Mann Group Plc & Mann Strategic Holdings

This is a first instance application under the Companies Act 2006 to sanction a scheme of arrangement (section 895/899) and to confirm reductions of capital (section 648 and section 641). The court applied the established four-part test for sanctioning schemes: statutory compliance, fair representation of the class, the 'intelligent and honest man' standard and absence of any blot on the scheme, and found each limb satisfied. The court also applied the five matters relevant to confirming a reduction of capital (valid special resolution, equitable treatment of shareholders, adequate explanation to shareholders, discernible purpose and no prejudice to creditors) and confirmed the reduction of Mann's capital; the court indicated it was likely to confirm New Mann's reduction subject to no further material facts emerging.

Background and parties:

Mann Group plc (Mann), an alternative investment management group, sought to impose a new holding company (Mann Strategic Holdings plc or New Mann) above Mann so as to enhance the group's access to distributable reserves and thereby preserve its dividend policy. The scheme involved cancelling Mann ordinary shares, capitalising the resulting reserve to subscribe for shares in Mann to be allotted to New Mann, New Mann allotting shares to former Mann members and thereafter reducing New Mann's nominal share value to create distributable reserves.

Procedural history:

• Claims issued by Mann and New Mann in September and October 2012.
• Court meetings and shareholder approvals were obtained (court meeting approval 17 October 2012: 95.21% by number and 99.96% by value).
• Registrar orders dispensed with settlement of creditors lists. New Mann passed a further special resolution on 31 October 2012 adjusting for market volatility.

Relief sought and issues framed:

• Sanction of the scheme of arrangement under section 899 (and section 895 principles).
• Confirmation of reductions of capital under section 648 and the court's jurisdiction under section 641.
• Whether the statutory and equitable tests for sanction and for reduction of capital were satisfied, including creditor protection and treatment of option holders.

Court's reasoning and decision:

• For sanctioning the scheme the judge applied the four tests cited from authoritative guidance and authorities (statutory compliance; fair representation of the class; that an intelligent and honest member would reasonably approve; and absence of any blot). The court was satisfied the statutory requirements had been complied with, the single class was properly constituted, the shareholders who voted represented the class fairly, the intelligent-and-honest-man test was met and there was no blot.
• The court noted protection for option holders by provision of equivalent options and that New Mann undertook to be bound by the scheme; New Mann intended to rely on s.3(a)(10) of the Securities Act 1933 for an exemption.
• On reduction of capital, the court addressed five matters: valid special resolution(s) (both companies satisfied this), equitable treatment of shareholders, adequate explanation to shareholders (circulars and advice), discernible purpose (tax-efficient reorganisation and ensuring distributable reserves) and absence of prejudice to creditors. The court concluded these matters were satisfied for Mann and indicated it was likely to confirm New Mann's reduction at the subsequent hearing provided no new material facts emerged.

Subsidiary findings: the court emphasised turnout and voting results, accepted that a number of shareholders did not vote but that did not affect sanction, and recorded that no shareholders appeared in opposition.

This is a first instance determination. The court sanctioned the scheme of arrangement under the Companies Act 2006 after applying the statutory and equitable tests for sanction. The court confirmed the reduction of capital in Mann upon finding the five statutory matters satisfied. The court indicated it was likely to confirm New Mann's reduction of capital at a subsequent hearing on 7 November 2012 if no new material facts emerged. The rationale was that statutory requirements, equitable treatment, adequate disclosure, discernible purposes and absence of prejudice to creditors were all established on the evidence.