Lombard Medical Technologies Plc v the Companies Act 2006
| Jurisdiction | England & Wales |
| Judge | Mr Justice Henderson |
| Judgment Date | 18 July 2014 |
| Neutral Citation | [2014] EWHC 2457 (Ch) |
| Docket Number | Case No: 1258 of 2014 |
| Court | Chancery Division |
| Date | 18 July 2014 |
In the matter of:
[2014] EWHC 2457 (Ch)
Mr Justice Henderson
Case No: 1258 of 2014
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Ben Shaw (instructed by Covington and Burlin LLP) for the Claimant
Hearing dates: 25 February, 14 and 29 April 2014
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction and Background
At a hearing on 29 April 2014, I made orders under sections 899 and 648 of the Companies Act 2006:
i) sanctioning a scheme of arrangement ("the Scheme") between Lombard Medical Technologies plc ("the Company") and the holders of its ordinary shares ("the Scheme Shares"); and
ii) confirming the reduction of the Company's share capital in connection with the Scheme.
The purpose of the Scheme, shortly stated, was to redomicile the business of the Lombard Medical Technologies group by establishing a new holding company incorporated in the Cayman Islands, Lombard Medical, Inc ("LMI"). The Scheme involved the cancellation of the Scheme Shares, and the use of the reserve thereby arising to pay up new shares to be allotted to LMI. As consideration for the cancellation of their Scheme Shares, Scheme Shareholders would receive one share in LMI for every four Scheme Shares held by them.
The Company was incorporated on 14 January 2003. Its business is the development and manufacture of specialist medical devices, focused in particular on endovascular aortic repair of abdominal aortic aneurysms. In February 2014 its issued share capital comprised over 44 million ordinary shares of 20 pence each, together with three classes of deferred shares. The deferred shares are not included in the Scheme, and for present purposes may be ignored. The ordinary shares were admitted to trading on the AIM market of the London Stock Exchange, and were not traded on any other recognised exchange.
On 8 January 2014, the Company announced its intention to pursue an initial public offering in the USA together with a listing of shares on the NASDAQ Global Market. To that end, it was proposed that the Company's business should be redomiciled to the Cayman Islands through the incorporation of a new Cayman holding company and an exchange of the shares in that company for shares in the Company. LMI was then incorporated on 16 January 2014.
But for one unusual feature, the Scheme was of a relatively standard nature and presented no difficulties. The same offer was made to all the Scheme Shareholders, so there was only one class of shareholders for the purposes of the meeting convened by the court to consider the Scheme under section 896 of the 2006 Act. At that meeting, which was held on 18 March 2014, the Scheme was approved by a large majority in number (83%) and an overwhelming majority in value (96.7%) of the participating shareholders, who between them owned just over 80% of the Scheme Shares in issue at the voting record time. The requisite majority in section 899(1), namely a majority in number, representing 75% in value, of the members present and voting either in person or by proxy at the meeting, was therefore very comfortably achieved. Nor was there any opposition to the Scheme at the hearing on 29 April.
The unusual feature of the Scheme was this. In parallel with the Scheme, LMI was undertaking a fundraising exercise with the object of raising between $50 and 80 million through the issue of new shares in LMI to new investors. It was essential to the group's plans to secure a listing for LMI on NASDAQ that the fundraising should be successfully accomplished. On the other hand, it was also essential to the success of the fundraising exercise that it should not be completed, and the new investors should not be obliged to commit themselves, until it was known that the Scheme had been approved by the court and would take effect accordingly. Furthermore, it was also essential to the operation of the Scheme itself that it should not take effect until it was at least a practical certainty that the fundraising would be completed and the NASDAQ listing would go ahead. The Scheme Shareholders would be left in the worst of all worlds if they found themselves bound by a new offshore corporate structure, and their shares no longer listed on the AIM, but the projected US fundraising and listing were also aborted.
The problem was therefore how best to reconcile these competing objectives, and make the fundraising conditional upon the sanction of the Scheme, while also ensuring that the Scheme would not become effective unless the fundraising target were met. The solution adopted by the Company and its advisers had these main features:
i) First, the underwriting agreement to be entered into in connection with the fundraising would provide that the obligations of the underwriters to underwrite the initial public offering of LMI shares would be made conditional on the change of domicile under the Scheme having occurred;
ii) Secondly, the court would not be asked to sanction the Scheme until one day before the fundraising was ready to be completed, with no known obstacles which might prevent that happening;
iii) Thirdly, assuming that the court was willing to sanction the Scheme, it would be asked to direct that the order sanctioning it should not be delivered to the Registrar of Companies until all the conditions of the fundraising (other than the condition requiring the Scheme to have become effective) had been completed.
Section 899(4) of the 2006 Act provides that:
"The court's order has no effect until a copy of it has been delivered to the registrar."
Thus in the short period (expected to be 24 hours or less) between the sanction of the Scheme by the court, and the delivery of a copy of the order to the Registrar, it was envisaged that the fundraising would be finalised, on the basis that the court had made its order approving the Scheme, but the Scheme would still not actually take effect, as a matter of English law, until delivery of the order to the Registrar after the underwriting agreement had become final and unconditional.
In accordance with this plan, a provisional timetable was drawn up under which:
i) the requisite meetings of shareholders of the Company (to approve the Scheme and the associated reduction of capital) would take place on 18 March 2014;
ii) the last day for dealings in the Company's shares on the AIM would be 3 April 2014;
iii) the scheme record time would be 6pm on Friday 4 April;
iv) the court hearing to sanction the Scheme would take place on Monday 7 April; and
v) On 8 April, the quotation of the Company's shares on the AIM would be cancelled, the Scheme would become effective on delivery of the court's order to the Registrar, and at 2.30 pm London time, equivalent to 9.30 am New York time, trading would commence on NASDAQ in the shares of LMI.
One aspect of this plan was thought to give rise to a possible difficulty: would it be appropriate for the court to sanction the Scheme at a time when there were still outstanding conditions which had to be satisfied before it could become effective? If that difficulty could be overcome, there was also the further question whether the court could properly direct that the order sanctioning the Scheme should not be delivered to the Registrar until the outstanding conditions had been satisfied. In particular, I was told by counsel appearing for the Company, Mr Ben Shaw, that the recent and then unreported decision of Hildyard J in Re Fiberweb plc, on 13 November 2013, had apparently caused some concern and uncertainty among practitioners in this specialised field because it appeared to lay down a rule that it is the general practice of the court to require waiver or satisfaction of all outstanding conditions before it will sanction a scheme. Mr Shaw had himself been instructed as counsel in that case, when he appeared for the bidder, a company called PGI Acquisitions Limited ("PGI"), in a takeover of the target company, Fiberweb plc ("Fiberweb"), which was to be implemented by a scheme of arrangement structurally very similar to that in the present case.
Because of these uncertainties, the relatively unusual step was taken of listing before a High Court judge (instead of a registrar) the initial application seeking permission to convene a meeting of the Scheme Shareholders under section 896. The application came before me in the Companies Court on 25 February 2014, when Mr Shaw explained that his clients might not wish to proceed further if the court was clearly of the view that it would not be willing to sanction a scheme at a time when there were still outstanding conditions to be fulfilled. Mr Shaw then presented arguments to me designed to show that no general practice of the nature apparently laid down by Hildyard J existed, and (even if it did) that the circumstances of the present case were of such an exceptional nature that the general rule should be departed from. At this stage, no transcript of Hildyard J's extempore judgment was available, so I was dependent on what Mr Shaw was able to tell me about the case and an unapproved note of the judgment.
On the strength of Mr Shaw's submissions, I was prepared to indicate a provisional view that it would in due course be appropriate for the court to sanction the Scheme. I therefore gave directions for the convening of the necessary meeting. I made it clear, however, that before reaching a final conclusion I would need to see an approved transcript of the judgment in Fiberweb. It was, of course, also possible that the Scheme would in any event...
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