Cape Plc & Ors, Re Companies Act 1985

When sanctioning a scheme of arrangement under section 425 of the Companies Act 1985, the court must exercise an independent discretion. It must verify statutory compliance, fair representation of the class, bona fide voting without coercion, and whether the arrangement is one which an intelligent and honest member of the class might reasonably approve.

High voting majorities do not remove the need to examine turnout, complexity, possible deterrence from voting, the balance between affected interests, and any provisions permitting later amendment. Amendment powers are exceptional where they affect integral scheme arrangements, but may be justified by long-running and changing circumstances if adequate safeguards protect creditors.

Cape plc and thirteen subsidiaries applied for sanction of schemes of arrangement under section 425 of the Companies Act 1985. The schemes concerned present and future asbestos-related creditors and provided for claims to be paid through a newly formed subsidiary, funded by Cape, while restricting enforcement against the scheme companies.

The meetings produced very substantial majorities, but questions arose concerning class representation, low turnout, the complexity of the scheme materials, the absence of opposition, and powers to amend the scheme and related agreements without further court involvement. The court therefore had to decide whether the statutory requirements were met and whether the arrangements were fair and reasonable to the affected creditor classes.

1. The court sanctioned the schemes for all applicant companies except Altitude Scaffolding Limited. The schemes could not be sanctioned for nine subsidiaries where no creditor attended or voted, and for two others where only one meeting was attended by a creditor.

2. Section 425 of the Companies Act 1985 requires approval by a simple majority in number representing three-fourths in value of creditors attending the meeting. Compliance with that requirement does not determine whether the court should sanction the scheme.

3. The court applied the established sanctioning approach derived from In re Alabama, New Orleans, Texas and Pacific Junction Railway Co and In re English, Scottish and Australian Chartered Bank. It had to consider statutory compliance; whether the class was fairly represented by those attending; whether the statutory majority acted bona fide and without coercion; and whether the arrangement was one which an intelligent and honest member of the class might reasonably approve.

4. The scheme was highly unusual and affected future claims extending potentially over 40 or 50 years. The court therefore examined the detailed funding arrangements and concluded that they struck a reasonable balance between preserving the companies’ businesses and protecting asbestos-related claimants. The high majorities, absence of opposition and extensive consultation were relevant, but did not reduce the court’s independent duty.

5. Turnout had to be assessed in context. The court considered the aggregate attendance figures appropriate because group assets were being made available to meet claims and future claimants were unlikely to participate in large numbers. The low turnout did not justify refusal of sanction, particularly as there was no evidence that complexity or the helpline materially prevented creditors from voting.

6. It was exceptional to sanction a scheme containing powers to amend the scheme or integral ancillary agreements without further court approval. Such powers may nevertheless be sanctioned where the long duration of the arrangements makes future legal, medical or financial change foreseeable, the amendments are necessary or highly desirable, and adequate safeguards protect affected creditors. The trustee’s consent, restrictions on dividends and governance protections provided sufficient safeguards here.

First-instance applications for sanction of schemes of arrangement. The court referred to its earlier convening judgment, [2006] EWHC 1316 (Ch), and separately determined the issue concerning whether one creditor could constitute a meeting in [2006] EWHC 1401 (Ch).