Unilever Plc, Re

The court granted permission under section 896 of the Companies Act 2006 to convene a meeting to consider a scheme of arrangement. The central legal issue was whether the proposed cancellation-and-reissue scheme fell foul of the prohibition in s.641(2A) and, if so, whether it came within the exemption in s.641(2B). The judge held that, on the literal meaning of the statutory language and having regard to the policy behind the amendment, the mandatory transfer of shares carried out under an amendment to the articles prior to the scheme did not form part of a "scheme" for the purposes of s.641(2B). The Ramsay principle of purposive construction did not require an expanded meaning of "scheme" to catch the mandatory transfer or the subsequent Dutch merger. On that basis the court concluded the proposal fell within the exemption in s.641(2B) and approved the convening order.

Background and nature of the application:

• The applicant sought permission under section 896 of the Companies Act 2006 to convene a members' meeting to consider a scheme of arrangement and a related reduction of capital intended to simplify Unilever's dual-parent group structure by inserting a new Dutch holding company ("New NV").

Key factual steps:

• A mandatory transfer of most ordinary shares to a nominee (a Computershare entity) was to be effected by an amendment to the company's articles immediately before the scheme; excluded shareholders would remain outside that mandatory transfer. The scheme itself provided for cancellation of scheme shares and issue of new shares to New NV on a one-for-one basis. The next day a Dutch triangular merger was to be effected as part of the wider simplification.

Issues framed:

• Whether the cancellation-reissue element of the proposal would be prohibited by s.641(2A) because New NV would acquire all shares of one class; and
• Whether the scheme fell within the exemption in s.641(2B) given the preliminary mandatory transfer and the subsequent Dutch merger, or whether those steps should be treated as part of the scheme by application of the Ramsay principle.

Court's reasoning and conclusions:

• Section 641(2C) defines "scheme" as a compromise or arrangement sanctioned under Part 26. The mandatory transfer did not form part of that compromise or arrangement because it was to occur by amendment of the articles prior to sanction of the Part 26 scheme.
• The literal statutory language therefore brought the proposed scheme within the s.641(2B) exemption: the company would have a new parent, substantially all members would become members of that parent, and the proportions of equity held would be preserved.
• Consideration of the Ramsay principle and relevant authorities (including Home Retail Group plc and Old Mutual plc) did not require treating the mandatory transfer or Dutch merger as part of the scheme. The amendment's commercial purpose and the explanatory memorandum underpinning the statutory change supported treating the proposal as intra-group restructuring rather than a device to avoid fiscal consequences of takeovers.
• Accordingly the court approved the convening order and included a declaration that the proposal fell within the exemption in s.641(2B).

The judgment also notes that the mandatory transfer contained unwind provisions in the event the scheme did not become effective and that the scheme forms part of wider steps to effect group simplification.

The application for permission to convene the meeting was allowed. The court held that the proposed reduction of capital and cancellation-and-reissue scheme fell within the exemption in s.641(2B) of the Companies Act 2006 because the mandatory transfer effected by an amendment of the articles prior to the Part 26 scheme did not form part of the "scheme"; a purposive construction under the Ramsay principle did not justify expanding "scheme" to include the preliminary mandatory transfer or the subsequent Dutch merger.