Man Group Plc, Re Companies Act 2006

On a scheme sanction application, the court’s discretion is not a formality. It must be satisfied that the statutory procedure was followed, the class was fairly represented, the statutory majority acted bona fide, and an intelligent and honest class member could reasonably approve the scheme.

A cancellation scheme inserting a new holding company may fall within the exception in section 641(2B) even if a member holding a minuscule amount of shares with no real economic value is not given shares in the new parent. The statutory requirements must be read as a whole and in light of the mischief addressed by the prohibition.

Man Group plc applied for sanction of a scheme under section 899 of the Companies Act 2006. The scheme would insert a new Jersey holding company above the group, with shareholders exchanging their existing ordinary shares for shares in the new parent.

The scheme used a cancellation scheme and associated reduction of capital. A single holder of deferred shares, which technically constituted equity share capital, would not receive shares in the new parent. The central issues were whether the reduction was prohibited by section 641(2A), whether the exception in section 641(2B) applied, and whether the scheme and reduction satisfied the court’s usual sanction criteria.

1. Jurisdiction under section 641(2B). The prohibition in section 641(2A) was aimed at preventing reductions of capital being used as part of takeover schemes. Section 641(2B) created an exception for a corporate reorganisation inserting a new parent undertaking where substantially all members became members of the new parent and held their equity share capital in the same or substantially the same proportions.
2. Section 641(2B) had to be read as a whole. Since subsection (b) expressly contemplated that only substantially all members might become members of the new parent, subsection (c) could not require every member to be included. Nor did it require exact correspondence of holdings. The exclusion of the deferred-share holder, whose shares represented a minuscule proportion of the equity share capital and had no real economic value, did not prevent compliance with section 641(2B)(c). The insignificant and temporary existence of New Man’s subscriber shares likewise did not defeat the exception.
3. Sanction of the scheme. The court applied the established sanction principles. The statutory requirements had been complied with; the class meeting had been fairly convened and the attending members were fairly representative; and there was no reason to doubt the majority’s bona fides or to regard them as coercing the minority.
4. An intelligent and honest shareholder, properly informed, could reasonably regard the scheme as being in his or her interests. The court was not required to conclude that it was the only fair scheme or the best available scheme. Shareholders acting on full information are ordinarily the best judges of their commercial interests.
5. Reduction of capital. The special resolution had been validly passed. The shareholders were treated equitably, the proposals were properly explained, the reduction had a discernible purpose, and the creditors would not be prejudiced. The reduction was therefore confirmed.
6. The court accordingly sanctioned the scheme and confirmed the associated reduction of capital. It was also made aware that New Man would rely on the exemption in section 3(a)(10) of the United States Securities Act 1933.

First-instance decision. No prior appellate decision is stated in the judgment.