Re Dee Valley Group Plc
| Jurisdiction | England & Wales |
| Judge | Sir Geoffrey Vos |
| Judgment Date | 08 February 2017 |
| Neutral Citation | [2017] EWHC 184 (Ch) |
| Docket Number | Case No: CR-2016-007570 |
| Court | Chancery Division |
| Date | 08 February 2017 |
[2017] EWHC 184 (Ch)
Sir Geoffrey Vos, Chancellor of the High Court
Case No: CR-2016-007570
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
The Rolls Building
The Royal Courts of Justice
7 Rolls Building, Fetter Lane,
London EC4A 1NL
Mr Andrew Thornton (instructed by Travers Smith LLP) appeared for Dee Valley Group plc
Mr James Potts QC (instructed by Walker Morris LLP) appeared for the opposing individual shareholders
Mr Edward Davies (instructed by Berwin Leighton Paisner LLP) appeared for Ancala Fornia Limited
Mr Martin Moore QC and Mr Stephen Horan (instructed by Herbert Smith Freehills LLP) appeared for Severn Trent Water Limited
Mr David Chivers QC (instructed by Butcher Barlow LLP) appeared for James Sharp (Rulegate Nominees) Limited
Hearing dates: 25 th, 26 th and 27 th January 2017
Approved Judgment
Sir Geoffrey Vos, the Chancellor of the High Court:
General introduction
Section 899(1) of the Companies Act 2006 (the "2006 Act") provides that "[i]f a majority in number representing 75% in value of the … class of members … present and voting … agree a compromise or arrangement, the court may, on an application under this section, sanction the compromise or arrangement". There are therefore two pre-conditions to the court sanctioning a scheme of arrangement. First a majority in number of the class of members present and voting must agree to it, and secondly, 75% in value of the class of members present and voting must agree to it. This case concerns the first of those two pre-conditions.
The basic question that the court has to decide is whether the chairman of the class meeting directed by the court (the "Chairman") was right to disallow the votes of some 434 individual shareholders opposing the scheme (the "Individual Shareholders"). The Chairman in fact disallowed the votes because each of the Individual Shareholders had acquired one share by way of gift from the same transferor in the "share-splitting" circumstances that I shall describe. The result of disallowing the votes of the Individual Shareholders was that a majority in number of the shareholders in the class in question did approve the scheme of arrangement in this case (the "Scheme"). Had the Chairman allowed these votes, the Scheme would have failed, because it would not have been approved by a majority in number of the class of members present and voting at the class meeting.
Accordingly, if it were to be determined that the Chairman was right to disallow the votes in the way that he did, the court will have to consider whether the Scheme should be sanctioned as a matter of discretion under section 899(1) of the 2006 Act ("section 899(1)"). It is well-established that the court will, in exercising its discretion to sanction a scheme of arrangement, consider whether it is satisfied that (i) the provisions of the 2006 Act have been complied with, (ii) the class of shareholders, the subject of the court meeting, was fairly represented by those who attended the meeting, and that 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, (iii) an intelligent and honest person, a member of the class concerned and acting in respect of his own interest, might reasonably approve the scheme, and (iv) there is no blot on the scheme (see page 829 of Plowman J in Re National Bank plc [1966] 1 WLR 819, and Morgan J in Re TDG plc [2009] 1 BCLC 445).
It appears that this is the first case in which a share-splitting exercise has been undertaken with the apparent object of defeating a scheme of arrangement between a company and its members. Those supporting the Scheme say that any manipulation of the shareholdings voting at a class meeting ordered by the court is objectionable. It can be observed immediately that, if the votes of the Individual Shareholders had been counted, the jurisdictional pre-conditions of section 899(1) would not have been satisfied, so there would have been no basis on which the Scheme could have been considered for sanction at the hearing before me. The reverse position was considered by the Hong Kong Court of Appeal in the only other reported share-splitting case, namely Re PCCW Limited [2009] 3 HKC 292 (" PCCW"). In PCCW, however, the share-splitting was used to support the scheme and would not, even potentially, have caused a situation in which there would have been no sanction hearing. Moreover, since the PCCW case, the law has been changed in Hong Kong to abrogate the requirement for a scheme to be approved by a majority of the class of shareholders by number. A similar amendment was considered, but rejected, by Parliament in this country in 2006.
It can, therefore, be seen that the issues that this case raises are of some importance to schemes of arrangement in the future. It will be recalled also at the outset that schemes of arrangement are a very valuable corporate mechanism that have been much used since their introduction in 1862. They were originally only available as between a company and its creditors and then only when the company was in winding up. But section 24 of the Companies Act 1900 extended schemes to those between a company and its members or any class thereof, though still only when the company was in winding up. That latter requirement was removed by section 38 of the Companies Act 1907. Thus, a members' scheme was possible from 1907 onwards, but like the original creditors' schemes, they have always had to be approved by a majority in number of those voting. See the full historical analysis undertaken by Nourse J in In re Savoy Hotel Ltd. [1981] 1 Ch. 351 at pages 358–9.
An outline of the circumstances of this case
The application before the court is by Dee Valley Group plc (the "Company") for the court's sanction of the Scheme between the Company and its members under Part 26 of the 2006 Act. The purpose of the Scheme is to enable Severn Trent Water Limited ("Severn Trent") to acquire the entire issued voting ordinary share capital of the Company at a price of 1,825 pence per share. The details of the Scheme are fairly conventional for a scheme of this kind. I shall return to those that are relevant to the issues that I have to decide in due course.
The Company is one of two water companies in Wales and supplies water to some 125,000 customers in North- East Wales and North-West England. It has been in that business for some 150 years. Although it is the smallest independent water company in England and Wales, it is said that it has the most satisfied customers of them all in relation to value and that 92% of its customers are satisfied with the service it offers. Severn Trent is a major corporation in the same and other businesses. It is said by the opponents of the Scheme (but much disputed) that Severn Trent offers a lesser service to its customers at a higher cost.
7 individual shareholders in the Company oppose the Scheme. They are Mr Huw Cashmore ("Mr Cashmore"), Mr John Williams, Mr Stuart Owen ("Mr Owen"), Mr George Owen, Mr Stephen Jones, Ms Angelina Blower and Ms Johanna Cooke. A competing bidder for the company, which offered 1,706 pence per share for the shares in the Company, Ancala Fornia Limited ("Ancala Fornia"), also opposes the Scheme. The nominee company of an independent stockbroking firm, James Sharp & Co, supports the Scheme. That nominee company is called James Sharp (Rulegate Nominees) Limited ("James Sharp") and holds 645,457 voting ordinary shares in the company representing 15.6% of the class of ordinary shareholders that attended the class meeting on 12 th January 2017 to consider a resolution to approve the Scheme (the "12 th January Meeting" or the "Court Meeting"). James Sharp represents 324 underlying beneficial shareholders.
After 30 th November 2016, when the court had directed that the Court Meeting should be held, Mr Cashmore bought three tranches of shares in the Company paying three sums of £2,900, £2,600, and £2,920 respectively to his stockbrokers, Redmayne Bentley. Share certificates were issued to Mr Cashmore on 20 th and 21 st December 2016. On 3 rd January 2017, 443 valid stock transfer forms were delivered by Mr Cashmore to the Company's Registrars, Capita Registrars Limited ("Capita"), who passed them on to the Company. On 3 rd and 4 th January 2017, the Company registered the 443 new Individual Shareholders (to whom Mr Cashmore had transferred shares) each as holders of a single ordinary share in the Company. On 9 th January 2017, the proxy forms for many of these Individual Shareholders to vote against the Scheme at the 12 th January Meeting were delivered to Capita by Mr Owen.
At the 12 th January Meeting, 466 out of the 828 members present either in person or by proxy voted against the resolution to approve the Scheme. More than 75% of the class of voting shareholders did, however, support the Scheme. Prior to the Court Meeting the Company had taken the precaution of applying ex parte to Registrar Derrett in the Companies Court on 10 th January 2017 for an order. The application was supported by a statement made by Mr Ian Plenderleith ("Mr Plenderleith"), the Chief Executive of the Company, and by a skeleton argument prepared by Mr Andrew Thornton, counsel for the Company, and by oral arguments presented by Mr Thornton and by Mr Martin Moore QC, acting then and now for Severn Trent. Registrar Derrett's order gave the Chairman of the 12 th January Meeting "permission to reject the votes of any member of the Company holding a share or shares who shall have derived his, her or its shareholding by way of transfer from [Mr Cashmore]". In purported utilisation of that power, the Chairman, who was Mr Jon Schofield, non-executive...
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