JEFL Group Plc, Re

This is an application for sanction of a scheme of arrangement in relation to the takeover of the shares in Jelf Group Plc. It is proposed that the entire shareholding in Jelf Group Plc should be acquired by Marsh and McLennon Acquisition Limited and a scheme of arrangement has been proposed in simple, and what is now apparently a fairly familiar, form for that purpose. This is not a share cancellation scheme because the benefits of such a scheme to effect a takeover has effectively been removed by legislation. This is a scheme under which there is a straight transfer in exchange for money.

A scheme meeting of the shareholders of Jelf was ordered by the court and has now taken place. The necessary majorities for the scheme have been obtained on a vote, and indeed a vote of well over ninety per cent in favour of the scheme was obtained. I am satisfied that all the formalities which need to be complied with for the propounding of a scheme of arrangement have been complied with and I am satisfied that the relevant meetings have been properly notified and held and that the voting majorities have been obtained. I am also satisfied that, subject to a point to which I will come, this is a scheme which, pursuant to its jurisdiction, is a scheme that the court should sanction.

I have been assisted by the helpful and clear skeleton argument provided by Mr. Horan who appears for the company and for others who give are affected by the scheme. That skeleton argument sets out reasons why the scheme should be sanctioned and I am satisfied that, bearing in mind all the requirements before a court can sanction a scheme set out in authorities which are familiar, it would be right to sanction the scheme.

The one point that troubled me (and it is a point which I notified in advance to Mr. Horan so he could have the benefit of obtaining authorities and making submissions on the point) is this. Section 895 of the Companies Act 2006, which introduces the schemes of arrangement Part of the Act, reads:

“Application of this Part

(1)

The provisions of this Part apply where a compromise or arrangement is proposed between a company and…

(b)

its members...”

There is no question of compromise involved in this case. So if the scheme is to be sanctioned by the court, it must be “an arrangement between a company and its members”. The relevant word for present purposes is “arrangement”. As I read the scheme I struggled to find what it was that made this scheme an arrangement between the company and its members. What has happened in this case is that the members have been made an offer and have accepted it. It is proposed that, pursuant to the scheme, all the members should sell all their shares to the purchaser. The company seems to have little to do with that. Looking at the terms of the scheme itself, the company seems hardly to participate in the scheme. The scheme document gives the company three functions: First, in certain circumstances it will receive consideration which cannot for various reasons be paid to a member; second, under clause 6, it may consent along with others to amendments of the scheme; and, third, under clause 4.1(c), it is provided that “As regards certificated Scheme Shares an appropriate entry will be made in the register of members of the company with effect from the Effective Date…” That seems expressly to provide for amendments to the register. As I read the scheme I wondered what made this scheme an arrangement between the company and its members.

Mr. Horan has elaborated on that. He has pointed out - indeed as I was already aware - that schemes have been used in these sort of circumstances for some considerable time. An example of that is the case of Re Savoy Hotel [1981] Ch. 251. That was a share purchase scheme and not a share cancellation scheme. In that case Nourse J determined that an obligation of the company under the scheme (and contained in clause 1(b) of the scheme as set out at page 356 D-F of the report) was an obligation to register shares, and not suspend them, notwithstanding the absence of a share certificate. That was sufficient, according to Nourse J, to make the arrangement one between the company and its members.

The matter was presented to me as though it was self-evident that a scheme of this nature was such an arrangement within the section. I have to say that for my part it is not self-evident that an arrangement such as this, which is really the contractual sale of shares to a purchaser in which the company has what seem to be purely administrative functions, should be treated as any such arrangement particularly bearing in mind the notion of an “arrangement” as involving “give and take” according to Nourse J. It does not seem to me obvious that an element of give and take involving the company arises in such a transaction. In the present scheme document, the participation of the company as a recipient of funds for some shareholders, or as having the power to consent to variations of the scheme (which it has), would not, to my mind, make it party to an arrangement for the purposes of s.895 at all. The third element, however, the registration, seems to me to be a sufficient equivalent to that which satisfied Nourse J in the Savoy Hotel case to be sufficient for present purposes to make the scheme an arrangement for the purposes of s.895.

I confess that for my part, if I were considering this jurisdiction entirely afresh and without the weight of history and authority, I might well have not reached the decision that this was an “arrangement between the company and its members.” However, Mr. Horan has satisfied me that for some considerable time and via a large number of authorities it has established and assumed that an arrangement such as this, with this sort of level of participation of the company, does amount to such an arrangement. Mr. Horan drew my attention to the summary of the jurisdiction contained in Re T & N Limited (No.3) [2007] 1 BCLC 563, a judgment of David Richards J (as he then was). David Richards LJ (as he now is) is, of course, a Judge with great experience of company law and schemes of this nature and he sets out in paras.49 and 50 the matters which demonstrate that the word “arrangement” is taken to be extremely broad in this context. At the end of para.50, he says this:

“As members' schemes such as that in In re Savoy Hotel Ltd show, the give and take need not be between the members and the company, but may be between the members and a third party purchaser, with the company's only function being to register the transfer of shares and thereby terminate the existing members' status as members.”

It would not be right after all this time to undermine the clear understanding on which these transactions have taken place probably for decades.

Mr. Horan also drew to my attention the third edition of a book entitled Schemes, Takeovers and Himalaya Peaks written by Mr. Tony Damien and Mr. Andrew Rich and, in particular, footnote 39 on p.45 which sets out a large number of cases in which it is said transactions of this kind have been sanctioned by the court on the footing that they were arrangements. Of particular significance is a citation from Lowe ACJ in Re International Harvester Co. of Australia Proprietary Limited [1953] VLR 669 (set out at p.47 of that book) in which he said:

“The word [arrangement] has been given a liberal meaning and, generally speaking, unless the arrangement is ultra vires or the company seeks to deal with a matter for which a special procedure is laid down or to evade a restriction imposed by the Act, almost any arrangement otherwise legal which touches and concerns the rights and obligations of the company or its members or creditors may come under [the section].”

That is a very important formulation which is said to be the summary of the jurisdiction, and this case brings itself within it.

Mr. Horan also drew attention to other matters in which the company is involved in order to facilitate the scheme generally - procuring the suspension of shares which has to take place, this company being a company quoted on the stock market. Those, he says, are the sort of matters which are provided for by the express clause in Savoy Hotel (to which I have referred). I am not satisfied that they do necessarily have direct equivalence to that, but that does not matter.

In all the circumstances, and notwithstanding the fact that it might be thought to be stretching the concept of an “arrangement between the company and its members” to apply it to a case such as this, I am satisfied that the existence of authority and reliance on that authority for decades mean that the facts of this case do fall within the definition of “arrangement” as it has come to be interpreted for the purposes of the Act. Therefore the transactions fall within the relevant part of the Companies Act 2006. In all the circumstances, and because as I have indicated I am satisfied that all the other requirements are fulfilled, I will sanction the scheme.