS Trustees were required to get money paid to HPS in these circumstances?

No. The HPS trustees are not a party to the sale transaction, which is between [USCo], as buyer, and the existing Halcrow shareholders, as sellers and who will be receiving the sale proceeds. The HPS Trustees have no power to require part of the sale proceeds to be paid into HPS. As noted above, funds have been requested by the HPS Trustees but that request has been declined.

Q5 So what is the impact of the transaction on the ability of the Halcrow companies to support HPS?

The HPS Trustees have been careful to understand the impact of the transaction on the ability of Halcrow to continue to support HPS. The HPS Trustees have taken professional advice and understand that the ability of Halcrow to support HPS should actually be improved by the sale. This is because, as part of the transaction, secured bank debt will be repaid and replaced by an unsecured inter-company loan. This means the position of HPS as a creditor is better were Halcrow ever to become insolvent. The Halcrow companies will also have the backing of a stronger shareholder.

The HPS Trustees will continue to monitor Halcrow’s ability to fund HPS on an ongoing basis and are working to put in place an agreement under which [USCo] will give the HPS Trustees advance warning of future changes to the Halcrow group so that the HPS Trustees can consider what action might be appropriate at that time.

Q6 Is [USCo] giving a parent company guarantee to support Halcrow’s obligations to HPS?

The HPS Trustees have discussed this with [USCo], but [USCo] are not prepared to give a guarantee.

Q7 Is the Pensions Regulator aware of the transaction?

The HPS Trustees have already advised the Pensions Regulator of the transaction and that no part of the sale proceeds will be received by HPS. We have also confirmed to the Pensions Regulator the advice we have received that the ability of Halcrow to support HPS will be improved.

Future funding.

Q8 Could [USCo] walk away from its HPS liabilities in future?

The liability to fund HPS lies with the Halcrow companies participating in the scheme. This will not change as a result of the sale – it is just that [the Company], the parent company of [Group], will have new owners. The ultimate parent company of the new owners will be outside the UK – but the parent company does not have any direct obligation to fund HPS in any event.

Q9 What arrangements will be made for funding HPS going forwards?

There is no immediate change and Halcrow must continue to contribute to HPS in line with the existing payment schedule…”

I am told that on 11 October 2011 the remaining 306 shareholders were sent the scheme documents that had been omitted in the 30 September 2011 mailing. It had become apparent from the responses received from shareholders that a significant number had not received the documents that they should have received.

On 17 October 2011, after the circular had been sent round to members of the HPS, Mr Pollock sent a further strongly worded letter to Mr Gammie, complaining about the absence of any legally binding commitments from USCo to the HPS. His main focus was to complain about Mr Gammie’s statement that it was not possible, nor equitable, for such a contribution to be made. In making this complaint, Mr Pollock indicated the history of the Halcrow Trust as shareholder as follows:

“The Trust was set up to last for 80 years (by which time all the shares were likely to have been acquired by staff) and the provisions for payment to beneficiaries were we assume to be just small residual amounts. Remember that the setting up of the Trust was not only to provide a vehicle for wider share ownership but also to safeguard the independence of Halcrow. Obviously the scenario now being enacted was not we understand in the minds of the settlors.”

The letter concluded by asking Halcrow to reconsider payment of part of the sale proceeds to HPS. It will be noted, of course, that, in approving the scheme, the question of whether or not the proceeds of the sale transaction are or will be used by the HPS is not directly under consideration.

On 18 October 2011 the court meeting was held. 427 of the 435 shareholders participating voted in favour of the scheme. The special resolution to approve the reduction in capital was approved. Those 427 shareholders held 18.5 million-odd shares. The 8 dissentient shareholders held 65,545 shares. The total number of 1175 shareholders held 20.76 million-odd shares. So the bulk of the shares in value were voted, amounting to some 89 percent. Only 0.35 percent of the shares in value voted against the scheme, but 740 shareholders by number out of the 1175 shareholders were not represented at the meeting, i.e. some 63 percent.

On 19 October 2011 Dr Columbi wrote on behalf of 112 named HPS members to Mr Lee McIntire, Chairman of USCo, suggesting once again that further funds be injected into the HPS. Dr Columbi expressed the concerns of the pensioners as follows:

“2)

The Directors of Halcrow recognise in their 2010 Annual Report that the size of the HPS pension fund is inadequate to service these obligations. They have agreed with the Trustees of the HPS on a 16-year recovery plan that includes a schedule of additional payments to the year 2026, designed to remedy the position. A similar recovery plan agreed at the time of the 2005 Valuation Report, with the same duration, resulted in a 42% increase in the deficit by 2008, rather than a reduction. There is no reason to believe the current recovery plan will perform any better.

The deficit, standing at £149 million (discounted value quoted in the Summary Funding Statement for the HPS, 31 December 2010) could be managed if, at the time of the sale, the Halcrow Trust were to inject a large capital sum into the pension fund…”

On 19 October 2011 Ashursts, the Company’s solicitors, wrote to Sackers, asking whether the HPS intended to attend to oppose the scheme. On 24 October 2011 Mr Gammie responded to Dr Columbi, saying the following:

“I would like to refer you to the Q & As sent out by the trustees of HPS on 10 October. In these they clearly state that:

The ability of Halcrow to meet its pension obligations will be improved by the transaction.

[Group] will remain as the sponsoring employer of the scheme.

Halcrow will have the backing of a stronger shareholder.

The board of Halcrow agrees with these points and one of the key considerations in entering into the sale was to provide greater security for pensioners.

You have suggested a restructuring of the share price. Again, this action is not possible. There is a legally binding contract between [USCo] and Halcrow that sets out the terms of the transaction. The scheme of arrangement, and its proposal of £5.64 per share, has been accepted by an overwhelming majority of shareholder votes and voted in favour of at the extraordinary general meeting. This is, therefore, not something we are now able to review.

I appreciate that a change of ownership is unsettling for scheme members. However, as the HPS trustees have pointed out, the Halcrow covenant is stronger as a result of [USCo’s] investment in us. We will be immeasurably stronger and it is the firm opinion of the board that the security for pensioners has been enhanced. Our prospective new owners are significantly larger than ourselves and much better funded. They are making a major investment in us. They are an employee-owned organisation, as are we, and proud of their ethical reputation. Our employees and shareholders have embraced this as a positive development and I would encourage our pensioners to do the same.”

On 27 October 2011 Deputy Registrar Frith made an order, which records that it appeared to him that “The special resolution approving the reduction of capital of the Company in relation to the [scheme] has been duly passed.” He said nothing about the resolution approving the scheme at the scheme meeting, which was not before him, there only being a directions hearing because of the reduction, not because of the scheme itself. It is submitted by the Company that, in reaching the conclusion that he did, without giving any judgment, the Deputy Registrar must have decided that the special resolution had been properly passed, notwithstanding that, as a result of the mistake in the production of the printing matrix used to determine to whom copies of the scheme documents would be sent, a number of shareholders did not receive full notice of the general meeting or the scheme meeting. He must, therefore, so it is submitted, have accepted that the mistake was accidental within article 50 of the Company’s articles and/or an accidental failure under section 313 of the Companies Act 2006.

On 2 November 2011 the Pensions Regulator wrote to Mr Gammie in the following terms:

“We have now received over 50 member complaints and a standard acknowledgment letter has been sent in response to each outlining that we are investigating the matter and are liaising with the Scheme’s trustees. We also urged the members to contact the trustees in order to be kept fully informed. We understand that the trustees have now sent out an updated communication to help address some of the issues.

To date [USCo] has not approached the Regulator for clearance. Clearance is an optional process and unless an application is received we do not comment regarding the future use of our powers in relation to corporate activity. From the information provided we understand that the trustees are of the view that the transaction does not appear to have an immediate detrimental impact on the employer covenant. However, the trustees do have concerns, which we share, regarding the risks to the Scheme after the event and the lack of legally binding commitments from [USCo] to satisfy these concerns. We understand that these points have been raised with [USCo] and formal commitments have been requested. We would hope that this is something that can be agreed in a timely manner in order to allay these concerns. We have requested that the trustees keep us updated on the progress of their discussions with [USCo].”

It appears, notwithstanding an enquiry that I made at the hearing on Monday 7 November, that there has been no follow up to those concerns raised by the Pensions Regulator, but it is fair to say that the Pensions Regulator has not chosen to appear before me to oppose the scheme, notwithstanding the fact that he was plainly fully informed about its provisions.

On Monday 7 November 2011 the matter was called on for hearing before me. Only Mr Thornton and Dr Columbi sought to make submissions on that occasion. Having initially objected to Dr Columbi’s locus standi to address the court, Mr Thornton ultimately accepted on behalf of the Company that Dr Columbi could do so, and he duly did. In the result, as I have already indicated above, HPS did not attend the hearing. Mr Thornton asked me to assume that that was because they had taken professional advice, as recorded in the circular to members, and had taken the view that the ability of Halcrow to support the HPS “should actually be improved by the sale”. I did not, however, have the benefit of any evidence from the HPS pension trustees until this morning, when I received a new statement (to which I will refer in a moment) exhibiting a letter from Mr Pollock. I did not have the benefit of any evidence from the Halcrow Trust. Despite my invitation to Dr Columbi to consider if he wanted an adjournment to seek legal advice, Dr Columbi declined to ask for an adjournment and told me that he did not represent any shareholders; only himself, a pensioner under the HPS. In reality, I think, he also represented Mr Lawson, who has appeared before me on his behalf today, but it is clear that neither Mr Lawson nor Dr Columbi are authorised to represent any other pensioners, and neither of them represents any shareholders in the Company. In the course of the hearing on Monday 7 November 2011 I expressed the view that the question of how far the effects on the Company pension scheme were relevant to the sanctioning of the scheme might raise a question of legal principle as to (a) the nature of a blot on a scheme and (b) the nature of the exercise of the discretion to sanction the scheme. In addition, in the course of the hearing on that day, I asked how I could properly be asked to take into account the evidence in a witness statement of Mr Taylor Dewar, an Ernst & Young partner, dated 4 November 2011, when I was not permitted to see the Ernst & Young report prepared to assist USCo in assessing the impact of Bidco’s acquisition of the Company on the employer covenant provided to the HPS (“the Report”) upon which it was based. Further, I expressed disquiet at the sudden and unexplained change of heart by the HPS trustees, as demonstrated in the correspondence I have summarised above. Ultimately, USCo agreed that I should be shown a redacted version of the Report, to which I shall turn in a moment. After argument from Mr Thornton and Dr Columbi, I indicated that I would reserve judgment and hope to be able to deliver it this morning, namely 9 November 2011.

On Tuesday 8 November 2011 a number of events occurred as follows. Mr Martin Moore QC, representing Bidco, made a written application to make further submissions in support of the scheme. A much abbreviated version of the Report dated 12 September 2011 was provided to me, comprising a 4-page letter from Mr Dewar, some abbreviations and definitions, a contents page showing that the Report was at least 39 pages in length, and just 3 pages headed “Executive summary and conclusions”. I shall turn to those pages in just a moment.

Also on Tuesday 8 November 2011 I received a further 8 pages of supplemental written submissions signed jointly by Mr Thornton on behalf of the Company and Mr Moore on behalf of Bidco.

This morning I received a deluge of documents and emails in relation to this matter. I received a statement exhibiting a letter from Mr Pollock, explaining the HPS’s reasons for not having opposed the scheme. I shall turn to that document in a moment. Mr Moore QC emailed me indicating that he did not intend or wish to make further oral submissions in addition to those that he had signed together with Mr Thornton. Dr Columbi had sent emails opposing Mr Moore’s desire to be heard, he (Mr Moore) having chosen not to be heard until after I had reserved judgment in the case. In the result, Mr Moore did not seek to make any oral submissions this morning, but I have read and taken into account the documentary submissions that he and Mr Thornton put forward pursuant to the invitation that I made on Monday. Mr John Lawson, as I have indicated, has attended before me, but he too has not sought to put any further submissions before me.

A letter from Mr Pollock is exhibited to the witness statement of Miss Claire Southern, a partner in Hogan Lovells International LLP, of yesterday’s date. It is perhaps important that I recite pretty much the whole of Mr Pollock’s letter addressed, as it is, to Mr Gammie:

“I write with respect to the court hearing on 7 November 2011 to consider the scheme of arrangement which I have been informed was adjourned. I understand that one of the pensioners of the [HPS], Dr Columbi, appeared at the court hearing to highlight his concerns that the scheme of arrangement proposed did not adequately address the deficit in the funding of the HPS. In the light of this, I understand the judge asked for information on the trustee’s decision not to pursue further their demands for additional funds to be made available to HPS in connection with the scheme of arrangement. I have provided this information below.

1.

Representatives from the trustees met [the Company], the Halcrow Trust and [USCo] as soon as possible after they had been made aware of the proposed scheme of arrangement, and the trustees have been in frequent correspondence with all three parties since. The trustees have acted independently of the Halcrow Group throughout, and no one in the trustee board has been involved in the negotiations for the scheme of arrangement. The trustees have repeatedly made clear at meetings and correspondence that they were asking for additional funds to be made available for HPS in connection with the scheme of arrangement. It has been made equally clear by [the Company], the Halcrow Trust and [USCo] throughout that no funds would be made available, but that the strength of the Halcrow Group’s covenants to support HPS should be improved by the scheme of arrangement, that is, although there would be no funds made available immediately, the HPS should be better supported financially in future.

2.

The trustees have taken advice throughout from their own appointed actuarial and covenant advisers, Lane Clark & Peacock LLP, legal advisers Sacker & Partners LLP, and have, in addition, taken advice from leading pensions counsel, Robert Ham QC of Wilberforce Chambers.

3.

Taking into account their understanding of the scheme of arrangement (including that it did not provide for additional funds to be made available to HPS and the advice that they had received, the full board of the HPS trust decided at their meeting on 26 October 2011 that they would not challenge the proposed scheme of arrangement. The decision was unanimous, and having taken into account the relevant factors, the trustees took their decision for the following main reason.

•

The trustees had sought and received on 20 October 2011 an opinion from leading counsel. This was to the effect that counsel could see no current cause of action by the trustees against any of the parties involved in the scheme of arrangement to require additional funds to be made available to HPS.

•

The trustees understand (from advice on the covenant of the Halcrow Group and from discussions on the funding of HPS) that [the Company’s] financial position is worsening and therefore any delay to the proposed transaction is unlikely to be in the interests of HPS members.

•

The advice on the covenant of [the Company] and [Group] provided by Ernst & Young and reviewed by Lane Clark & Peacock llp indicates that there will be no material detriment to the covenant of [Company] and [Group] as a result of the scheme of arrangement and should, in practice, be an improvement (with the replacement of secured debt by an unsecured inter-company loan).

•

The trustees have provided information to the Pensions Regulator in connection with the scheme of arrangement and the position of HPS, and the Regulator has given no indication that it is considering exercising its statutory powers to impose contribution notices under section 38 of the Pensions Act 2004 or financial support directions (under section 43 of the Pensions Act 2004) in relation to the scheme of arrangement.

4.

The trustees are encouraged that dialogue is already progressing with [USCo] regarding the timetable for future funding discussions, and a comfort letter is close to being agreed with [USCo] under which the Company will give certain best endeavours obligations to improve the timetable over which the HPS deficit will be recovered.

In summary, whereas you know the trustees remain disappointed that no additional funds are being made available to HPS immediately in connection with the scheme of arrangement, on the basis of the information and advice available to trustees they have reached the conclusion that it would not be an appropriate use of HPS funds to challenge the scheme of arrangement when the scheme of arrangement is expected to improve the covenant of the Halcrow Group and so make it better able to support the HPS in future…”

Mr Dewar said this about the Report in his original witness statement:

“7.

I had been informed by [USCo] that the Report will not be placed in evidence in support of the claim form because of [USCo’s] concerns that it contains material, non-public information which is highly commercially sensitive, and if the report were to be placed in evidence [USCo] would (on account of its status as a company registered with the United States Securities and Exchange Commission) be under an obligation the United States to disclose the information and its regulatory findings which would be likely to cause serious harm to [USCo] and the Company and thus indirectly to be harmful to the interests of members of the HPS.

8.

I confirm that the conclusion expressed in the report was as follows: ‘The proposed transaction does not constitute a type A event under the regulatory guidelines. In our analysis we have not noted any element of the transaction which would be considered materially detrimental from an employer covenant perspective. The overall impact on the employer covenant is considered positive, particularly with respect to the repayment of the secured debt and the synergy expectations post transaction.’”

The passage in paragraph 8 of Mr Dewar’s statement is taken directly from the overall conclusions in the redacted Report that I have now been shown. The only substantive part of the Report now before me is two pages headed “Executive summary and conclusions”. They contain a total of eleven considerations shown pre the proposed transaction and post the proposed transaction, with a coloured rating indicating whether the consideration in question has either a positive impact on the covenant, no detrimental impact on the covenant, or material detrimental impact on the covenant. Six of the eleven considerations are said to have a positive impact on the covenant, and five are said to have no detrimental impact on the covenant. Reading the document as a whole, it appears to me to be entirely based on statements of intent by USCo. There is no undertaking or legally binding commitment to the HPS, or in respect of the HPS of any kind. The positive conclusion arises simply, as I understand it, from the size and financial position of USCo.

I remind myself specifically in this case that the court does not act as a rubber stamp in considering whether to sanction a scheme. Ultimately, the court has a discretion that it needs to exercise on the basis of the proper and established principles. In the present edition of Buckley on the Companies Acts, the following passages appear in relation to the sanctioning of schemes:

“Once the meetings have approved the scheme, the sanction of the court must be sought. The sanction of the court is not a formality. The court has an unfettered discretion as to whether or not to sanction the scheme, but it is likely to do so, so long as (1) the provisions of the statute have been complied with, (2) the class is fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent, and (3) that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve.

The discretion of the court as to whether or not it should sanction the scheme is important, since once the scheme has been sanctioned, it binds all parties, even the dissentient. The court will have regard to the amount and quality of information which has been supplied and the conduct of the meeting…

The court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting, but at the same time the court will be slow to differ from the meeting unless either the class has not been properly consulted or the meeting has not considered the matter with a view to the interests of the class which it is empowered to bind, or some blot is found in the scheme, or if the chairman did not conduct the meeting substantially in accordance with the procedure laid down by the court. Consequently, the court will not sanction a scheme, if it appears that the majority had regard to their own interests when casting their votes, rather than the interests of the class as a whole to which they belong. The court may impose conditions before sanctioning the scheme. So, for example, in Re Canning Jarrah Timber Company (Western Australia) Limited, the court required the liquidator of the company to abandon certain underwriting agreements to provide for dissentient members and to pay out unsecured creditors in full before assets could be passed to a new company.”

Plowman J mentioned the first of the passages that I have cited above, with approval, in Re National Bank Limited [1966] 1 WLR 819 at page 829. Neuberger J considered the nature of a blot on the scheme in the case of Re BAT Industries plc, unreported, 3 September 1998. He said the following at pages 9-14, having set out an earlier version of the passage in Buckley that I have mentioned above:

“While the precise ambit of the closing eight words of that passage [referring to ‘blot’] is not entirely clear, they suggest to me that, while it may require exceptional circumstances, it is open to the court to take into account the legitimate concerns of third parties in relation to a proposed scheme, even if they are not members of the company. That third party interest or concerns can be taken into account by the court when considering a proposed scheme appears to me to receive support from observations, albeit obiter of Harman J in Re MB Group plc [1989] BCLC 672. In that case, the sanction of the court to a scheme was initially opposed by Elder Investments, who was both a member of the relevant company and the holder of a substantial number of warrants which entitled the warrant holder to subscribe for further shares on certain rather complex terms. The consent of the warrant holders to the scheme was not, strictly speaking, required, although it is fair to say that it had been sought and refused, as the warrant holders were effectively third party contractors with the company. The opposition of Elder Investments to the scheme in that case was on the basis that, if implemented, the scheme would breach the rights of the warrant holders. Harman J said this at 677G:

‘I had considered the objections raised by Elder Investments in its capacity as warrant holder and reached the tentative conclusion that the court should refuse to sanction the scheme, because to do so would be lending the court’s aid to Metal Box acting in serious breach of its obligation to warrant holders.’

However, a last minute settlement resulted in Elder Investments’ objections being withdrawn. At 678F Harman J said this:

‘I have been concerned by this point since, in my judgment, the court should not take the view that because large institutions want some agreement to be performed, therefore the interests of the little man should be swept aside. It is the business of the court to ensure that transactions are fair to all persons, and in a free world the court will not assist in the destruction of rights against the will of an individual on the ground that his unwillingness can be solaced by money.’

However, a further unexpected circumstance arose which made it unnecessary for the judge to decide the case on that basis… I find it very hard to believe that the law can be such that the interests of a warrant holder in that case could be taken into account if the warrant holder owned one share, but could not have been taken into account if it owned no shares. However, if it is permissible in an appropriate case to take into account third party concerns when considering whether to sanction a scheme, it seems to me unduly artificial if one can take them into account if they are affected by the scheme itself, but not if they are affected by a subsequent step which is clearly dependent on and consequent on the sanctioning and implementation of the scheme…

Accordingly, it does appear to me that, as a matter of principle, the court can take into account the concerns of the objectors, even though they are not the company or members of the company, and one can take them into account even though their concerns arise not from the scheme itself, but from a step which will inevitably follow if and when the scheme is implemented.

Caveat

I should emphasis that my conclusions on these two points do not mean that the court has some sort of a roving commission at the suit of any objector who claims some sort of prejudice as a result of a scheme for which sanction is sought pursuant to section 425(2). Mr Richards’ points all have force in the sense that they emphasise, as do the passages I quoted from Buckley, that a section 425 scheme is essentially a domestic matter between the company and its members (at least where the scheme, as here, is one between the company and its members and not between the company and its creditors).”

… [Neuberger J then cited Mills v Northern Railway of Buenos Aires Company 5LR Ch Ap 621 at page 628 and continued]:

“While those observations have relevance when I come to consider whether to sanction the scheme, I do not consider that they call into question the conclusions I have so far reached. The Lord Chancellor was there concerned with proceedings initiated by a third party who was not a member of the company, to restrain the company doing that which it was otherwise lawfully entitled to do. I am here concerned with an application to the court which the legislature requires to be made by the company and in respect of which there are no statutory restrictions seeking to limit for all purposes the class of person who can address the court, or the considerations which can be taken into account by the court.”

Most recently, in Re TDG plc [2009] 1 BCLC 445 at pages 450 to 451 Morgan J described the four matters that required the court’s attention, much as I have previously mentioned:

“1.

The Court must be satisfied that the provisions of the statute have been complied with.

2.

It must be satisfied that…the class of shareholders, the subject of the court meeting, was fairly represented by those who attended the meeting, and the statutory majority are acting bona fide and not coercing the minority in order to promote interests adverse to those of the class they purport to represent.

3.

An intelligent and honest person, a member of the class concerned and acting in respect of his own interest, might reasonably approve the scheme.

4.

There must be no blot on the scheme.”

Mr Andrew Thornton, counsel for the Company, accepts that I have an unfettered discretion as to the approval of the scheme, but submits that I should exercise that discretion by reference to the interests of the shareholders, rather than the creditors or employees or any other body. Mr Thornton accepts, however, that I would still have a discretion even if 100 percent of the shareholders by number and value were to have voted in favour of the scheme. He also accepted in argument that if there were, for example, concrete evidence that the scheme would lead to a situation in which the obligations of the Company to a pension scheme would not be respected, or that it was the buyer’s intention to use the takeover to damage the interests of pensioners, that would be something that the court could properly take into account in considering the sanctioning of the scheme. Mr Thornton submitted, of course, that that was not the case in this particular situation.

Sections 645-699 of the Companies Act 2006 confer upon the court jurisdiction to sanction a reduction of share capital. This jurisdiction arises whenever a reduction has been resolved upon by the members of the company and proper provision has been made for the creditors’ claims (per Harman J in Re Jupiter House Investments (Cambridge) Limited [1985] 1 WLR 975). The reduction also needs to be for a discernable purpose. As Harman J said in Re Thorn EMI plc [1988] 4 BCC 698 at 701, that discernible purpose meant “something which is demonstrated by evidence to the court which is sufficiently solid and near in expectation to be a real prospect”. Mr Thornton submitted that the creditors’ grounds for objection to a reduction are set out in section 646(1)(b) of the Companies Act 2006, which provides that a creditor who “can show that there is a real likelihood that the reduction would result in the company being unable to discharge his claim or debt when it fell due” is entitled to object to the reduction. Here it is not suggested that the pensioners do not have locus standi as contingent creditors to object to the reduction, but Mr Thornton has submitted that it cannot be shown that there is “a real likelihood that the reduction would result in the company being unable to discharge his claim or debt when it fell due”.

Section 313 of the Act provides:

“Where a company gives notice of-

The two issues for me to consider are, first, whether the failure or omission to give notice arose by virtue of an accidental omission or an accidental failure and, secondly, whether it is appropriate, all other matters being resolved in favour of the scheme, to sanction the scheme and confirm the reduction of capital involved in the scheme, notwithstanding that omission or failure.

In The Peninsular & Oriental Steam Navigation Company v. Eller & Co [2006] EWCA Civ 432, one of the issues which arose was whether mistakes in convening the relevant meetings fell within an accidental omission provision of P&O’s articles. Lloyd LJ at paragraphs 44-56 held, in essence, that: first, an accidental omission requires a genuine attempt to serve the shareholders in accordance with their rights, which attempt has failed, and, secondly, a deliberate decision not to serve in accordance with the articles will not suffice. A deliberate decision not to serve need not be malicious and can be the result of an error or miscalculation. For example, a mistaken decision not to serve because shareholders were mistakenly thought not to be entitled to notice will not suffice for this purpose. The error here was in the execution of the printing of the scheme document to send to all shareholders, not the desire or intention to do so. The evidence of Miss Alexandra Clare Verzaiu, a solicitor at Ashursts, shows that she made an error in failing to notice that the final draft of the printing matrix did not contain a cross in the box marked “SIP (and ordinary)”, the SIP standing, as I am informed, for “Share Incentive Plan”. Alongside the box it was indicated that there were 300 shareholders so concerned. It is not clear to me, therefore, why 306 shareholders were not sent the scheme document rather than the 300 shown on the matrix which is before me, but it may be that I can overlook that discrepancy. It is clear that it was, in my judgment, the intention of the solicitors to notify all the shareholders and to provide all the shareholders with copies of the scheme documents, and that that failure was accidental.

My attention has been drawn to an email of complaint dated 14 October 2011 from one of the shareholders, Mr Robert Harvey, claiming that he only received the scheme document on 11 October 2011, and that that notice was too short. That is, of course, true, but, as it seems to me, if I have the power and can properly exercise that power to waive the accidental omission, then his complaint takes the matter no further.

As to the second point, the balance is in favour, in my judgment, of allowing the scheme to proceed (subject to the next issue that I shall deal with in a moment) for several reasons. First, there were 330 out of 1,175 shareholders affected by number, but the position was rectified in time for the shareholders to object or vote against the scheme. The Company took all reasonable steps to inform the relevant shareholders once it had become aware of the mistake that had been made, and the scheme was overwhelmingly supported by shareholders, looked at in terms of value. In these circumstances, it seems to me, subject to the next issue that I shall now deal with, that the accidental omission can and should be waived under both section 313 of the Act and under article 50 of the Company’s articles of association.

It will be observed that I have read out a large number of the exchanges between the pension fund trustees and the Company in dealing with the chronological background to this claim. I have done so because, in listening to the arguments of the Company, I was struck by its apparent failure to understand what the pensioners were really complaining about. Dr Columbi made it perfectly clear in his oral submissions that he accepted that the scheme would lead to a situation in which USCo would be better able to remedy the deficit in the HPS if it wanted to than the Company had been able to do. Dr Columbi accepted and understood that the only liability of the Company to the HPS was under the Guarantee, and the Company was not itself the principal employer under the scheme. Indeed, the Company was not an employer under the scheme. But none of these points was the point that Dr Columbi was making. What he was complaining about was this (and he will forgive me if I have not expressed it as well as he did). Halcrow Group was managed and owned by its past and present employees over many years. That was the whole purpose of the Halcrow Trust, which owns the bulk of the scheme shares. Halcrow Group was therefore managed, subject to its financial limitations, for the benefit of its staff. It could therefore be expected to regard the preservation of pension benefits for its past and present employees as a major priority. It was never intended or expected that the Company would be sold to a third party, even a third party owned by its staff, with entirely commercial objectives. Whilst it is not in doubt that USCo would be more financially able to support the HPS and indeed to reduce its deficit more quickly than the Company could do if the deal did not go ahead, Dr Columbi’s point was that it may not wish to do so. I interpose that in Dr Columbi’s latest submissions he does not accept that the financial covenant is strengthened, only that it is no weaker.

In this connection, it is to be noted that, despite the repeated requests in correspondence and even some indications, no legally binding commitments to support the HPS had been offered or provided by Bidco or USCo, and USCo is an overseas company that cannot be expected to have the same sentimental attachment to the past or present staff of the Halcrow Group. And, therefore, there is every chance, so submits Dr Columbi, that, if the going gets tough and if USCo has given no legally binding assurances to support the HPS, it may choose not to do so. It is certainly possible that it may not provide funds for the Company to comply with its obligations under the Guarantee, let alone reduce the deficit more quickly, as all agree would be desirable.

Thus, the objection that Dr Columbi has put forward is not about the financial covenant to which the report speaks, but about the sentiment that a new owner may have for the HPS for Halcrow and for its past and present employees. In his most recent submissions Dr Columbi makes some rather more colourful points, drawing attention to the Reader’s Digest and Nortel Network UK pension schemes, which he suggests were left high and dry after takeovers by, I think, US entities. He draws an analogy by saying that, as in this case, these pension schemes were left with large deficits “which the management failed to address”. None of this can, of course, be a substitute for hard evidence of the likelihood of damage to the pension scheme, which Dr Columbi has not, in fact been able to produce. In his latest submission also, Dr Columbi says that the scheme is not cash neutral and will result in money being lost to the Company. It is not clear why he says this, and I cannot place very great weight upon that bare contention without any substantial evidence to support it.

On the other hand, Mr Thornton submits that I should consider this scheme as a matter between shareholders and the Company and should not be too influenced by the submissions of pensioners who are, at best, indirect contingent creditors. He can legitimately point to the most recent letter from Mr Pollock (which I have set out above) explaining why the HPS itself has not objected to the scheme, and to the fact that, despite the Pension Regulator’s strong letter (which I have referred to above), he has not formally objected or exercised his considerable powers in relation to the HPS, though he has been made fully aware of this scheme.

Mr Thornton submitted that a blot amounted to some technical objection to the scheme which rendered it unlawful or inappropriate, and that these objections were better considered as part of the discretion of the court in sanctioning the scheme. In my judgment, this is really a distinction without a difference. The word “blot” has the benefit of a lengthy history, but has no inherent meaning in this context. The reality is, as the authorities I have set out above made clear, that the court can, within the context of the exercise the court is undertaking, take into account matters such as the effect on a company pension scheme in deciding whether or not it is appropriate to sanction a scheme. In the past, the court has refused to exercise its discretion in favour of a scheme in a number of situations. For example, where a scheme might result in a breach of a contract with a third party (see MB Group plc [1989] BCLC 672), and where the court considered the scheme to be completely unnecessary (see Re Rylands-Whitecross [1974], unreported, per Brightman J).

I have considered very carefully whether the pensioners’ objections are such as should lead me to refuse to sanction the scheme. First, I should say that I do not think that the pensioners’ objections are insignificant. I think it would have been far better if Bidco and USCo had responded to the requests by HPS to provide some legally binding assurances as to the new parent’s intentions with regard to the HPS and its future funding, but I accept, as I must on the evidence, that the scheme does not, in itself, affect the obligations owed to the HPS. The Guarantee will remain in place, the new parent company will have a commercial imperative to enable the Company to comply with its obligations. Perhaps more importantly, there has been no evidence that USCo has any malign intentions towards the Halcrow Group, or the HPS, save that it has refused to bow to the pressure to commit itself legally to do any more to support the HPS than the Company is now obliged to do. If there had been any evidence of any underlying intention to cut Halcrow adrift or to damage the HPS, that would have been a very different matter. But what I am faced with is an apparently hard-nosed US company acquiring a long-established UK company, previously run for the benefit of its staff, where the change of commercial culture is likely to be very distinct indeed. Ultimately, I do not think there is any blot on the scheme, in the sense that there is nothing unlawful or inappropriate about it. In exercising my discretion, I have to bear in mind that the scheme has the overwhelming approval of the shareholders and that the HPS will not, on paper, be any worse off. I have to bear in mind that the HPS has attempted to use the oncoming scheme in an attempt to persuade the shareholders to inject more money into the HPS, but that is simply an opportunistic attempt. It is not something that I can take into account as constituting either a blot on the scheme, or a real reason why, in my discretion, the scheme should not be sanctioned. There is no evidence that it would be to the commercial advantage of USCo to do other than to comply with the Company’s obligations to the HPS, and I should say that I very much hope that this will prove to be the case.

In the circumstances, there is nothing substantive that can, in my judgment, on the facts of this case as I have sought to set them out, lead me properly to refuse to sanction the scheme, provided that the other more formal requirements are met, and I turn now to deal with those.

Dealing then with the four matters: first, I am satisfied that the provisions of the statute have been complied with. The error in service can, as I say, be disregarded under article 50 and section 113. Secondly, I am satisfied that the class of shareholders, the subject of the court meeting, was fairly represented by those who attended the meeting, and the statutory majority were acting bona fide and not coercing the minority in order to promote interests adverse to those of the class they purported to represent. Thirdly, in my judgment, an intelligent and honest person, a member of the shareholder class concerned and acting in respect of his own interests, might reasonably approve the scheme. And, fourthly, as I have already indicated at some length, there is, in fact, no blot on the scheme. Any prejudice to the HPS and pensioners is not financial, but only the risk of a different cultural approach to the business in the pension scheme. This is not enough, as I have said, to make it appropriate, in my judgment, for sanction to be refused.

In this case, the reduction has been resolved upon by the members of the Company. Proper provision has, as I understand it, been made for the creditors’ claims. Again, in this regard the HPS is no worse off than it would have been before the reduction. In reality, the reduction will be swiftly followed by an increase in capital. The reduction is for a discernible purpose, namely the takeover by Bidco, a purpose which has been demonstrated by evidence to be a real prospect, indeed almost certain to occur. The HPS and the pensioners seeking to represent its interests cannot show that there is “a real likelihood that the reduction would result in the company being unable to discharge his debt or claim when it fell due” under section 646(1)(b) of the Companies Act 2006.

The amendment sought is a minor and technical one. It provides for the fact that USCo does not issue share certificates. Class B shareholders will be provided with a letter confirming the number of USCo shares that they will be allotted, rather than with a share certificate. I am satisfied that the amendment can be made under the inherent jurisdiction of the court. It does not alter the substance of the scheme, nor does it impose on the parties an arrangement to which they had not agreed.

For the reasons I have tried to express, I have concluded that, notwithstanding Dr Columbi’s objections, the scheme should be sanctioned. I am not asked to confirm the reduction today, but I have dealt above with the requirements that will be relevant when the court comes to deal with that question.

I will hear counsel on the form of order and any other consequential matters.