Randall & Quilter Investment Holdings Plc

The court considered an application for sanction of a members' scheme of arrangement under sections 895 et seq. of the Companies Act 2006 and confirmation of a proposed reduction of capital. The scheme effects a redomicile to Bermuda by substituting the existing ordinary shares for shares in a new Bermuda parent company.

The court held that all shareholders formed a single class for the purposes of the scheme: the difference in post-scheme share handling (use of depository interests to enable CREST settlement) was a matter of mechanical implementation and did not create divergent legal interests justifying separate classes (see Re Sovereign Life Assurance Co v Dodd; Re Hellenic and General Trust Ltd).

The court also addressed a substantial administrative error by the registrars which caused notices to be sent to shareholders as at 10 May rather than as at the record time of 15 May. Applying the company's article dealing with "accidental omission" and the Deputy Registrar's equivalent order, and following the reasoning in Peninsular & Oriental Steam Navigation Co v Eller, the judge treated that omission as accidental and not attributable to the company. On the facts the court concluded there was no prejudice to shareholders that would justify refusing sanction, in light of the voting majorities and evidence as to how placees had been informed and had voted. The court therefore sanctioned the scheme and confirmed the reduction of capital.

Background and parties: The claimant, Randall & Quilter Investment Holdings Plc (the ultimate holding company of the R & Q Group), sought the court's sanction for a members' scheme of arrangement under sections 895 and following of the Companies Act 2006 and for confirmation of an associated reduction of share capital. The scheme would transfer the company's issued ordinary share capital to a newly incorporated Bermuda parent ("New R & Q") in consideration for new ordinary shares in New R & Q.

Nature of the application: The relief sought was court approval of the scheme of arrangement and confirmation of a reduction of capital so as to effect the group's redomicile to Bermuda and enable related regulatory and operational objectives.

Procedural posture: A court meeting was convened (held on 12 June) and the scheme obtained overwhelming majorities both numerically and in value among those present and voting. The court hearing concerned whether the class composition and the adequacy of notice were appropriate and whether an administrative error by the registrars invalidated the meetings.

Issues framed:

• Whether certificated and uncertificated shareholders formed a single class given the proposed post-scheme arrangements (use of depository interests convertible for Bermuda shares settled through CREST);
• Whether the failure to send notices to all shareholders recorded at the stated record time (15 May) — because the registrar used the register as at 10 May — invalidated the meetings or was excused as an "accidental omission" under the company’s articles and the Deputy Registrar’s order;
• Whether, as a matter of judicial discretion, the court should withhold sanction because of any prejudice caused by the notice error.

Court’s reasoning: On class composition the court accepted that the different settlement mechanics for New R & Q shares (depository interests for CREST) did not produce legally different rights and so did not necessitate separate classes of members; the practical arrangement left beneficial ownership intact and withdrawal into certificated form remained available.

On the notice issue the registrar had used the register at 5pm on 10 May rather than at 15 May (the date the company had instructed). The error had the practical effect of omitting 50 placees who had been entered on the register by 15 May and whose shares represented a significant portion of the issued capital. The court applied the "accidental omission" provision in article 51 of the articles and the Deputy Registrar's order, following the Court of Appeal's reasoning in Peninsular & Oriental Steam Navigation Co v Eller that where a company has taken the correct decision and given proper instructions, a registrar's inadvertent failure to implement those instructions is an accidental omission not attributable to the company. The judge found no evidence of company ratification of the registrar's shorter record date or delegation of authority and treated the omission as accidental.

The court then exercised its discretion: having regard to the overwhelming majorities at the meeting, evidence as to how placees had been informed and an evidential estimate of the way placed shares voted, the judge was satisfied that no attributable prejudice had been caused such as to require reconvening the meeting. The scheme and reduction of capital were therefore approved.

Subsidiary findings: The judge rejected arguments that the registrar’s actions should be attributed to the company; accepted Mr Randall's evidence about intended votes and communications to placees; and concluded reconvening would entail unnecessary expense and complication given the lack of prejudice.

The court granted its approval to the members' scheme of arrangement and confirmed the associated reduction of capital. The judge held that (i) all shareholders formed a single class because the post-scheme use of depository interests did not alter substantive rights; (ii) the registrars' error in using a 10 May record date was an "accidental omission" for which the company was not to be blamed (applying article 51 and the Deputy Registrar's order and the reasoning in Peninsular & Oriental Steam Navigation Co v Eller); and (iii) on the facts there was no prejudice warranting reconvening the meeting, so the court exercised its discretion to sanction the scheme.