Smith

JurisdictionEngland & Wales
JudgeMr Justice Trower
Judgment Date18 October 2019
Neutral Citation[2019] EWHC 3021 (Ch)
Date18 October 2019
Docket NumberRef. CR-2019-006868
CourtChancery Division

[2019] EWHC 3021 (Ch)

IN THE HIGH COURTS OF JUSTICE,

IN THE BUSINESS AND PROPERTY COURTS OF

ENGLAND AND WALES

CHANCERY DIVISION

The Rolls Building Fetter Lane London

Before:

THE HONOURABLE Mr Justice Trower

Ref. CR-2019-006868

In the Matter of Smith
Williamson Holdings Limited

Mr A Thornton appeared on behalf of the parties

TRANSCRIPT OF PROCEEDINGS

18

th OCTOBER 2019, 11.25 – 11.55

Mr Justice Trower
1

I am going to order a single meeting. I will explain why with some short reasons.

2

This is an application under section 896 of the Companies Act 2006 for permission to convene scheme meetings of the holders of A ordinary shares of 10 pence each in the capital of Smith & Williamson Holdings Limited (“the company”) for the purpose of considering and if thought fit approving a scheme of arrangement.

3

The proposed scheme of arrangement is between the company, the A shareholders and the holders of the company's D ordinary shares of 10 pence each. In circumstances to which I will come, the company does not seek an order to convene a meeting of the D shareholders. The company's shares are not listed.

4

The purpose of the scheme is to enable the whole of the company's issued and to be issued share capital to be acquired by Tilney Group Limited (“TGL”) and Symmetry Topco Limited (“STL”), both of which are companies within the Tilney group.

5

In the evidence, the acquisition of which the scheme forms an essential part is called the combination. The principal business of the Smith & Williamson group, of which the company is parent, is the provision of investment management, accountancy and tax advisory services to businesses, private individuals, families and intermediaries.

6

The Tilney group also carries on business in the wealth management sector and has become one of the United Kingdom's leading integrated private client and wealth management firms with over £25 billion of assets under management.

7

I have read letters to shareholders both dated the 21 st of October from the chairman of the company and the chairman of Tilney, which explain what they consider to be the business synergies and benefits to shareholders which will be achieved by the combination. For present purposes, it suffices to refer to a short passage from the letter from Mr Andrew Sykes, the non-executive chairman of the company, writing to its shareholders on behalf of all the company's independent directors. The letter appears in the scheme documents and I quote:

The Smith & Williamson independent directors believe that the proposed Combination delivers an attractive proposition for Smith & Williamson Shareholders. In particular

the combination delivers an attractive premium valuation for Smith & Williamson business today;

the Combination provides an opportunity for Smith & Williamson Shareholders to take a significant proportion of the Consideration in the form of cash;

the Combination provides significant flexibility, via the Mix-and-Match Facility for Eligible Individual Shareholders (other than Restricted Overseas Shareholders) to express preferences as to whether they receive Consideration in the form of Cash Consideration, New Ordinary Shares or New Preference Shares (or a mixture thereof);

holding equity in the Combined Group is expected to allow shareholders to benefit from the realisation of significant revenue and costs synergies commensurate with their ownership of the Combined Group; and

that Smith & Williamson Independent Directors believe that the Combination will increase the likelihood of a successful IPO or other liquidity event in due course.”

8

In broad terms, the structure of the scheme is that each of the company's A shareholders will receive cash consideration from TGL, ordinary shares in STL and preference shares in STL in exchange for the transfer of their holdings of A shares in the company to TGL and STL. The value of the consideration is expected to be £9.73 per share (although that figure may change) and the first £45,000 of any consideration payable to shareholders will be in cash.

9

Thereafter, the consideration payable will be a mix of cash and shares, the make-up of which for individual shareholders will depend on whether or not they elect to participate in something called the mix and match facility, and if they do, what election they make. Default provisions will apply if an election is not made, and the precise entitlements under the default provisions will depend on the mix and match elections made by shareholders as a whole.

10

Immediately prior to the transfer, a flip-up will operate as a consequence of which LLP members within the Smith & Williamson group will be issued with A shares in exchange for the consideration they receive on the sale of their LLP shares to the company. Those A shares will then be transferred as part of the scheme.

11

The D shares are all held by a single shareholder, AGF Management Limited (“AGF”), which does not hold any A shares. The D shares carry certain additional rights (such as anti-dilution protections and the right to appoint nominated directors). They are personal to AGF and automatically convert to A shares in the event of a transfer by AGF to any other party. The D shares are also to be transferred under the scheme. AGF has agreed to be bound by the terms of the scheme and the company does not, at this hearing, seek an order convening a meeting of the D shareholders.

12

In his submissions the company's counsel, Mr Andrew Thornton, explained that the scheme is the preferred structure for achieving the combination because the large number of members means that a wholly consensual transfer is not feasible and the company's articles of association do not include drag-along rights.

13

I should say something about the role of the court at a hearing to convene the scheme meeting between a company and its numbers.

14

In the normal course, the application is listed before an ICC judge for directions. The judge will be concerned to ensure that there are no obvious jurisdictional impediments to the sanction of the scheme in due course, but the principal matter which goes to jurisdiction, i.e. whether or not the meetings are correctly constituted as to classes, is the responsibility of the applicant and will only be lightly considered by the ICC judge at that stage. Its determination remains a matter for the sanction hearing.

15

More specifically, the practice direction, which applies to schemes of arrangement between a company and its creditors ( Practice Statement (Companies: Schemes of Arrangement) [2002] 1 WLR 1345 (“the Practice Direction”)), does not apply to member schemes. Furthermore, there is no established practice in the case of member schemes which adopts (reading members for creditors), the practice which is now adopted in relation to creditor schemes and most particularly, paragraph 5 of the Practice Direction. This provides that, “ In considering whether or not to order meetings of creditors (“a meetings order”) the court will consider whether more than one meeting of creditors is required and if so what is the appropriate composition of those meetings”.

16

That does not, however, mean that the policy considerations which impelled the introduction of the Practice Direction in the first place, identified by Chadwick LJ in Re Hawk Insurance Co Ltd [2001] 2 BCLC 480, 513 at [19] to [21], may not have equal force in the case of some member schemes. There will be member schemes, although I suspect less often than in creditor schemes, where the nature of the proposed arrangements gives rise to class issues which it would be more appropriate to have determined at the first stage, i.e. the application to convene scheme meetings.

17

In such a case, there may be something to said for adopting the creditor scheme practice statement by analogy. This approach was adopted by Mr Justice Snowden in In Re SAB Miller Plc [2016] EWHC 2153 (Ch) at [20], from which it is apparent not just that paragraph 5 of the Practice Direction was adopted by analogy, but also that notification was given to the requisite shareholders as required by paragraph 4 of the Practice Direction.

18

In my view this approach reflects a pragmatic means for providing greater certainty as to outcome at an early stage. It minimises the prospects of a last-minute challenge to sanction on class grounds where members have had a full and fair opportunity to participate in the argument as to class constitution earlier in the process.

19

In the present case, Mr Thornton invites me to take a similar, but not identical approach. He explains that the company wishes to bring the class issues before a High Court judge at this stage, with a view to seeking comfort that the approach it intends to take to class constitution is appropriate. As he...

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1 cases
  • Runtime Collective Ltd
    • United Kingdom
    • Chancery Division
    • April 19, 2021
    ...by any scheme member who has a beneficial interest in the share trust. This was the view of Trower J in Re Smith & Williamson [2019] EWHC 3021 (Ch), and I respectfully agree with 25 Having decided there should be a single class meeting, there are no issues that would cause me to review tha......

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