SABmiller Plc, Re

This is an application by claim form dated 17 August 2016 issued by SABMiller plc (“SABMiller”) which seeks an order under section 896 of the Companies Act 2006 summoning a single meeting of all of the holders of the ordinary shares of US $0.10 each of SABMiller other than Altria Group Inc. (“Altria”) and BEVCO Ltd. (“BEVCO”) (or their nominees, if any), for the purpose of considering a scheme of arrangement (the “Scheme”).

The object of the Scheme is to effect the acquisition of the entire issued, and to be issued, share capital of SABMiller by Newbelco SA/NV (“Newbelco”). The Scheme is the first stage in a complex process whereby, in commercial terms, Anheuser-Busch InBev SA/NV (“AB InBev”) will acquire control of SABMiller. The transaction values the entire issued and to be issued share capital of SABMiller at £79 billion as at 12August 2016, and involves a significant premium over the undisturbed share price.

The process comprises three stages as follows:

At the end of the process, the former members of SABMiller will in respect of each SABMiller Share either receive £45 in cash (the “Cash Consideration”) or £4.6588 in cash and 0.483969 Restricted Shares under the PSA.

The transaction is unanimously recommended by the directors of SABMiller who have stated that they consider the terms of the Cash Consideration to be fair and reasonable, and that they recommend that SABMiller Shareholders vote in favour of the transaction. The SABMiller directors have not expressed an opinion on the PSA and instead have set out the advantages and disadvantages of electing for the PSA.

Altria is SABMiller’s largest shareholder, with 26.48% of its ordinary share capital, and BEVCO is the second largest shareholder, with 13.85%. Each of Altria and BEVCO have an existing relationship agreement with SABMiller entitling them amongst other things to appoint directors of SABMiller. Altria also has an agreement relating to tax matters.

At the same time as the Scheme was announced in November 2015, Altria and BEVCO each gave certain irrevocable undertakings to AB InBev, subject to certain terms and exceptions, either (i) to vote in favour of resolutions to approve the transaction including the Scheme at any general or class meeting or court convened meeting to be held in connection with the Scheme; or (ii) if for the purposes of the Scheme court meeting they do not form part of a class with the general body of SABMiller Shareholders, to provide their written individual consent to the terms and implementation of the Scheme.

Altria and BEVCO have also irrevocably undertaken to elect for the Partial Share Alternative. Indeed, the evidence, as reflected in the draft letter from the Chairman of SABMiller to be included in the Explanatory Statement to be sent to shareholders, is that the terms of the PSA were structured principally for the benefit of Altria and BEVCO.

Particular reference is drawn in that regard to the terms of the Restricted Shares. Those shares, which will be held by those former SABMiller shareholders who elect (or are deemed to have elected) for the Partial Share Alternative, will rank equally with the ordinary shares in Newbelco as regards dividends and voting rights, but will be unlisted, not admitted to trading on any stock exchange and not capable of being deposited in an ADR programme. They will also be subject to restrictions on transfer until they are converted into ordinary shares, which can only occur with effect from the fifth anniversary of completion of the transaction.

The Restricted Shares also give their holders certain rights to purchase further ordinary shares in Newbelco and collectively to appoint up to three directors to the Newbelco Board. By virtue of the resultant holdings of Restricted Shares to be held by Altria and BEVCO, which are a function of their current large shareholdings in SABMiller, Altria will most likely be able to ensure that at least one candidate favoured by it becomes a director of Newbelco and it seems highly probable that at least two such candidates would become a director. BEVCO in contrast cannot be certain that any candidate favoured by it could become a director, but will probably be able to ensure that one such candidate becomes a director, particularly if, post-completion it exercises the top up rights to acquire more ordinary shares in Newbelco.

The value of the Partial Share Alternative is a matter of some debate, can fluctuate and on a “see-through” basis to the prevailing share price of AB InBev might be less or more than the value of the Cash Consideration. Furthermore, an illiquidity discount may also affect a shareholder’s view of the value of the Restricted Shares. It is apparent, for these and other reasons, that all SABMiller shareholders will need to consider their individual circumstances very carefully and take professional advice before deciding whether to elect for the Partial Share Alternative rather than the Cash Consideration.

The transaction was announced on 11 November 2015 and was pre-conditional upon certain regulatory clearances, so that no steps toward convening any Scheme meeting could be taken in practice until those pre-conditions were satisfied. At the time of the announcement on 11 November 2015 the Cash Consideration was £44 and the PSA comprised £3.7788 and 0.483969 of a Restricted Share for each SABMiller Share. On a see-through basis (before any illiquidity discount) the PSA was valued at a 4.9% discount to the Cash Consideration.

Following the Brexit referendum there was a steep decline in the value of sterling against the currencies in which SABMiller conducts much of its business and against the Euro. This had two effects, namely:

As the time for satisfaction of the pre-conditions approached and the recommendation of the board of SABMiller became imminent, certain SABMiller shareholders or persons interested in SABMiller Shares contacted SABMiller in relation, amongst other matters, to class composition. The majority of those communications received by SABMiller expressed the view that Altria and BEVCO should not vote in the same class as the other shareholders.

On 26 July 2016 AB InBev announced a revised and final offer so that the Cash Consideration comprised £45 and the PSA comprised £4.6588 and 0.483969 of a Restricted Share for each SABMiller Share. This offer, having been expressed as final, cannot now be revised without the consent of the Takeover Panel.

Since that date, certain SABMiller shareholders or persons interested in SABMiller Shares have contacted SABMiller in relation, amongst other matters, to class composition. These written communications received by SABMiller which specifically referred to the constitution of classes expressed the view that all shareholders including Altria and BEVCO should vote together as a single class.

On 29 July 2016, SABMiller announced its intention to recommend the Cash Consideration (staying silent as to the PSA). SABMiller also announced that it had concluded that it would be appropriate to propose to the Court that Altria and BEVCO be treated as a separate class of shareholders and therefore to allow other SAB Miller shareholders (the “Public Shareholders”) to vote on the revised offer separately. The announcement said,

“We are cognisant that the PSA initially stood at a discount to the Cash Consideration, but recent events have resulted in it now standing at a headline premium, before any illiquidity discount. Amongst other reasons, that is why we intend to ask the UK Court to treat Altria and BEVCO as a separate class of shareholders.”

The operative terms of the draft Scheme document do not distinguish between the “Scheme Shares” held by the various SABMiller shareholders (other than those held by the company in treasury). The Scheme provides for the issue of the Initial Newbelco Shares to each shareholder in SABMiller at the Scheme Record Time (as defined in the Scheme) and for the election as between the Cash Consideration and the PSA to be available to be made by each such shareholder.

However, what is proposed by SABMiller, with the support of Altria and BEVCO, is that there should only be one Scheme meeting of the Public Shareholders, and that each of Altria and BEVCO will appear by counsel and undertake to the court at the sanction hearing to be bound by the Scheme in their capacity as the holder of Scheme Shares. That proposal is reflected in the preliminary recitals to the Scheme.

Although this is not a creditor scheme to which the Practice Statement (Companies: Schemes of Arrangement) [2002] 1 WLR 1345 applies, given the varying views expressed in the correspondence from shareholders to which I have referred, SABMiller has followed the Practice Statement by analogy. SABMiller alerted its shareholders to the date of this convening hearing by an announcement dated 1 August 2016 which identified the class issue as follows,

“At the UK Scheme Directions Hearing SABMiller will determine with the UK Court whether, for the purposes of voting at the UK Scheme Court Meeting, Altria and/or BEVCO should be treated as one class along with all the other SABMiller shareholders (in which case all SABMiller shareholders would vote together in one meeting) or as part of a separate class or classes (in which case the different classes would vote, or agree to the UK scheme, separately). SABMiller has stated its intention to ask the UK Court to treat Altria and BEVCO as a separate class.”

The announcement of 1 August 2016 also indicated that all SABMillier shareholders had the right to attend and make representations at the convening hearing. One such group of shareholders have duly attended the hearing, namely Soroban Master Fund LP and Soroban Opportunities Master Fund LP (together “Soroban”), who hold through nominees 149,790 SABMiller Shares (0.01%), and are interested in 1,348,110 SABMiller Shares (0.08%) through derivative contracts. Unusually, Soroban is not a dissentient shareholder. It has filed evidence that it currently intends to vote in favour of the Scheme and to elect for the PSA given the current premium to the Cash Consideration. Nonetheless it argues that the court simply has no jurisdiction to do what SABMiller proposes. Soroban submits that there should only be one class meeting to which all Scheme Shareholders as defined in the Scheme are summoned and at which they should be entitled to vote, and that the court cannot convene a meeting of the Public Shareholders from which Altria and BEVCO are excluded.

So far as material, sections 895, 896 and 899 of the Companies Act 2006 are as follows:

“895.

Application of this Part

(1)

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

(a)

its creditors, or any class of them, or

(b)

its members, or any class of them.

…..

896.

Court order for holding of meeting

(1)

The court may, on an application under this section, 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.

…

899.

Court sanction for compromise or arrangement

(1)

If a majority in number representing 75% 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 summoned under section 896, agree a compromise or arrangement, the court may, on an application under this section, sanction the compromise or arrangement.”

The equivalent scheme process under section 425 of the Companies Act 1985 was discussed by the Court of Appeal in Re Hawk Insurance Co. Ltd [2001] 2 BCLC 480, in the context of a creditors’ scheme where different categories of policy holders were treated differently under the scheme which was proposed as an alternative to a conventional liquidation. In calculating payments to them under the scheme, one category received a 100% weighting, another category 75% and a third 50% (in each case, of the value of its claim). Arden J (as she then was) had of her own initiative refused to approve the scheme at first instance, on the basis that the weightings required each category of creditor to be treated as a separate class. On appeal the Court of Appeal rejected her approach, suggesting that the different provisions for weightings did not reflect any difference in the rights of creditors, but rather a simplified approach to the application of valuation discounts for contingencies which would have to occur in any event in a formal insolvency.

Chadwick LJ said this about the stages in the scheme process:

“11.

There are, as I sought to point out in In re BTR plc [2000] 1 BCLC 740, at page 742 … 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 … 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 … 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 to be considered and voted upon. The second stage ensures that 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. As it was put in the BTR case, [2000] 1 BCLC 740, at page 747g–h:

“… the court is not bound by the decision of the meeting. A favourable resolution of the meeting represents a threshold which must be surmounted before the sanction of the court can be sought. But if the court is satisfied that the meeting is unrepresentative, or that those voting at the meeting have done so with a special interest to promote which differs from the interest of the ordinary independent and objective shareholder, then the vote in favour of the resolution is not to be given effect by the sanction of the court.”

Chadwick LJ then considered at some length the classic judgment of Bowen LJ in Sovereign Life Assurance Company v Dodd [1892] 2 QB 573. In Sovereign Life, at pages 582-583, Bowen LJ said, referring to the question of whether section 2 of the Joint Stock Companies Arrangement Act 1870 (the forerunner of Part 26 of the Companies Act 2006) bound dissentient creditors,

“What is the proper construction of that statute? It makes the majority of the creditors or of a class of creditors bind the minority; it exercises a most formidable compulsion upon dissentient, or would-be dissentient creditors; and it therefore requires to be construed with care, so as not to place in the hands of some of the creditors the means and opportunity of forcing dissentients to that which it is unreasonable to require them to do, or of making a mere jest of the interests of the minority. If we are to construe the section as it is suggested on behalf of the plaintiffs it ought to be construed, we should be holding that a class of policy-holders whose interests are uncertain may by a mere majority in value override the interests of those whose rights have nothing to do with futurity, and whose rights have already been ascertained. It is obvious that those two sets of interests are inconsistent, and that those whose policies are still current are deeply interested in sacrificing the interests of those whose policies have matured. They are bound by no community of interest, and their claims are not capable ofbeing ascertained by any common system of valuation. Are we, then, justified in so construing the Act of Parliament as to include those persons in one class? 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 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.”

(my emphasis)

Towards the end of his analysis of the law in Hawk, Chadwick LJ concluded, at paras 32-33,

“32.

…it is important to keep in mind that the underlying question, to which Lord Justice Bowen's test must be directed, is that posed by the statutory language: with whom is the compromise or arrangement to be made? Or, as I have put it earlier in this judgment: “are the rights of those who are to be affected by the scheme proposed such that the scheme can be seen as a single arrangement; or ought it to be regarded, on a true analysis, as a number of linked arrangements?” If I may say so, there is much force in the observations of Mr Justice Lush, when giving the judgment of the full court in Nordic Bank plc v International Harvester Australia Ltd and anor [1982] 2 VR 298 . He said this, at page 301, lines 36–46:

“The general plan of section 315 [the equivalent statutory provision in the Companies (Victoria) Code] is that when a scheme is proposed it is first put to meetings to test whether those affected by it substantially support it. If they do, it is still open to any one or more persons affected to oppose its final approval. A separated class of creditors can only be bound by the scheme if the meeting of that class approves it by the necessary majority. It is appropriate that creditors who share an interest vis-à-vis the company which places them in a position distinct from that of other creditors and so dissimilar as to make it impossible for them to consult together with a view to their common interest should be allowed to make a separate decision. To break creditors up into classes, however, will give each class an opportunity to veto the scheme, a process which undermines the basic approach of decision by a large majority, and one which should only be permitted if there are dissimilar interests related to the company and its scheme to be protected. The fact that two views may be expressed at a meeting because one group may for extraneous reasons prefer one course, while another group prefers another is not a reason for calling two separate meetings.”

33.

When applying Lord Justice Bowen's test to the question “are the rights of those who are to be affected by the scheme proposed such that the scheme can be seen as a single arrangement; or ought it to be regarded, on a true analysis, as a number of linked arrangements?” it is necessary to ensure not only that those whose rights really are so dissimilar that they cannot consult together with a view to a common interest should be treated as parties to distinct arrangements — so that they should have their own separate meetings — but also that those whose rights are sufficiently similar to the rights of others that they can properly consult together should be required to do; lest by ordering separate meetings the court gives a veto to a minority group. The safeguard against majority oppression, as I sought to point out in the BTR case, [2000] 1 BCLC 740, at page 747g–h, is that the court is not bound by the decision of the meeting. It is important Lord Justice Bowen's test should not be applied in such a way that it becomes an instrument of oppression by a minority.”

The English authorities were synthesised by Lord Millett sitting in the Court of Final Appeal in Hong Kong in Re UDL Argos Engineering [2001] HKCFA 54 at paragraph 27 into six principles as follows:

“(1)

It is the responsibility of the company putting forward the scheme to decide whether to summon a single meeting or more than one meeting. If the meeting or meetings are improperly constituted, objection should be taken on the application for sanction and the company bears the risk that the application will be dismissed.

(2)

Persons whose rights are so dissimilar that they cannot sensibly consult together with a view to their common interest must be given separate meetings. Persons whose rights are sufficiently similar that they can consult together with a view to their common interest should be summoned to a single meeting.

(3)

The test is based on similarity or dissimilarity of legal rights against the company, not on similarity or dissimilarity of interests not derived from such legal rights. The fact that individuals may hold divergent views based on their private interests not derived from their legal rights against the company is not a ground for calling separate meetings.

(4)

The question is whether the rights which are to be released or varied under the Scheme or the new rights which the Scheme gives in their place are so different that the Scheme must be treated as a compromise or arrangement with more than one class.

(5)

The court has no jurisdiction to sanction a Scheme which does not have the approval of the requisite majority of creditors voting at meetings properly constituted in accordance with those principles. Even if it has jurisdiction to sanction a Scheme, however, the court is not bound to do so.

(6)

The court will decline to sanction a Scheme unless it is satisfied, not only that the meetings were properly constituted and that the proposals were approved by the requisite majorities, but that the result of each meeting fairly reflected the views of the creditors concerned. To this end it may discount or disregard altogether the votes of those who, though entitled to vote at a meeting as a member of the class concerned, have such personal or special interests in supporting the proposals that their views cannot be regarded as fairly representative of the class in question.”

In the instant case, Mr. Chambers QC, who appears for Soroban, contends that the plain words of the statute and these authorities (and in particular the analysis of Chadwick LJ in Hawk) shows that at the first stage the court is simply concerned with an analysis of the similarity or dissimilarity of rights against the company and under the scheme. He contends that whilst it is for the company to propose the composition of the class meeting to the court, if a class issue is brought to the attention of the court, the court must decide the matter, and that in a case in which the rights of the persons to be bound by the scheme are not sufficiently dissimilar that they cannot consult together with a view to their common interest, they must be summoned to a single class meeting. Mr. Chambers submits that this result is mandated by the terms of sections 895 and 896 of the 2006 Act, under which section 895 applies where a scheme is to be proposed between a company and its members (which he submits means all of its members) or any class of them; and that the reference in section 896 to a meeting being summoned of the members of the company or class of members is a reference back to the same persons identified in section 895.

Applying that analysis to the instant case, Mr. Chambers submits that the Scheme, as formulated, is proposed between SABMiller and all of its shareholders, including Altria and BEVCO, and that there is no, or no sufficient, distinction in rights and treatment between those two shareholders and the Public Shareholders to justify two separate classes being constituted. He thus submits that whatever SABMiller might wish to do, unless the court is persuaded by it that two classes are necessary in accordance with the tests in the cases to which I have referred, the court has no jurisdiction to summon a meeting of the Public Shareholders that does not also include Altria and BEVCO.

Before turning to the construction of the 2006 Act, it will be seen at once that Soroban’s argument is a novel one. The situation most frequently encountered in a scheme case is one where a dissentient minority is objecting to their own inclusion in a class with other members or creditors with allegedly different rights, and the dissentients fear that they will be swamped and outvoted by the majority. That was, for example, plainly the type of situation that Bowen LJ had in mind in Sovereign Life (where the argument was whether the statute permitted dissentient creditors to be bound); and it was also the case in BTR and UDL which both concerned challenges to the use of a single class by a dissenting minority shareholder or creditor who had been outvoted and who contended that the class should have been sub-divided. Although it was not the case in Hawk, where the opposition had come from the first instance judge herself, it is to my mind plain from Chadwick LJ’s repeated references to BTR, to minority protection, and to the perils of excessive sub-division of classes so as to confer rights of veto and to allow the process to be used as an instrument of oppression by a minority, that Chadwick LJ was also directing his remarks to such a situation.

It is also possible, in a more unusual case, that a dissentient member or creditor might object to the company choosing not to propose a compromise or arrangement at all with a particular group of similarly placed members or creditors, because it is known that they would vote against the scheme. An example was SEA Assets v PT Garuda [2001] EWCA Civ 1696, in which an airline company chose only to propose a scheme with its finance creditors, and not to propose a compromise with creditors under procurement contracts for aircraft and engines, or with the suppliers of goods and services regarded as essential for the continuation of the business as a going concern, even though in an insolvency all these parties would have ranked pari passu. The company’s reason for proposing the scheme to some only of the unsecured creditors was that the creditors under procurement contracts and the essential trade suppliers had a strong bargaining position if the company was to continue its flight operations, so that as a commercial matter they had to be paid in full: see paras 10-11.

The manifest aim of the dissentient creditor in Garuda was to persuade the court that the procurement and essential creditors had to be included within the scheme, and in the same class as him, in order that they would object to the scheme proposal and vote it down. The Court of Appeal rejected that argument. Peter Gibson LJ considered Bowen LJ’s dictum in Sovereign Life, and commented, at para 36,

“On that test, those within a class must be persons with similar rights so that they can consult together with a view to their common interest. So much is uncontroversial. But it does not follow from what Bowen LJ said that the class is incomplete unless every person with similar rights is included. So to hold would go beyond anything said in the Sovereign Life case or indeed in any other case to which our attention was drawn.”

Peter Gibson LJ then also considered the decision in Hawk and concluded,

“45.

Mr Cohen's objection appears to be that other unsecured creditors were not brought within the Scheme to be treated in the same way as the Scheme Creditors … Mr Cohen's complaint appears to be primarily that the trade creditors and the procurement contract creditors are outside the Scheme and are not to be treated like the Scheme Creditors under the Scheme. But to suggest that those who in the real world would not accept less than the due payment of 100% of their debt in order to continue supplying the company (and thereby to enable the company to continue trading) must be included in the Scheme as Scheme Creditors, defies not only commercial logic but would defeat the legislative purpose of section 425 to facilitate compromises and arrangements. If the creditors within the Scheme think the proposal unfair to them and unduly favourable to those left outside the Scheme, they can vote against the Scheme. If the majority vote in favour of the Scheme, then a minority creditor has the opportunity to seek to persuade the court that the Scheme is unfair and should not be sanctioned.

46.

Mr Cohen suggested that to leave the company to select the members of the class of creditors to be brought within the Scheme would enable the company to pick a class such as would outvote a recalcitrant creditor. But such an example to my mind ignores the commercial realities. No company proposing a scheme will want to leave out of the scheme creditors other than those with whom they have reached agreement or those with whom agreement is impossible but who have to be paid in full if the company is to survive. Nor will it want to put forward a scheme with an arbitrary selection of creditors to be bound by it when it has to procure not only the approval of 75% of the scheme creditors subject to the scheme but also the sanction of the court….

…

51.

In my judgment Mr Phillips was right to submit that the proposer of a scheme is free to select the creditors to whom a scheme of arrangement should be put, provided that the rights of the creditors and the effect of the scheme on those rights are not so dissimilar as to make it impossible for those creditors to consult together with a view to acting in their common interest. That gives a sufficient meaning, in my judgment, to the phrase "class of creditors". I would therefore reject the Appellant's jurisdictional objection.”

I accept that Garuda was strictly a case on selection of the persons who would be made parties to the scheme and not on the question of whether some persons who were parties to the scheme could nevertheless be omitted from the voting class. But I think that the general tenor of the observations of Peter Gibson LJ as to the approach of the court to interpretation of the statute, in light of the legislative purpose to facilitate compromises and arrangements, is instructive.

What is clear, in any event, is that in all such cases the judicial observations have been made in the context of opposition or potential opposition from a dissentient minority member or creditor who objects to the use of the scheme mechanism to compel him to accept a compromise or arrangement at the behest of the majority and against his wishes.

The position of Soroban in the instant case is, however, quite different. Soroban is perfectly supportive of the SABMiller Scheme. What it objects to is the decision of SABMiller that the two largest shareholders who support the Scheme should not be included in the persons summoned to the Scheme meeting, but should simply give undertakings to the court to be bound by the Scheme. Mr. Chambers candidly accepts that what Soroban wants is for Altria and BEVCO also to be included in the Scheme meeting with Soroban, so that with their very large blocks of votes cast in favour of the Scheme, there is a much higher chance of any dissentient members being outvoted and the necessary statutory majorities being achieved.

At least in practical terms, this is a surprising contention. As Soroban accepts, even if a particular member or creditor is included in a particular class for a scheme meeting, the court cannot compel that member or creditor to attend and vote. The vote required by section 899 of the Companies Act is of those who are present and voting at the meeting in person or by proxy, and any member or creditor is free to decide not to attend, or to attend and not vote, leaving the decision as to whether the scheme should be approved to the other members of the class, whose votes at the meeting would therefore carry proportionately more weight.

The instant case is no different. Although Altria and BEVCO have given irrevocable undertakings either to vote or to undertake to be bound by the Scheme, it is not for Soroban to enforce those undertakings and they give it no rights. Soroban’s rights relate to its own participation in the Scheme and its right not to be placed into a class with persons with whom it cannot discuss the Scheme with a view to their common interest. Moreover, either because the undertakings already allow for this, or because AB InBev could (with the agreement of SAB Miller) agree to vary the irrevocable undertakings, Altria or BEVCO are most unlikely to be forced to attend and vote at a meeting in relation to the Scheme if the proponents of the Scheme do not think it is a good idea that they should.

In that regard, as Mr. Moore QC, who appeared for SABMiller, pointed out, there may be very good commercial reasons why the proponents of the Scheme may not wish Altria and BEVCO to vote on the Scheme in a single class meeting together with the Public Shareholders.

The first point is that any decision of the court on a class question is highly fact specific and ultimately a matter of judgment. SABMiller might be convinced that it is right that Altria’s and BEVCO’s existing rights against SABMiller (which for this purpose are likely to include rights under the relationship agreements that are to be replaced if the takeover occurs) and the new rights that are likely to be conferred on Altria and BEVCO as the holders of a substantial proportion of the Restricted Shares to appoint directors of Newbelco, make it impossible for them to consult together with the Public Shareholders who do not have such existing rights and, even if they opt for the PSA, are very unlikely to be able to possess such new rights to appoint any directors. But the proponents of the Scheme might in any event not want to take on that argument, with the risk of subsequent appeals and delay, if it can be avoided.

The second point is that even if I was to decide after full argument that the rights of Altria and BEVCO against SABMiller and under the Scheme were not sufficiently dissimilar to those of the Public Shareholders to require them to be placed into a separate class, the proponents of the Scheme may still think that there would remain a significant risk that any vote obtained in part by the use of such large voting blocks might be challenged at sanction on the basis identified by Chadwick LJ in paragraph 12 of Hawk and by Lord Millett in paragraph 27(6) of UDL. It might be contended by a dissentient that Altria and BEVCO are not really representative of the class of ordinary shareholders, and that they had voted with a special interest in view, namely to secure the benefits of a PSA that has been structured with themselves primarily in mind. Whether or not such an argument would succeed, any such challenge might bring the prospects of a lengthy hearing and an appeal involving further commercial uncertainty, expense and delay. Avoiding that prospect is, in my judgment, an entirely understandable objective for the proponents of the Scheme.

There is one final point in this regard. As with all schemes, it would be highly desirable if there was as high a turnout as possible at the Scheme meeting. Public Shareholders are likely to be encouraged to attend in person or by proxy and vote if they know that Altria and BEVCO are not to be included at the meeting, and hence that the outcome of the meeting, at least as to the obtaining of 75% in value, is not a foregone conclusion. That is unlikely to be quite as clear, and the potential for confusion and mixed messages is increased, if Altria and BEVCO are included in the persons summoned to the meeting, but are left to publicise the fact that they do not intend to attend and vote even though they are, in fact, in favour of the Scheme.

Although Mr. Chambers was at pains to stress that his argument depended upon construction of the statute and was a question of law and jurisdiction, he did not dispute that, for the reasons that I have identified, underlying this case is a difference of commercial judgment between SABMiller on the one hand and Soroban on the other. SABMiller has taken the commercial judgment that the Scheme is likely to be approved at a meeting of the Public Shareholders without the need for Altria and BEVCO to throw their weight behind it at the meeting, and they wish to avoid the risks of challenge at sanction if Altria and BEVCO were to vote. Soroban takes a different view and wishes to minimise the risk that the necessary vote will not be obtained at all, albeit at a risk of subsequent challenge.

Mr. Moore submitted that having regard to these essentially pragmatic and commercial considerations, the proponents of the Scheme are entitled to follow what he suggested was a not uncommon practice of members or creditors voluntarily excluding themselves from a class to which it might otherwise be said that they belonged in order to avoid giving dissentient creditors the opportunity to attack a favourable vote at the meeting on class or discretionary grounds at sanction. I accept that there is indeed such a practice, and I encountered a similar situation in the recent creditors’ scheme case of Stemcor Trade Finance Limited [2016] BCC 194, in which I said, at para 22,

“At the start of the hearing, I raised with Mr. Smith the question of whether, contrary to the submissions in his skeleton argument, these differences in rights which would be available to the “Anchor Shareholder” and its affiliates did indeed require those lenders (who can confidently be identified at this stage) to be placed into a separate class from the other lenders. Mr. Smith took instructions and without in any way conceding the point or asking me to determine it, he was content to accept that I should convene a separate meeting of the putative Anchor Shareholder and its affiliates, and a second meeting of the other scheme creditors. In this way there can be no argument by any dissentient member of the creditor group that their votes had been outweighed by the inappropriate inclusion in the same class as them of the Anchor Shareholder and its affiliates whose rights were materially different. It seems to me that that was an entirely sensible course to take.”

Although the result in Stemcor was that I ordered two class meetings to be held rather than operating on the basis that the “Anchor Shareholder” and its affiliates would give undertakings to be bound by the scheme at sanction, the significance for present purposes is that I was content not to decide the class question even though I had raised it. As a pragmatic solution, I simply accepted the voluntary offer by the proponents of the scheme to have two classes. As there was no contrary argument, the question of whether I had jurisdiction to do so was not addressed, but the case illustrates the type of practical situations in which the approach advocated by Mr. Moore in this case might commend itself to a court.

I therefore turn to the core question raised by Soroban’s intervention: do the relevant provisions of the Companies Act 2006 permit the court to make an order summoning a meeting of only some of the shareholders with whom a scheme is proposed, on the basis that the others are prepared to give undertakings to the court at sanction to be bound by the scheme?

I accept Mr. Chambers’ point that there is nothing in the literal wording of section 896 to suggest that the meeting or meetings summoned should be of any different persons to those envisaged by section 895 as being parties to the scheme with the company. I also accept that, as is obvious, the relevant sections of the Companies Act 2006 plainly envisage that all creditors or members who will be affected by a scheme have a right to be given the opportunity to attend and vote upon it at a meeting. But in my judgment there is nothing in the statutory wording to suggest that a member or creditor cannot voluntarily agree to waive or forgo that right to participate in the meeting, in the same way as the member or creditor can simply decide not to attend or vote.

That approach is entirely consistent with the background and purposes to the scheme jurisdiction to which I have already referred. The purpose of the scheme jurisdiction is to facilitate compromises or arrangements, by supplying a statutory alternative to an agreement between the company and its relevant members or creditors, in a case in which the company cannot obtain the consent of all such members or creditors. The scheme mechanism allows the parties to override the absence of unanimous consent by allowing the specified majority to bind the dissentient or absent minority. As Bowen LJ made clear in Sovereign Life, in this way the statutory provisions exercise “a most formidable compulsion” upon dissentient or would-be dissentient members or creditors and hence the relevant statutory provisions must be construed so as to prevent the statutory regime being used so as to result in “confiscation and injustice”.

But where a member or creditor is not acting under compulsion, and is willing to give his consent voluntarily by agreeing to give an undertaking to be bound by the proposal, there is no confiscation of his property or rights, and no injustice to him if he is not summoned to a scheme meeting. Nor is there any injustice to other members or creditors if the consenting member or creditor simply agrees not to be included in the scheme meeting. Those other members or creditors have no rights to force him to attend and vote; and far from creating injustice for the dissentients, the consequence of the consenting member or creditor agreeing not to be included in the category of persons summoned to the meeting is that the votes of the dissentient members or creditors may well carry more weight at the meeting.

I therefore cannot see any legal or practical necessity to construe the provisions of sections 895 and 896 of the 2006 Act in the literal manner suggested by Mr. Chambers. Instead, I think that they should be interpreted flexibly and purposively so as to coincide with the legislative intention to promote compromises and arrangements, which was referred to by Peter Gibson LJ in Garuda, so as to permit the court, where appropriate, to accept undertakings from creditors or members to be bound by the scheme.

I also do not think that the alternative solution suggested by Mr. Chambers – namely that the Scheme should be redrafted so as to exclude Altria and BEVCO from the definition of Scheme Shareholders – is necessary or desirable. That would require those large shareholders to enter into parallel arrangements by contract with the proponents of the Scheme. To require that would, as Mr. Moore submitted, be a triumph of form over substance. Moreover, in my judgment it is generally undesirable for there to be side-agreements with large shareholders or creditors if their involvement in a proposed transaction can be dealt with openly in a single scheme document.

This analysis also answers the objection by Soroban that the court is effectively allowing SABMiller to exclude certain shareholders from the Scheme meeting, thereby allowing SABMiller to usurp the function of the court to resolve disputed class questions at the convening stage. In my judgment that is to mischaracterise what it happening. The crucial factor is not the decision of SABMiller per se: it is the provision by Altria and BEVCO of their consent to be bound to the proposed arrangement whilst agreeing to forgo their rights to participate in the process of compulsion by which they might form part of the majority that binds the dissentient or absent minority.

Accordingly, I take the view that I have jurisdiction to order a meeting of Public Shareholders to be summoned which does not include Altria and BEVCO. I will now hear any further submissions as to whether such a meeting should be summoned, and if so, what other directions I should give in that regard.