Man Group Plc, Re Companies Act 2006

The Court sanctioned a scheme of arrangement under section 899 of the Companies Act 2006 and confirmed an associated reduction of capital under section 648. The primary legal question was whether the statutory prohibition on reductions of capital for takeover schemes (section 641(2A)) prevented the cancellation scheme, or whether the exception in section 641(2B) for insertion of a new holding company applied. The Court held that section 641(2B) applied despite the existence of a single holder of nominal-value Deferred Shares who would not become a shareholder in the new Jersey parent, because that holder represented a de minimis interest and "substantially all" of the members would be replicated in the new parent.

The judge applied the established Buckley test for sanctioning schemes (statutory compliance; fair representation of the class and bona fides; scheme such that an intelligent and honest member might reasonably approve) and the established criteria for confirming reductions of capital derived from Re Ratners, Re Liberty International and Re Thorn EMI. The Court was satisfied the statutory requirements were met, the explanatory statement adequately explained the proposals, creditors were not prejudiced, and the reduction had a discernible purpose. The Court also noted the practical safeguard concerning clause 2.3 (treatment of "restricted shareholders") and proceeded on counsel's assurance that clause 2.3 would not be applied in any material number of cases without returning to the Court.

The applicant sought orders sanctioning a scheme of arrangement under section 899 and confirming a related reduction of capital under section 648 of the Companies Act 2006. The Scheme would insert a new Jersey holding company (New Man) as parent of the existing group; existing ordinary shareholders of the English Man Group plc would receive ordinary shares in New Man in exchange for their current holdings. The Scheme involved cancellation and reissue of share capital. The Company had 50,000 Deferred Shares held by the Company Secretary which were not included in the Scheme.

The Court was asked to determine (i) whether the reduction was barred by section 641(2A) or fell within the corporate reorganisation exception in section 641(2B), (ii) whether the statutory and equitable tests for sanctioning a scheme were satisfied (the Buckley principles), and (iii) whether the reduction of capital should be confirmed (applying the Re Ratners/Re Liberty/Re Thorn EMI criteria). The Court also noted issues concerning the Scheme's clause 2.3 (which allows New Man to treat certain shareholders as "restricted" and sell shares on their behalf) and the position of US resident shareholders and New Man's intention to rely on section 3(a)(10) of the United States Securities Act 1933.

The Court concluded that the exception in section 641(2B) applied: substantially all members of the scheme company would become members of New Man and the relative proportions of equity holding would be preserved amongst those members; the single holder of Deferred Shares represented an insignificant holding whose exclusion did not defeat the exception. The Court applied the Buckley test and was satisfied the class meeting was properly convened and representative, that the statutory majorities had approved the Scheme, and that an intelligent and honest member could reasonably approve it. On the reduction of capital, the Court found the special resolution had been validly passed, shareholders were treated equitably, the explanatory statement had sufficiently explained the proposals, creditors were not prejudiced and the reduction had a discernible purpose. The Court therefore sanctioned the Scheme and confirmed the reduction. The Court also recorded awareness that New Man would rely on the United States Securities Act 1933 section 3(a)(10) exemption and that the sanction hearing satisfied the fairness requirements for that purpose.

First instance: The Court sanctioned the scheme of arrangement and confirmed the associated reduction of capital. Rationale: the Scheme complied with the statutory requirements under the Companies Act 2006, the exception in section 641(2B) applied notwithstanding the existence of a single holder of Deferred Shares who would not become a shareholder in the new parent, the Buckley criteria for sanction were satisfied, and the criteria for confirming a reduction of capital (valid special resolution, equitable treatment of shareholders, adequate explanation, creditor protection and discernible purpose) were met.