Re Hunting Plc
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE PATTEN |
| Judgment Date | 28 July 2004 |
| Neutral Citation | [2004] EWHC 2591 (Ch) |
| Court | Chancery Division |
| Date | 28 July 2004 |
[2004] EWHC 2591 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Patten
MR M TODD QC appeared on behalf of the CLAIMANT.
Mr R Muriel and Mr W Hall appeared in person.
This petition seeks the confirmation by the court of a resolution to reduce the issued share capital of Hunting plc. The proposed reduction takes the form of the cancellation of Convertible Preference Shares, all or most of which are now fully paid up. It is opposed by a number of individual holders of Convertible Preference Shares, two of whom have appeared before me today to put in person their objections, and I will come to those individual objections a little later in this judgment.
By way of background, it is necessary for me to say something about the capital structure of the company and the provisions of its Articles.
The authorised share capital of the company is £81,750,000, which is divided into two classes of shares. There are 125,386,444 ordinary shares of 25 pence each, over 101,000,000 of which have been issued and are credited as fully paid. The other class of shares which is affected by the proposed reduction is the class of 8.25% Convertible Preference Shares, of which some 47,811,830 have been issued and are credited as fully paid.
Under the provisions of the Company's Articles of Association and in particular under Article 5(b):
"On a winding-up or other return of capital of the company, each convertible preference share shall carry the right on a winding up or other return of capital of the company (otherwise than on conversion, redemption or repurchase by the company of any of its shares) in priority to any payment to the holders of any class of shares or stock to an amount of £1, together with a sum equal to any arrears and accruals of the fixed dividend, to be calculated down to the date of the commencement of the winding up or other return of capital and to be payable irrespective of whether such dividend has been earned or declared or not provided that if the amount available to the holders of the Convertible Preference Shares is not sufficient to make such payment in full then the amounts to be paid to such holders shall be that proportion of the respective amounts payable to them which the said amount available bears to the aggregate amount payable to such holders. The holders of the Convertible Preference Shares shall not be entitled to any further right to participate in the assets of the company."
That Article is reinforced by the provisions of Article 5(d), which set out the rights of the holders of the Convertible Preference Shares to attend and vote at general meetings. Article 5(d)(i) provides:
"The holders of the Convertible Preference Shares, which shall be treated for this purpose as separate classes, shall not be entitled to receive notice of or to attend or vote at any general meeting of the company unless:-
(a) at the date of the notice convening the meeting the fixed cumulative preferential dividend thereof is six months or more in arrears; or
(b) the business of the meeting includes the consideration of a resolution to wind up the company; or
(c) a resolution is to be proposed which is one which varies, modifies, alters or abrogates any of the rights attaching to the Convertible Preference Shares."
It is clear that conditions (a) and (b) have no application in this particular case. So far as condition (c) is concerned, it is well established by a long series of authorities, which I will come to in a moment, that a resolution for the reduction of capital by the cancellation of a class of shares, and therefore its removal from the register of shares, is not a resolution which varies, modifies, alters or abrogates any of the rights attaching to the Convertible Preference Shares, at least where, under the terms of the reduction of capital (which is the position here), the holders of that class of preference shares are to receive the par value and any other accrued rights to which they are entitled under the company's Articles of Association.
The objections to the reduction in capital which have been raised before me are essentially of two kinds: firstly, procedural objections and, secondly, objections of substance on the basis that what is proposed would be unfair to the holders of the preference shares.
The first category of objection which Mr Muriel (who has appeared in person today) has raised is really to the effect that the provisions of Article 5(b) (which I have just read out) are in some way to be regarded as modified by the fact that the share certificates issued in respect of these preference shares misstates in the summary of the terms attached to those shares the voting rights to which the registered holder of the shares is entitled. On the back of the certificate, under the heading "Voting", the certificate states that:
"The holders of the Convertible Preference Shares will be entitled to receive notice of general meetings of Hunting plc, but shall not be entitled to attend and vote unless, at the date of the notice convening the meeting, (a) payment of the dividend on the Convertible Preference Shares is six months or more in arrears, or (b) a resolution is to be considered at the meeting for reducing the capital of or winding up, or for modifying or abrogating any special rights attaching to the Convertible Preference Shares and in the case of circumstances referred to in (b) above, holders of Convertible Preference Shares will only be entitled to vote on resolutions within the description of (b)."
It is clear that if that summary of the voting rights were to be either accurate or in some way enforceable, I would have no alternative but to refuse to confirm the reduction. The reason is that there has been a meeting of the ordinary shareholders which has passed the necessary special resolution seeking to implement the reduction of capital by the cancellation and extinguishment of all the cumulative Convertible Preference Shares, but there has been no class meeting called in respect of the holders of the preference shares themselves.
However, the difficulty about the argument that the terms of that summary should in some way override the Articles is that it is clear, first of all, that the Articles of Association in their current form contain no right for the preference shareholders to participate in any general meeting of the company, and, secondly, that nothing has taken place which, as far as I can see, is capable of modifying those rights which of course affect not only the preference shareholders but also all the other members of the company.
The simple point is that this was a misstatement (for whatever reason I know not) of the terms of the Articles of Association, but it is clear that anybody acquiring preference shares in this company would have done so either by express reference to the Articles of Association, or, if they were an original shareholder, presumably by reference to the offer document which would accurately have summarised the terms upon which the preference shares were issued. There is no evidence before me to suggest that the company in any sense whatsoever held out the terms in the form summarised on the back of the share certificate as being the basis on which the shares were offered; nor in fact would the company have had any power to do so, given the terms of its Articles of Association.
In those circumstances, unfortunate as it may be that the voting rights are incorrectly summarised on the back of the certificate, that can have no legal effect in terms of the rights which are conferred on the preference shareholders. They remain quite simply the rights conferred under the Articles of Association.
That I think therefore disposes of the procedural objection to the reduction and leaves only the question of substance.
The court may confirm a...
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