Re Waste Recycling Group Plc

In sanctioning a scheme of arrangement and confirming a reduction of capital, the court must be satisfied that the statutory procedure has been followed, the relevant class has been fairly represented, and the majority has acted bona fide without coercing the minority. The scheme must be one which an intelligent and honest member of the class, acting in respect of his or her interest, might reasonably approve. Class composition depends on members’ legal rights and the way the scheme treats those rights, not on members’ subjective reasons for owning shares. Compulsory cancellation of shares under Companies Act section 425 is compatible with Article 1 of the First Protocol where the statutory scheme does not create arbitrary or unjust inequality.

The company sought sanction of a scheme under section 425 of the Companies Act to implement a recommended takeover. The scheme cancelled the existing shares, reissued the share capital to the acquirer, and provided shareholders with cash consideration. It also required confirmation of a reduction of capital.

A minority shareholder objected because the company’s environmental significance gave his shareholding a public-accountability interest beyond financial return. He argued that compulsory cancellation infringed Article 1 of the First Protocol to the European Convention on Human Rights and sought retention of shares for shareholders with similar interests.

1. Scheme sanctioned and reduction confirmed. The court was satisfied that the meeting had been properly convened, the statutory requirements had been met, the single class of members had been fairly represented, and the majority had acted bona fide in its own interests without coercing the minority. The scheme was one which an intelligent and honest member of the class, acting in respect of his or her interest, might reasonably approve.
2. Class composition. The relevant class was determined primarily by the members’ rights and by the way in which the scheme dealt with those rights. Subjective reasons for holding shares did not create separate classes where members had essentially the same rights and were treated identically.
3. Article 1 of the First Protocol. Compulsory cancellation amounted to a deprivation of possessions, but it was authorised by law and capable of justification in the public interest. Section 425 did not need to distinguish between shareholders according to whether they regarded their shares as a means of exercising public accountability or as a financial investment.
4. Reduction of capital. Confirmation was appropriate because all shareholders were treated alike, the cause of the reduction had been properly explained, and the reduction served a discernible purpose.