Man Group Plc
| Jurisdiction | England & Wales |
| Judge | Mr Justice Snowden,Mr Justice Snowden: |
| Judgment Date | 05 June 2019 |
| Neutral Citation | [2019] EWHC 1392 (Ch) |
| Docket Number | Case No: CR-2019-000868 |
| Court | Chancery Division |
| Date | 05 June 2019 |
Neutral Citation Number: [2019] EWHC 1392 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND & WALES
COMPANIES COURT (CHD)
Royal Courts of Justice
Rolls Building, Fetter Lane,
London, EC4A 1NL
Mr Justice Snowden
Case No: CR-2019-000868
Stephen Horan (instructed by Allen & Overy LLP) for the Applicant
Hearing date: 24 May 2019
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
On Friday 24 May 2019 I made an order under section 899 of the Companies Act 2006 (the “Act”) sanctioning a scheme of arrangement (the “Scheme”) between Man Group plc (the “Company”) and the holders of its ordinary shares (the “Scheme Shareholders”), together with an order under section 648 of the Act confirming an associated reduction of capital. I indicated I would give my reasons in writing, which I now do.
The Company is incorporated in England. It has two classes of shares: a little under 1.6 billion ordinary shares of 3 3/7 US cents each and 50,000 deferred shares of £1 each (the “Deferred Shares”). The Company's ordinary shares are listed on the main market of the London Stock Exchange.
Until very recently the Company held about 68 million ordinary shares which it had repurchased in treasury. However, the Company cancelled such shares in accordance with sections 729–730 of the Act. At the Voting Record Time on 8 May 2019, the time at which entitlement to vote at the Court Meeting was determined, there were 1,542,278,975 Scheme Shares.
The Deferred Shares are held by the Company's Company Secretary. They do not form part of the Scheme. They are a hangover from when the Company required £50,000 of paid up capital to obtain a trading certificate as a plc in 2012. The rights conferred by the Deferred Shares are set out in article 6 of the Company's Articles. They confer no rights to vote or attend meetings or have notice of meetings and no rights to income. They do, however, confer the right on a distribution or return of capital to a return of nominal value once every other share has had its nominal value plus £100 billion returned. The Deferred Shares will be cancelled under a private company solvency statement reduction of capital shortly after the Company re-registers as a private company following the Scheme becoming effective.
The Company and its subsidiaries (the “group”) are involved in active investment management over a wide range of products and in a number of international jurisdictions. The purpose of the Scheme is to insert a new holding company incorporated in Jersey, also to be known as Man Group plc (“New Man”), as the new parent company of the group. The Scheme Shareholders will become the shareholders in New Man.
It is said by the Company that the Scheme will give the group greater flexibility to compete in international markets with other institutional asset management businesses having a similar structure. Specifically, the insertion of New Man as a new Jersey holding company will mean that the companies in the group incorporated outside of the UK and the EEA will no longer be subject to the UK regulator's full suite of prudential regulation as well as local regulation, and the group as a whole will not be subject to the UK regulator's global consolidated capital requirements.
The insertion of the new parent company is being done by way of a cancellation scheme. All of the ordinary shares of the Company are being cancelled in an associated reduction of capital and the reserve arising on the reduction is being applied in paying up new ordinary shares to be issued to New Man. Subject to clause 2.3 of the Scheme (which I address below), New Man will issue its own ordinary shares to the Scheme Shareholders. As a result, the Scheme Shareholders will, in effect, have exchanged their ordinary shares in the Company for the same number of ordinary shares in New Man.
Clause 2.3 of the Scheme makes provision for treating a Scheme Shareholder as a restricted shareholder – defined as one who is resident in a jurisdiction where New Man is advised that the allotment and issue of New Man ordinary shares to the shareholder in question would be precluded except after compliance with legal and regulatory requirements which New Man would be unable to comply with or which it regards as unduly onerous. Where this is the case, New Man may, at its discretion, require the New Man shares to be sold on behalf of the restricted shareholder and the net proceeds of sale remitted to him.
Following the Scheme becoming effective, the Company's ordinary shares will be delisted and New Man's ordinary shares will be listed on the main market of the London Stock Exchange on Tuesday 28 May 2019. In addition, a further intermediate Jersey holding company will be interposed between the Company and New Man, so the Company will become a wholly owned subsidiary within the group of which New Man will be the ultimate parent.
The function of the Court
The function of the Court at a sanction hearing for a scheme is summarised in the following extract from Buckley on the Companies Acts on section 899 of the Act which has frequently been cited with approval and applied by this Court:
“Sanction of the court
Once the meetings have approved the scheme, the sanction of the court must be sought. The sanction of the court is not a mere formality. Although the court has an unfettered discretion as to whether or not to sanction the scheme, it is likely to do so, as long as: (1) the provisions of the statute have been complied with; (2) the class was 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) 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 court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting. The court will decline to sanction the scheme if the class has not been properly convened and 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 which had been unobserved when it had been approved by members or creditors, but will otherwise be slow to differ from the meeting.”
In relation to a reduction of capital, the Court will require satisfaction of the following matters,
a) The resolution reducing capital must be a validly passed special resolution.
b) The shareholders must be treated equitably in relation to the reduction. Shareholders do not all have to be treated in the same manner provided that any unequal treatment is either in accordance with the rights attached to any class or the consent of those affected by such treatment has been properly obtained.
c) The proposals must have been properly explained to the shareholders so that they can exercise an informed judgment upon them.
d) The creditors of the company must be safeguarded so that the proposals do not operate to their detriment, namely that there is a real likelihood that the reduction itself would result in the company being unable to discharge the debts when they fall due.
e) The reduction must be proposed for a discernible purpose.
Proposition (a) above arises from the wording of section 641(1)(b). Propositions (b), (c) and (d) are derived from the judgment of Harman J in Re Ratners Group plc [1988] BCLC 685 at 687b-d, with the judgment of Norris J in Re Liberty International plc [2010] 2 BCLC 665 at para. 11 supplementing proposition (d). Proposition (e) is derived from the judgment of Harman J in Re Thorn EMI Plc [1989] BCLC 612 at 616d.
I shall return to consider the application of these principles later in this judgment. First, however, I must deal with a question of jurisdiction arising out of the prohibition on certain types of cancellation schemes under section 641(2A) of the Act.
Is the reduction of capital barred by section 641(2A) of the Act?
Until 2015, virtually all takeover schemes of arrangement took the form of cancellation schemes of arrangement, because the cancellation and reissue of the target company's share capital did not involve any stampable transfers of shares. This tax loophole was closed when the Act was amended in early 2015 to prevent reductions of capital being used as part of a takeover scheme. The insertion of sections 641(2A), (2B) and (2C) has meant that takeovers now have to be effected as transfer schemes without any reduction of capital.
However, as an exception to section 641(2A), section 641(2B) permits the use of a cancellation scheme where the purpose is to insert a new holding company into a group by way of a corporate reorganisation rather than to effect a change of control. Under section 641(2B), the prohibition against using reductions of capital for schemes set out in section 641(2A) does not apply where:
a) the company is to have a new parent undertaking;
b) all or substantially all of the members of the company become members of the parent undertaking; and
c) the members of the company are to hold proportions of the equity share capital of the...
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